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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
-OR-
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-6035
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THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 95-2588754
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121-1199
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (858) 552-9500
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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$1.00 Cumulative Convertible Preferred Stock, $1.00 par New York Stock Exchange
value
Common Stock, $.01 par value
Preferred Stock Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 2000: $2,162,691,969.
Number of shares of Common Stock outstanding as of March 20, 2000 was:
50,618,107.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the 2000 Annual Meeting of Stockholders on May 30, 2000.
(The Company has filed a definitive proxy statement with the Commission within
120 days after the close of the fiscal year pursuant to Regulation 14A). With
the exception of those portions which are incorporated by reference in this Form
10-K Annual Report, the Proxy Statement for the 2000 Annual Meeting of
Stockholders is not deemed to be filed as part of this Report, Parts II and III.
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FORM 10-K
INDEX
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PAGE
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PART I
ITEM 1 Business.................................................... 3
ITEM 2 Properties.................................................. 36
ITEM 3 Legal Proceedings........................................... 37
ITEM 4 Submission Of Matters To a Vote of Security Holders......... 37
PART II
ITEM 5 Market for the Company's Common Equity And Related
Stockholder Matters....................................... 38
ITEM 6 Selected Financial Data..................................... 39
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 39
ITEM 7A Quantitative and Qualitative Disclosures about Market
Risk...................................................... 54
ITEM 8 Financial Statements and Supplementary Data................. 56
PART III
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 88
ITEM 10 Directors and Executive Officers of the Company............. 88
ITEM 11 Executive Compensation...................................... 88
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 88
ITEM 13 Certain Relationships and Related Transactions.............. 88
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 89
Signatures.................................................. 93
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PART I
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA.)
ITEM 1. BUSINESS
Except for the historical information contained in this Annual Report on
Form 10-K, the information contained herein constitutes forward looking
information within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including, in particular, statements about the
Company's plans, strategies and prospects. These statements, which may include
words such as "may," "will," "expect," "believe," "intend," "plan,"
"anticipate," "estimate," or similar words, are based on the Company's current
beliefs, expectations and assumptions and are subject to a number of risks and
uncertainties. Although the Company believes that its beliefs, expectations and
assumptions reflected in these statements are reasonable, the Company's actual
results and financial performance may prove to be very different from what the
Company might have predicated on the date of this Annual Report on Form 10-K.
Some of the risks and uncertainties that might cause such differences are
discussed below and others are discussed under the headings "Business --
Government Contracts," "Business -- Backlog," and "Business -- Risk Factors."
OVERVIEW
The future we believe that we are creating within The Titan Corporation
today is one of entrepreneurship. Titan's most valuable assets are its
employees, who are the source and basis of our technical expertise and
entrepreneurial spirit. We believe that Titan is truly a technology and business
incubator where the significant resources that Titan has to offer can be applied
to the leading-edge technology developed by our employees to create, build and
launch technology-based businesses that address global markets. The key to
Titan's success is through our people, and we endeavor to provide a work
environment where their ideas can come to fruition while generating significant
value for shareholders.
We are a leading diversified technology company that is dedicated to
creating, building and launching technology-based businesses. We believe that we
can quickly focus the necessary resources -- financial, management, marketing,
support infrastructure, capital, etc. -- in response to opportunities, which
enables us to successfully execute this strategy. Titan's formula for executing
our strategy of creating, building and launching technology-based businesses is
as follows:
- Within our Emerging Technologies segment, identify a Titan technology that
is proprietary or leading-edge, which addresses a large, potentially
global market.
- Establish a management team with significant experience and expertise in
the target market industry.
- Set up our newly created business as a wholly-owned subsidiary of The
Titan Corporation with its own employee stock option plan.
- Focus Titan corporate resources on the new business -- financing,
infrastructure, investment banking, etc. -- to accelerate time to market
of the new business.
- At the appropriate time, execute for the new business a spin out (IPO),
spin-off, or sale.
We provide information technology, communications and electron beam food
pasteurization and medical product sterilization systems and services. Through
extensive government-funded research and development activities since 1981 under
contracts totaling in excess of $2 billion, and through a company funded
research and development program, we have accumulated a broad portfolio of
technologies, intellectual property and expertise from which we have developed
new businesses. The core technologies supporting our Titan Scan and Titan
Wireless segments were derived from technologies originally developed for
government applications. We believe that our government contracts business
enhances our
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technical expertise with sophisticated technologies and facilitates our ability
to develop commercial applications. We fund the development of commercial
technologies from our technology base both internally as well as in conjunction
with partners. In 1996, for example, we contributed the core technology to form
Servnow! NetTechnologies, Inc., which was subsequently named IPivot. IPivot
develops software products that improve the performance of server farms, web
sites and software applications. We raised the capital required to fund IPivot
from venture capital sources. In November 1999, we received approximately $42
million in cash for our approximate 8% equity interest when IPivot was acquired
by Intel Corporation. Up to an additional $3 million may be received by Titan
within one year subject to certain post-closing adjustments. We plan to continue
building our technology portfolio, identifying commercial applications and
entering into strategic relationships to further our growth. We believe that
each of our four core businesses -- Titan Systems, Cayenta, Titan Scan and Titan
Wireless -- is well positioned in its respective market for sustained long-term
growth, and our business strategy is to spin these businesses off to become
independent stand-alone public companies.
We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
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SEGMENT SEGMENT DESCRIPTION
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Titan Systems........... Information technology and communications solutions for
defense, intelligence, and other U.S. and allied
government agencies
Cayenta................. Total services provider of comprehensive information
technology solutions for its customers' business
functions, including e-business, finance, accounting,
customer billing and collection, contract management,
supply-chain management and equipment monitoring and
maintenance
Titan Scan.............. Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless.......... Satellite communication systems and services which provide
telephony and Internet access in developing countries
Emerging Technologies... Development of commercial applications for technologies
created by our other business segments through internal
and government-sponsored research and development programs
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Each of our segments has a management team with significant relevant
experience in the segment's particular business and market area. Consistent with
our strategy of aligning management motivation with stockholder interests, each
of our segments (except Emerging Technologies which is not a separate
subsidiary) has its own key employee stock option plan to foster an
entrepreneurial environment.
On February 25, 2000, we consummated a merger with Advanced Communication
Systems, Inc. in a stock-for-stock, pooling of interests transaction. Advanced
Communication Systems provides communications, information systems and aerospace
services and solutions primarily to U.S. government agencies and will be
integrated into the Titan Systems segment.
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We believe that the markets in which we operate are large and growing:
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SEGMENT TARGET MARKET PROFILE
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Titan Systems........... The U.S. government is among the largest buyers of
information technology systems and services in the world.
According to the Government Electronic Industries
Alliance, the U.S. government's information technology
budget for its fiscal year 2000 is expected to be
approximately $34 billion. In a statement to the House
Committee on National Security, Secretary of Defense
William S. Cohen stated that the defense budget will
emphasize advanced information technologies related to
Command, Control, Communications, Computers, Intelligence,
Surveillance and Reconnaissance, or C4ISR.
Cayenta................. Forrester Research projects that the market for business
to business e-business will grow from $43 billion in 1998
to $1.3 trillion in 2003. In addition, International Data
Corporation estimates that the worldwide market for
consulting, design, systems integration, support,
management and outsourcing services associated with the
development, deployment and management of Internet sites
will grow at a five year compounded annual growth rate of
59% from $7.8 billion in 1998 to $78.5 billion in 2003.
Titan Scan.............. With 75.4 billion pounds of meat, including beef, pork and
poultry, produced in the United States in 1999, Titan Scan
estimates that the market for food pasteurization systems
and services could develop to be in excess of $3.0 billion
annually if irradiated foods gain consumer acceptance. If
such consumer acceptance occurs, Titan Scan believes that
meat producers will initially elect to pasteurize a
portion of their ground beef and poultry production. Also,
according to a market research report, the global market
for sterilization services for medical products was
approximately $368 million in 1999.
Titan Wireless.......... In our targeted markets, telephone availability is
relatively low. In 1998, according to the International
Telecommunication Union, countries in our targeted
markets, which represent approximately one-third of the
world's population, had fewer than two subscriber lines
per 100 inhabitants compared to 66.13 in the United
States.
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COMPETITIVE STRENGTHS
We attribute our growth and performance to several factors within each of
our business segments:
TITAN SYSTEMS
LONG STANDING CUSTOMER RELATIONSHIPS. Founded in 1981, Titan Systems has an
extensive history of providing information systems and communications solutions
to defense, intelligence and other U.S. and allied government agencies.
Collectively, Titan Systems' senior management has on average 20 years of
industry experience and has developed long-standing, key customer relationships
across all of the U.S.
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military services and several NATO countries, which has contributed to Titan
Systems' success in securing new contracts.
BROAD SOLUTION CAPABILITIES. Titan Systems has extensive knowledge of the
operations and information systems and communications requirements of the
defense industry and provides a full range of systems engineering and technical
support for the C4ISR initiatives of the Department of Defense, or DoD. Titan
Systems designs, builds, tests, installs and maintains systems that collect,
digitize, compress, transmit, receive, decompress, and display information and
permit their users to analyze data in a secured environment. This ability to
provide full-service solutions, coupled with our employee base of over 1,500
"Secret" and above-cleared personnel, enables us to bid on larger, more
comprehensive C4ISR defense contracts. Advanced Communication Systems' employee
base includes more than 1,300 "Secret" and above-cleared personnel.
PROVEN ACQUISITION STRATEGY. In anticipation of changes in U.S. government
procurement policies toward awarding more comprehensive contracts to meet its
defense-related requirements, we initiated an acquisition strategy in 1997.
Since January 1, 1998, we have acquired and integrated seven defense information
technology companies into Titan Systems. Advanced Communication Systems will
also be integrated into Titan Systems in 2000. We believe the enhanced
technology and personnel resources provided by our acquisitions enable Titan
Systems to serve its customers with comprehensive solutions for their
information systems needs.
CAYENTA
TOTAL SERVICES PROVIDER. As a total services provider, or TSP, Cayenta
delivers comprehensive, tailored solutions to support the management and
automation of its customers' business processes. Cayenta typically delivers
solutions in phases. These solutions may include a thorough evaluation of a
customers' information technology strategy and existing system architecture,
followed by a redesign of components of the architecture. The next phase may
include systems integration, including the delivery of solutions that integrate
a customer's internal systems, such as billing and collections, with a
customer's web site and e-business order processing systems. Cayenta uses its
integration expertise to eliminate the need for manual re-entry of data into
separate systems and to organize and combine data from disparate systems. As
part of the TSP offering, Cayenta also deploys custom configured third party and
proprietary software applications that support the automation and management of
business functions such as managing supply chains and customer relationships.
Cayenta will either license its proprietary software or rent access to the
software as an application service provider. We believe that Cayenta's TSP
offering provides customers with a number of benefits over typical internal
systems that include proprietary applications and third party applications from
different vendors that are not integrated. These advantages include lower and
more predictable costs of capital and operating costs, systems that are more
adaptable, scalable and reliable and more rapid deployment of new systems.
COMPLETE E-BUSINESS SOLUTION. Cayenta integrates customers' web sites with
business support systems and provides its customers with a single point of
contact for managing and monitoring their e-business transactions. Cayenta
integrates a customer's web site and other business support systems with its
proprietary software applications for order processing, catalog management,
customer service, inventory management, order fulfillment, billing, collections,
and account settlement.
REVENUE CYCLE SERVICES OFFERING. Cayenta offers solutions that enable its
customers to address their complex pricing, billing, settlement and supply-chain
requirements. Cayenta's software also provides audit and compliance functions
that accommodate the complex contract terms prevalent in e-business and permit
Cayenta's customers to more effectively monitor their receivables and manage the
fulfillment process.
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INTEROPERABLE AND ADAPTABLE SOLUTIONS. Cayenta uses systems architecture
for service operating systems and application software that permit its customers
to integrate different information technology systems within their organizations
and between their organizations and those of their trading partners. Cayenta's
solutions also are adaptable, accommodating customer technology preferences for
server operating systems, while facilitating accessibility of software
applications over the Internet. Cayenta offers solutions that reduce its
customers' manual and redundant business processes and permit them to add or
change software applications as their businesses evolve.
TAILORED SOLUTIONS FOR CUSTOMERS' BUSINESS PROCESSES. Cayenta has expertise
in its target industries that helps it to define and deliver timely solutions
tailored to its customers' industries and markets. All of Cayenta's solutions
allow customers to supplement standard third party software applications with
additional functions that are tailored to their business needs. Cayenta adds
these functions by using separate software applications that extend the
capabilities of standard software applications.
TITAN SCAN
SUPERIOR ELECTRON BEAM PASTEURIZATION AND STERILIZATION TECHNOLOGY. Titan
Scan provides patented and proprietary systems and services which pasteurize
food and sterilize medical products in an efficient, safe and environmentally
friendly manner. The market for pasteurization and sterilization systems has
historically been served by two technologies -- Gamma and etholene oxide, or
EtO. We believe Titan Scan's proprietary electron beam process, or SureBeam
system, which uses commercial electricity as its source of power, is superior to
Gamma and EtO technology because it:
- requires significantly less processing time;
- poses no known environmental risks;
- may result in reduced product degradation; and
- can be introduced directly into a food processor's or manufacturer's
production line and is scalable to meet customer processing requirements.
Gamma and EtO technologies require the handling and use of hazardous
materials. Other costs associated with Gamma and EtO typically include the cost
of transporting the product from the customer's production site to the Gamma or
EtO facility, and the associated inventory carrying cost. We believe our
SureBeam systems offer a reliable, efficient, more environmentally acceptable
and generally superior alternative to Gamma and EtO.
REGULATORY CLEARANCE FOR SUREBEAM TECHNOLOGY. In December 1997, the Food
and Drug Administration, or FDA, approved irradiation of meat, finding that
irradiation of meat, at its recommended doses, does not diminish the food's
nutritional value in any detectable way. In December 1999, the U.S. Department
of Agriculture, or USDA, issued regulations setting forth guidelines for the
irradiation of meat.
EXCLUSIVE CUSTOMER ARRANGEMENTS. Titan Scan has executed multiyear
arrangements with many of the major poultry and meat providers and producers in
the United States, including Cargill, IBP, Tyson Foods, Emmpak and Huisken
Meats, among others. These companies produced approximately 75% of the 25.8
billion pounds of beef and approximately 43% of the 75.4 billion pounds of meat,
including beef, pork and poultry, produced in the United States in 1999. Titan
Scan believes that if irradiated foods gain market acceptance, these producers
will initially elect to pasteurize a portion of their ground beef and poultry
production. Titan Scan's multiyear arrangements with its customers generally
provide that it will be the exclusive provider of electronic pasteurization
services whenever any of these companies elect to use pasteurization technology.
In addition, at Cloverleaf Cold Storage's facility in Sioux City, Iowa, Titan
Scan has built the first electron beam pasteurization facility in the United
States, and also has arrangements with Zero Mountain Cold Storage, Mitsubishi
and Hawaii Pride to build similar facilities.
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TITAN WIRELESS
SOLUTIONS ARE WELL-SUITED TO TARGET MARKETS. Telephone service for remote
areas of many developing countries has not been practical for a number of
economic and technical reasons. In our targeted markets, primarily rural and
emerging areas around the globe, telephone availability is relatively low. In
1998, according to the International Telecommunication Union, countries in our
targeted markets, which represent approximately one-third of the world's
population, had fewer than two subscriber lines per 100 inhabitants compared to
66.13 in the United States. Titan Wireless has designed a network of fixed-site
satellite terminals that provide cost-effective telephone, facsimile and data
communications services to areas not previously served by developing countries'
national public switched telephone networks, or PSTNs. These solutions are
well-suited to conditions in developing countries, which are Titan Wireless'
target markets, because they combine the following characteristics:
LOW OPERATING COSTS. Titan Wireless' telephony products utilize its
DAMALink network management software system, which allows for multiple
simultaneous users to efficiently access the same satellite channel,
resulting in "space segment" cost savings and improved operational
flexibility.
CONNECTS TO NATIONAL AND INTERNATIONAL TELEPHONE NETWORKS. Titan
Wireless' telephony system is one of the first revenue generating systems to
provide a direct connection to a country's PSTN. This system makes it
possible for telephone calls to be placed from remote terminals to any phone
within the country through a national PSTN and any phone in the world
through an international PSTN.
SCALABLE AND ADAPTABLE. Titan Wireless' telephony systems are scalable
to provide the capacity required to meet a specific location's
communications needs. In addition, the core technologies and designs of
Titan Wireless' telephony terminals can be adapted for private commercial
networks.
ACCOMMODATES A VARIETY OF POWER SOURCES. Titan Wireless' ground
terminals are capable of operating on a wide range of locally available
power sources. For example, its Xpress Connection is capable of operating on
solar power.
STRONGLY POSITIONED THROUGH STRATEGIC ALLIANCES. Titan Wireless develops
and markets its telephony products through strategic alliances in developing
countries in Africa, Latin America, the Middle East and Asia. Through its Sakon
joint venture, Titan Wireless is currently building out a ground infrastructure
networked of hubs, gateways and VSATs (Very Small Aperture Terminals), all of
which are interconnected through geosynchronous orbit satellites. We are also
planning on providing voice over IP (Internet Protocol) and Internet services
over the network. Through this network, Titan and Sakon are currently providing
long distance telecommunications services in ten developing countries, and
expects to provide long distance telecommunications in at least twenty to
twenty-five additional locations.
EMERGING TECHNOLOGIES AND BUSINESSES
PROVEN ABILITY TO TRANSITION OUR TECHNOLOGY TO COMMERCIAL BUSINESSES. Titan
has over 130 patents worldwide. Emerging Technologies introduces new commercial
applications from our rich technology portfolio, superior research and
development capabilities and stream of government-funded projects. This is where
we build technology-based businesses prior to establishing these businesses as
stand-alone segments. The core technologies supporting Titan Scan and Titan
Wireless were created from technologies originally developed for government use.
In 1996, we contributed the core technology to form Servnow!
NetTechnologies, Inc., which is now known as IPivot. In November 1999, as a
result of the acquisition by Intel Corporation of IPivot, we received
approximately $42 million for our approximate 8% equity interest, for which the
entire amount was recorded as a gain. Up to an additional $3 million may be
received by Titan within one year subject to certain post-closing adjustments.
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BUSINESS STRATEGY
We believe a key element of Titan's success is our innovative use of
technology that provides comprehensive, efficient solutions to our government
and commercial customers. We believe that our sophisticated technical abilities
will allow us to expand our customer base, improve our operating results and
continue to grow.
Our objectives are:
- to enhance our leading position in providing information technology and
communications solutions to defense, intelligence and other U.S. and
allied government agencies; and
- to further our strong track record of commercializing proprietary
technologies designed to serve global markets.
To achieve these objectives, we intend to pursue the following strategies:
MAINTAIN TECHNOLOGY LEADERSHIP. Since inception, we have received
substantial government funding to conduct research and development and
create advanced information technology solutions and communications systems
for government uses. Based largely on activities that have been supported by
government funding, we have created a diversified portfolio of technology
and developed many of our commercial businesses, like Titan Scan and Titan
Wireless. We will continue to bid for government-funded research and
development work and government contracts that we believe will expose our
technical personnel to sophisticated technologies, challenge their skills,
and increase their abilities to transition systems and solutions developed
for the government to commercial applications. We will also continue to
actively seek acquisition candidates whose technology portfolio and
personnel resources complement and supplement our own. We believe that these
efforts, combined with our extensive expertise and capabilities, will allow
us to further our government relationships and position us to win new
government contracts, while also strengthening our ability to provide
systems and solutions to commercial customers in a variety of markets. We
will continue to invest the resources necessary to maintain our position as
a leading-edge technology company.
PURSUE STRATEGIC TRANSACTIONS. Our acquisition program is a key
component to our overall business strategy. We believe the enhanced
technology and personnel resources which our acquisitions have provided
enable us to complete larger, more comprehensive government contracts and to
market our services to new customers. To further our growth and enter new
markets, we intend to pursue strategic acquisitions of complementary
businesses, technologies and products. We plan to achieve operating
efficiencies and cost savings following our acquisitions through
centralization of strategic planning, corporate development, administrative,
financial and other services. We also intend to pursue strategic alliances,
primarily to access new customers and establish additional channels of
distribution for our core businesses and technologies.
GROW PROFITABLY. We are dedicated to growing our business and enhancing
our profitability. We have instituted successful cost reduction programs for
each of our acquired companies and continually seek opportunities to improve
our operating margins. In early 1997, we implemented a streamlining process
for our administrative functions. This process focused on eliminating
redundancies and resulted in increased efficiencies and reduced
infrastructures and costs. We plan to continue implementing similar
initiatives and to improve cash flow through enhanced receivables management
and overall operational efficiency.
PURSUE INITIAL PUBLIC OFFERINGS FOR CORE SUBSIDIARIES. We intend to
finance the growth of Cayenta, Titan Scan and Titan Wireless by obtaining
public or private financing, including through initial public offerings of
common stock of these segments. To the extent possible, we intend to
structure these initial public offerings in order to preserve the ability to
later distribute the stock we retain in these segments to our stockholders
on a tax-free basis. Under existing law, we must own at least 80% of the
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total voting power and 80% of any class of nonvoting capital stock of a
subsidiary to be able to effect a tax-free distribution of a subsidiary's
stock. In addition, both Titan and the subsidiary must meet numerous other
requirements under the Internal Revenue Code, including requirements
relating to the subsidiary's operating history and the subsidiary must have
a business purpose for the spin-off distribution. To date, our subsidiary
Cayenta has filed a registration statement for an initial public offering of
its stock. If the offering is completed, we have no present intention of
distributing our Cayenta shares to the Titan stockholders. With the
exception of Cayenta, our new credit facility currently does not permit us
to distribute the stock of our subsidiaries to Titan stockholders without
consent of the lenders. Our new credit facility also requires that if we
complete an offering of securities of a subsidiary, with the exception of
Cayenta, we must pay down the credit facility by the amount of the net
proceeds of the offering unless otherwise required. We believe that we
should be able to obtain the lenders' consent, or otherwise arrange to
distribute the stock of our subsidiaries as necessary. As a result of the
foregoing factors and other factors, we may not be able to distribute
interests in these segments to our stockholders.
OPERATING SEGMENTS
TITAN SYSTEMS
OVERVIEW. Titan Systems provides comprehensive information systems
solutions to defense, intelligence, and other U.S. and allied government
agencies with sophisticated data management, information processing, information
fusion, knowledge-based systems and communications requirements. Titan Systems
also develops and manufactures digital imaging products, electro-optical
systems, threat simulation/ training systems and intelligence electronic
hardware primarily used in defense and intelligence applications. Titan Systems
also installs, tests and maintains all of these specialized products. In
addition, Titan Systems develops and delivers defense communications products to
the U.S. military and allied governments.
INDUSTRY OVERVIEW. The U.S. government is among the largest buyers of
information technology systems and services in the world. According to the
Government Electronic Industries Alliance, the U.S. government's information
technology budget for its fiscal year 2000 is expected to be approximately $34
billion. In a statement to the House Committee on National Security, Secretary
of Defense William S. Cohen stated that the defense budget will emphasize
advanced information technologies related to Command, Control, Communications,
Computers, Intelligence, Surveillance and Reconnaissance, or C4ISR. The U.S.
government's focus on information technology reflects the critical role that
this capability plays both in national security and in improving government
efficiency. The U.S. military is placing greater emphasis on increasing
productivity while using fewer resources by employing systems that act as "force
multipliers." To further this strategy, military agencies are relying on
communications products and systems that provide secure, reliable and efficient
transmission of voice and data in demanding environments. Additionally, the
government is increasingly using open systems that incorporate commercial
off-the-shelf products, which are generally less expensive and more available
than products specifically designed for military purposes, to minimize the
impact of the shrinking defense budget.
STRATEGY. Titan Systems' objective is to be the premier provider of
information technology and communications solutions to defense, intelligence and
other U.S. and allied government agencies. To achieve this objective, Titan
Systems intends to pursue the following strategies:
FURTHER TECHNOLOGY ADVANTAGE. Titan Systems has received in excess of
$2 billion in government funds, the majority of which have been directed
towards the research and development of advanced information technology and
communications systems and solutions. Titan Systems' successful track record
with research and development projects has helped us create a diversified
portfolio of technology and obtain additional research and development
funding. We believe that, because of Titan Systems' expertise and
capabilities with a wide range of technologies, it is well positioned to
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provide information technology and communications systems and services to
its customers. Titan Systems will seek to maintain this advantage by keeping
pace with new developments in technology, by continuing to compete for
contracts that require high-quality, sophisticated technical solutions, and
by continuing to make strategic acquisitions that bring it additional
technology and enhance its overall solutions capabilities.
BUILD UPON OUR COMPETITIVE STRENGTHS IN THE DEFENSE MARKET. Founded in
1981, Titan Systems has an extensive history of providing information
systems and communications solutions to defense and intelligence-related
government agencies. Through this experience, we have established a broad
base of customer relationships, comprehensive information systems and
communications solutions, extensive intellectual property and more than
1,500 "Secret" and above cleared personnel. Advanced Communication Systems'
employee base includes more than 1,300 "Secret" and above-cleared personnel.
We intend to build upon these competitive strengths to further existing
customer relationships and to secure new opportunities.
PURSUE STRATEGIC ACQUISITIONS. Strategic acquisitions are a key
component to Titan Systems' overall business strategy. We believe that the
enhanced technical and personnel resources resulting from our recent and
pending acquisitions will enable Titan Systems to provide more comprehensive
information technology solutions to serve its customers' needs. We intend to
continue to pursue strategic acquisitions of complementary businesses,
technologies and products that will enable Titan Systems to expand further
its existing businesses and to gain access to new markets, technologies, and
products.
SERVICES AND PRODUCTS
INFORMATION SYSTEMS SOLUTIONS. Titan Systems' information technology
solutions and services include systems analysis and design, object-oriented
software development services and systems integration. Titan Systems' initial
work in this area generally involves a joint analysis of the customer's
enterprise structure and processes and information system needs. Once this
analysis is completed, Titan Systems provides process re-engineering and designs
the technology solution to meet the customer's needs. This process typically
involves software development by Titan Systems, coupled with integration of
commercial off-the-shelf software and hardware as available. Titan Systems 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. As a result of
the complex nature of Titan Systems' customer solutions, its engagements often
are long-term and involve follow-on contracts. Titan Systems markets its
information systems solution services to military and intelligence agencies of
the U.S. government, countries within NATO and other U.S. defense partners
worldwide.
Examples of Titan Systems' information systems solution services and
products include the following:
- NATO INFORMATION SYSTEMS. Titan Systems' initial contract with NATO
provided for the design and delivery of an integrated secure
communications and information system for automated support of data
transfer between intelligence sites throughout Europe. Titan Systems has
since won NATO's three follow-on command and control system contracts and,
to date, has been NATO's primary contractor for its command and control
systems.
- JOINT INTEROPERABILITY TEST COMMAND C4I SUPPORT. Titan Systems supports a
wide range of the Joint Interoperability Test Command's Command, Control,
Communications, Computers and Intelligence, or C4I, information systems
initiatives under a $141 million five-year contract. Its activities in
support of these initiatives include planning, conducting, evaluating and
reporting all C4I testing, as well as designing, developing, engineering
and acquiring selected items of equipment, instrumentation and systems
used in the testing process.
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- SUPPORT OF JOINT STARS AIRCRAFT AND GROUND SYSTEMS. Titan Systems supports
a variety of research and development and test and evaluation efforts on
the Joint Surveillance Target Attack Radar System, or STARS, aircraft and
related ground systems. This contract is the latest in a series of sole
source and competitive awards under which Titan Systems has provided
engineering services to the Joint STARS Joint Task Force since its
inception. Titan Systems was awarded this $49 million "indefinite
delivery, indefinite quantity" labor hour contract in April 1997. Under
this contract, Titan Systems provides the following: flight test
engineering and test mission planning, test engineering, operations and
ground/flight execution support, test management, computer operations,
configuration management, human factors engineering, administrative
support, logistics support, computer analysis and modeling, resource
management, and prototyping in support of test and contingency operations.
- FAA SYSTEM ENGINEERING. Titan Systems has been instrumental in providing
high quality technical support and services and related infrastructure to
the FAA's National Airspace System, or NAS, modernization program. Under
this five-year contract awarded in 1999, Titan Systems provides engineers,
mathematicians, computer scientists and other technical personnel to
support high fidelity simulations and to perform technical studies and
evaluations for the NAS's system engineering and laboratory development
operations.
COMMUNICATIONS PRODUCTS. Titan Systems designs and develops its
communications products using an approach that is similar to the approach it
uses to design, develop and implement its information technology solutions and
services. Titan Systems offers a range of turnkey, fully functional line of
defense communications products. Examples of Titan Systems' communications
products include the following:
- DAMA PRODUCTS. Titan Systems' Demand Assigned Multiple Access, or DAMA,
products combine low cost, low power, reduced weight and size, and reduced
component count for high reliability. Each of Titan Systems' DAMA products
has been developed with an open-architecture format that allows future
upgrades and enhancements to be provided as communications needs evolve,
and are designed to support commercial off-the-shelf components. Titan
Systems markets its DAMA products directly to all branches of the U.S.
military, its allies and international companies that supply such allies,
and also works with strategic partners such as Motorola Corporation to
incorporate its technologies into their products.
- SIGNAL INTELLIGENCE MANPACK SYSTEMS. Titan Systems provides small, low
weight communications intercept and direction finding Manpack systems to
U.S. special forces under a contract with the U.S. Special Operations
Command. An incumbent on this program for 10 years, these systems are worn
by individual soldiers and used to intercept and exploit enemy signals for
force protection and early detection of enemy location. Manpacks are
designed to operate and survive in urban, forested and desert terrain
battlefield environments.
ADVANCED COMMUNICATION SYSTEMS ACQUISITION. Advanced Communication Systems
provides a wide range of technology services and solutions, predominantly to
U.S. government as well as to commercial customers. Advanced Communication
Systems operates primarily in three interrelated areas:
- COMMUNICATION SERVICES. Advanced Communication Systems' communication
services include the design, development, integration and implementation
of complete communications solutions across the full spectrum of media,
ranging from land lines to wireless technologies, with particular
strengths in satellite communication services, information systems and
aerospace services.
- INFORMATION SERVICES. Advanced Communication Systems' information services
include the design and installation of and support services for
information management and local area network/wide area network systems,
as well as multimedia training, Internet/intranet solutions and database
support.
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- AEROSPACE SERVICES. Advanced Communication Systems' aerospace services
include systems engineering, life-cycle support, and program management
services for a broad range of military systems.
We acquired Advanced Communication Systems for the following reasons:
- the acquisition will result in a significant increase in our revenues and
cash flow;
- we acquired technical personnel with skills and expertise that are in
great demand as well as applicable to technologies and products that are
complementary to our own;
- the increased technical and personnel resources of Titan Systems resulting
from the acquisition will enable it to better serve the defense industry
and complete larger and more comprehensive contracts; and
- the acquisition will provide us with additional U.S. Navy and U.S. Air
Force contracts and otherwise allow us to increase our customer base.
CONTRACT PROFILE
TITAN SYSTEMS. Titan Systems is one of a select group of qualified
suppliers of information technology solutions and services to the U.S.
government under multiple long-term contract vehicles. Titan Systems is
currently performing work under approximately 520 contracts. No single Titan
Systems contract accounted for more than 6.0% of our total 1999 revenues, and no
single Titan Systems or Advanced Communication Systems contract accounted for
more than 4.0% of our 1999 revenues combined with Advanced Communication
Systems' fiscal 1999 revenues. Of Titan Systems' total government revenues in
1999, approximately 31% were generated by time and materials contracts,
approximately 48% were generated by cost reimbursement contracts, and
approximately 21% were generated by fixed-price contracts.
ADVANCED COMMUNICATION SYSTEMS. Advanced Communication Systems also
maintains a diversified government contract base. Advanced Communication Systems
is currently performing work under approximately 120 contracts. Two of Advanced
Communication Systems' contracts accounted for approximately 12.3% of its fiscal
1999 revenues. In its fiscal year 1999, approximately 32% of Advanced
Communication Systems' revenues were generated by time and materials contracts,
approximately 45% of its revenues were generated by cost reimbursement
contracts, and approximately 23% of its revenues were generated by fixed-price
contracts.
BACKLOG. Titan Systems and Advanced Communication Systems possess a
substantial backlog of contracts that provide multiyear revenues. Most of their
contracts generate revenue over a one to five-year period. In the past, Titan
Systems and Advanced Communication Systems have generally been successful in
expanding the scope of their principal contracts by offering more comprehensive
information technology solutions. On a pro forma basis which reflects our
acquisition of Advanced Communication Systems, Titan Systems' had an estimated
total funded contract backlog of $226 million and a total unfunded contract
backlog of $691 million as of December 31, 1999.
These backlog amounts consist of "funded" backlog, which is based upon
aggregate contract revenues remaining to be earned by Titan Systems or Advanced
Communication Systems 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 the aggregate contract
revenues expected to be earned as customers incrementally allot funding to
existing contracts, whether Titan Systems or Advanced Communication Systems is
acting as a prime contractor or subcontractor, and the aggregate contract
revenues to be funded on contracts which have been newly awarded to Titan
Systems or Advanced Communication Systems.
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Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. Titan Systems' and Advanced
Communication Systems' backlog is typically subject to large variations from
quarter to quarter as existing contracts are renewed or new contracts are
awarded. Additionally, all United States government contracts included in
backlog, whether or not funded, may be terminated at the convenience of the
United States government.
CAYENTA
OVERVIEW. Cayenta is a total services provider, or TSP, of comprehensive
information technology solutions for its customers' business functions. As a
TSP, Cayenta expands upon the delivery and hosting of standard third party
software application packages generally provided by companies called application
service providers. Cayenta's solutions combine standard and proprietary software
applications that Cayenta tailors for its customers' business processes with
operational, hosting, management and support services that Cayenta provides for
those software applications. Cayenta's solutions address the following business
processes of its customers: e-business, finance, accounting, customer billing
and collection, contract management, supply-chain management and equipment
monitoring and maintenance. Cayenta's solutions are scalable and reliable.
Cayenta's solutions also operate with its customers' existing internal systems
and with those of their trading partners and provide its customers with a single
source of contact for their information technology requirements, including their
e-business information technology requirements.
INDUSTRY OVERVIEW. The rapid growth of the Internet and increased frequency
of e-business transactions is creating significant new opportunities and
challenges for businesses. Businesses are using the Internet to improve
communications internally and with their trading partners, to enhance
operational efficiencies and to strengthen customer relationships. The impact of
the Internet encompasses both business-to-business and business-to-customer
transactions. Forrester Research, an independent research firm, projects that
the market for business-to-business e-business will grow from $43 billion in
1998 to $1.3 trillion in 2003 while business-to-consumer e-business will grow
from $8 billion to $108 billion over the same period.
The complexity of e-business transactions has accelerated with the
widespread adoption of the Internet and the need for business to business
exchanges. For example, these transactions frequently contain complex billing
and settlement terms that involve multiple parties who participate in the supply
and fulfillment chain. Tracking these payments and settlements requires scalable
and reliable information technology systems that facilitate the flow of
information both within organizations and externally. Businesses face
significant challenges in their efforts to capitalize on the opportunities
presented by the Internet, including:
- developing comprehensive end-to-end e-business solutions that link web
sites with accounting and fulfillment systems and accommodate and account
for complex billing, settlement and supply-chain transactions;
- tailoring standard software applications to their business processes while
ensuring that these applications are compatible with those of their
trading partners;
- solving integration and compatibility issues caused by the patchwork of
legacy systems that businesses often implemented without a focused
information technology strategy;
- integrating data from disparate systems to increase its value; and
- adopting and integrating new and rapidly changing technologies while
preserving investments in existing systems.
Companies must meet these challenges while overcoming a number of obstacles,
including:
- capital constraints and total cost of ownership;
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- technological obsolescence of many current systems;
- ensuring that e-business applications are available at all times;
- meeting increased online customer service demands; and
- attracting and retaining qualified information technology professionals.
International Data Corporation, an independent research firm, expects the
worldwide market for Internet services to grow at a five-year compounded annual
growth rate of 59% from $7.8 billion in 1998 to $78.5 billion in 2003.
International Data Corporation defines Internet services as the consulting,
design, systems integration, support, management and outsourcing services
associated with the development, deployment and management of Internet sites.
Many businesses currently have to juggle multiple software applications,
systems integrators and service vendors to address their e-business challenges.
Most information technology companies specialize in only a single aspect of
services delivery, such as web design, software application development, systems
integration or hosting of commercially available software applications. For
example, application service providers generally only host and manage standard
third-party software applications at a centrally managed facility. We believe
that the complexity of combining all of these elements from different providers
makes it difficult for businesses to implement e-business solutions in a
cost-effective and timely manner.
Accordingly, we expect that businesses will increasingly demand that
information technology services companies understand their business processes
and deliver a tailored solution that combines strategies for improving business
processes with systems integration, hosting and support. Cayenta believes that
this demand is largely unmet in the information technology service provider and
application service provider marketplaces.
STRATEGY. Cayenta's objective is to be the leading TSP. To achieve this
objective, Cayenta intends to pursue the following strategies:
BUILD ITS TSP CUSTOMER BASE. Cayenta intends to market its TSP offering
to existing customers of its software applications or other elements of its
TSP offering as they replace or upgrade their information technology systems
and increase their e-business activities. Cayenta will also market its TSP
offering to new customers by developing an industry-focused direct sales
force specializing in TSP sales. Cayenta will provide special incentives to
its sales force to increase sales of its TSP offering to existing customers
of its software applications or other elements of its TSP offering. Cayenta
also intends to create new sales channels for its TSP offering by developing
relationships with hosting companies and third-party software providers.
Cayenta believes its TSP offering will allow it to establish stronger
relationships with customers, provide a recurring revenue stream, and enable
it to sell additional services.
CONTINUE TO ENHANCE ITS TSP OFFERING. Cayenta intends to expand the
functions provided by its TSP offering by establishing centers where it will
monitor, manage and support its customer solutions, including elements of
those solutions provided by third parties. Cayenta also intends to establish
additional facilities near its customers where its customers will
collaborate with Cayenta in developing a customer-specific TSP offering.
Cayenta further intends to enhance its TSP offering by adding functions to
that offering to address other business processes, such as customer
relationship management. Cayenta plans to add these new functions by
establishing strategic alliances and entering into supply and service
agreements with industry and technology leaders as well as by enhancing its
current software applications.
TARGET SPECIFIC INDUSTRIES. Cayenta targets industries with complex
business processes and related information technology. Cayenta currently has
expertise in multiple industries, including utilities,
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telecommunications and retail. Cayenta intends to further penetrate these
industries by establishing strategic alliances and joint ventures with
industry leaders and by hiring senior executives from within these
industries. As part of these efforts, Cayenta intends to engage in joint
development with industry participants of information technology solutions
for their industries and also enter into joint arrangements with customers
to resell these solutions for elements of them that have been developed for
these customers. For example, through a joint venture, Cayenta provides TSP
services to that joint venture's customers in the utility industry. Cayenta
expects that these ventures will provide it with opportunities to broaden
its technical offerings and to create new sales and marketing channels.
Cayenta believes that focusing on several specific industries provides it
with a competitive advantage in developing solutions for those industries,
and expands its market coverage while decreasing its dependence on
individual industries.
PROMOTE THE CAYENTA BRAND. Cayenta's goal is to create brand
recognition of Cayenta as the leading TSP. To promote its brand, Cayenta
intends to expand its corporate marketing and advertising efforts, with the
specific objective of targeting selected industries. Cayenta believes
establishing the Cayenta brand will enable it to market its TSP offering
more effectively and to differentiate it from its competitors.
PURSUE RESCUE MISSIONS. Cayenta plans to provide rescue services for
customers faced with failing information technology projects and to use
these rescue projects to establish long-term customer relationships. Cayenta
believes that providing these solutions and services will result in
sustained revenues and future opportunities to sell its TSP offering.
ATTRACT AND TRAIN QUALIFIED PERSONNEL. To expand its business and
satisfy anticipated increases in customer demand for its TSP offering,
Cayenta intends to aggressively recruit new staff. Cayenta also may add new
staff through strategic acquisitions. Cayenta believes opening new
facilities that allow it to support its customers locally will relieve its
staff's travel burdens and be attractive to potential technical and
consulting employees.
CONTINUE TO DEVELOP CORE COMPETENCIES. Cayenta will expand its
expertise in building and deploying software applications and in integrating
its customers' internal information technology systems with one another and
those of their trading partners. Cayenta intends to continue incorporating
technologies that support its customers' complex computing needs into both
standard and tailored software applications that Cayenta designs and
implements for customers. These technologies include Internet and portal
applications, data warehouses and custom client server and distributed
systems. Cayenta seeks out and tests new technologies as part of its
internal research activities and in conjunction with customer projects.
Cayenta augments its software offerings by utilizing open source software
that is published publicly and available for reuse from other Internet-based
software development initiatives. Cayenta's ability to successfully
implement solutions based on leading technology enables it to gain insight
into the relative strengths and weaknesses of competing technologies and to
sell value-added consulting and system integration services.
SERVICES. Cayenta is a TSP of comprehensive information technology
solutions for its customers' business functions. As a TSP, Cayenta expands upon
the delivery and hosting of standard third party software application packages
generally provided by companies called application service providers. Cayenta's
solutions combine standard and proprietary software applications that Cayenta
tailors for its customers' business processes with operational, hosting,
management and support services that Cayenta provides for those software
applications. Cayenta solutions address the following business processes of its
customers: e-business, finance, accounting, customer billing and collection,
contract management, supply-chain management and equipment monitoring and
maintenance.
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Cayenta has a well-defined approach that enables it to deliver
cost-effective and timely solutions. This approach is grounded on reusable
processes and software applications, including industry-specific templates, and
the use of Cayenta facilities to develop solutions in collaboration with
customers. These facilities afford the collaborating Cayenta/customer team
complete access to Cayenta's reusable processes, software applications and
industry-specific templates. Cayenta has expertise in multiple industries,
including utilities, telecommunications and retail, and intends to further
penetrate these industries by establishing strategic alliances and joint
ventures. Cayenta has also entered into supply and service agreements with
leading providers of software, hardware and other elements of its TSP offering.
The following examples are representative of the information technology
challenges that Cayenta has addressed, and the solutions it has provided to its
customers.
- Sempra Energy Challenge:
To facilitate the integration of the information technology operations of
two large utilities that merged and create an information technology solution
for operations in the deregulated industry.
CAYENTA SOLUTION. As an initial step, Cayenta developed software
operating tools to support Sempra's migration from a mainframe-based system
to a system that distributes processing and applications to servers,
mainframes and desktops. Cayenta then linked SAP supply chain management
software with Sempra Energy's mainframe-based software systems in less than
200 days, developed a new billing and contract management system for the
utility environment, and deployed Internet business applications for Sempra
Energy. Cayenta also created training and mentoring programs to assist
Sempra Energy's information technology staff.
- Energy America Challenge:
To build in under eight weeks a comprehensive information technology
solution to manage the revenue generating transactions and third party
settlement transactions for a rapidly growing retailer of gas and electricity,
and to provide ongoing operational support, through Soliance, LLC, a joint
venture partner, as a TSP.
CAYENTA SOLUTION. Cayenta provided customer enrollment, contract
management, and customer billing and care software applications to Energy
America that are reusable and facilitate its entrance into new markets.
Cayenta also integrated Energy America's information technology systems for
accounting and wholesale commodity purchases with the information technology
systems of its banking, utility, and printing service providers. Cayenta
assists Energy America in developing new rates, resolving customer disputes,
and performing analysis of its operations. Energy America uses this analysis
both for internal use as well as to help satisfy certain regulatory
requirements.
- Federal Aviation Administration Challenge:
To create a unified information system to monitor and analyze the status of
the U.S. air traffic control system for the FAA.
CAYENTA SOLUTION. Cayenta developed a web based software application
that utilizes its systems integration, data warehousing, and web technology
to link major information systems of the FAA. These systems integrate and
organize data from the FAA's disparate operational and reporting systems,
enabling a consolidation and a segmentation of data that allows the FAA to
gain insight on the operating performance of the U.S. air traffic control
system. These solutions are accessible on the FAA's intranet using standard
browser technology.
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- Waste Management Challenge:
To provide Waste Management with scalable information technology systems
that integrate operations resulting from its merger and acquisition activity.
CAYENTA SOLUTION. In one week, Cayenta created web-based tracking and
status tools that enable Waste Management to monitor financial and key
operational measures. Cayenta also provided a complete information
technology blueprint to enhance Waste Management's information technology
environment, including recommendations for software applications, system
integration, system management tools, data architecture, and Internet
strategy. Cayenta also recommended improvements in Waste Management's
revenue cycle management process. Cayenta continues to build and deploy
Internet solutions to help Waste Management better manage its core
operations.
- 800.com Challenge:
To create a scalable end-to-end e-business solution for a leading Internet
retailer of consumer electronics and home entertainment products.
CAYENTA SOLUTION. Cayenta installed its e-business software
applications for order processing and 800.com's revenue generating
transactions and integrated those software applications with 800.com's web
site and back-end accounting and fulfillment systems. This solution reduced
800.com's manual business processes, and enables it to handle over 10,000
orders per day, reduce its manual business processes and provide customer
care over the Internet and through its call centers. With Cayenta's
solution, 800.com can recognize and process an order as soon as it is
placed.
TITAN SCAN
OVERVIEW. Titan Scan utilizes its patented electron beam technology to
provide food pasteurization turnkey systems and services to the food processing
industry and sterilization systems and services to medical product
manufacturers. Titan Scan developed its proprietary electron beam pasteurization
and sterilization process from technology developed during our involvement in
the Strategic Defense Initiative, or "Star Wars," program of the 1980s. Titan
Scan's electron beam process disrupts the DNA structure of microorganisms on or
within the product being pasteurized or sterilized. We believe that our patented
electron beam pasteurization and sterilization systems, or SureBeam systems,
which use commercial electricity as their source of power, offer a reliable,
efficient, more environmentally acceptable and generally superior alternative to
their principal competition, Gamma and EtO.
Titan Scan has executed multiyear arrangements with many of the major
poultry and meat providers and producers in the United States, including
Cargill, IBP, Tyson Foods, Emmpak, and Huisken Meats, among others. These
companies produced approximately 75% of the 25.8 billion pounds of beef and
approximately 43% of the 75.4 billion pounds of meat, including beef, pork and
poultry, produced in the United States in 1999. Titan Scan believes that if
irradiated foods gain market acceptance, these producers will initially elect to
pasteurize a portion of their ground beef and poultry production. Titan Scan's
multiyear arrangements with its customers generally provide that it will be the
exclusive provider of electronic pasteurization services whenever any of these
companies elect to use pasteurization technology.
INDUSTRY OVERVIEW. Although contaminated food is one of the most widespread
health problems in the world, lack of regulatory approval and consumer
acceptance historically have limited the development of the market for
electronic food pasteurization. In December 1997, the FDA approved irradiation
of meat, finding that irradiation of meat, at its recommended doses, does not
diminish the food's nutritional value in any detectable way. In December 1999,
the USDA issued regulations setting forth guidelines for the irradiation of
meat. We believe our SureBeam technology meets these regulations. Subject to
consumer acceptance of irradiated foods, Titan Scan estimates that the U.S.
market for food pasteurization systems and services could develop to be in
excess of $3.0 billion annually. If such consumer
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acceptance occurs, Titan Scan believes that meat producers will initially elect
to pasteurize a portion of their ground beef and poultry production.
Commercial sterilization of medical products began in the early 1960s.
Government regulations in the United States and many other countries require
medical products to be sterile or to have minimal microbial levels. Accordingly,
sterilization has become an essential step in the manufacturing process for
medical products in many countries throughout the world. In order to provide
safe products and to comply with applicable government regulations,
manufacturers generally have either developed internal sterilization
capabilities or have outsourced their sterilization needs through service
contracts. According to a market research report, the global market for
sterilization services for medical products was approximately $368 million in
1999.
STRATEGY. Titan Scan's objectives are to be the world's leading provider of
food pasteurization systems and services, and to increase its presence as a
provider of sterilization services for medical product manufacturers. To achieve
these objectives, Titan Scan intends to pursue the following strategies:
BUILD STRATEGICALLY LOCATED FACILITIES. Titan Scan intends to continue
to build food pasteurization facilities that provide electron beam
pasteurization services in strategic locations that are near major producers
or providers of beef, chicken, fruits or vegetables. For example, our
facility in Sioux City, Iowa is located in proximity to several leading meat
producers, including IBP and Cargill. We expect that building facilities in
strategic locations will accelerate the development of a market for food
pasteurization services.
INSTALL MORE TURNKEY FOOD PASTEURIZATION SYSTEMS. We intend to sell or
lease turnkey food pasteurization systems directly into customer production
lines. Where feasible, we intend to enter into strategic relationships where
we will receive equity in the production line's operator and/or continued
service revenues in exchange for providing our pasteurization products and
services.
DEVELOP NEW OPPORTUNITIES FOR SUREBEAM. While currently focused on
pasteurizing beef, chicken, fruits and vegetables and sterilizing medical
products, we are evaluating new applications for our SureBeam technology. In
addition, we are seeking to enter new geographic markets. In January 2000,
Titan Scan announced that it had sold a SureBeam system to Japan's
Mitsubishi Corp. that is expected to be fully operational by the first
quarter of 2001. In connection with the sale, Mitsubishi will form a new
entity to operate the SureBeam system, which is expected to be initially
used for medical product sterilization, Titan Scan will hold an equity
interest in the new entity, and Mitsubishi will market Titan Scan's SureBeam
technology in Japan.
TURNKEY SYSTEMS AND SERVICES. Titan Scan's SureBeam technology provides
customers with distinct advantages compared to Gamma and ethylene oxide ("EtO")
technologies:
INCORPORATED INTO CUSTOMER PRODUCTION LINE. SureBeam can be
incorporated into customers' production lines, which eliminates the
transportation and associated inventory carrying costs that are common with
Gamma and EtO technologies.
SCALABLE SYSTEM. SureBeam systems are scalable and can be easily
integrated into a customer's production line or in a facility to meet large
processing requirements.
FASTER PROCESSING TIME. An electron beam pasteurizes food products or
sterilizes medical products in a matter of seconds, as compared to Gamma and
EtO technologies that may require several hours.
REDUCED MATERIAL DEGRADATION. Because of the shorter exposure time to
the irradiation source, electron beam processing reduces the oxidation
effects to products and thus reduces material degradation.
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FLEXIBLE DOSING. Titan Scan's electron beam systems can switch from one
targeted dose to another in a matter of a few seconds.
UNIFORM, CONTROLLED DOSE. Electron beam processing delivers a
measurable and consistent dose to products based upon pre-set accelerator
parameters. All processing parameters are under constant measurement by a
built-in computer, and variation occurring during a processing run
automatically shuts down the system until the reason for the variation can
be determined and corrected.
NO RE-SOURCING REQUIRED. SureBeam processing is not accomplished via a
radioactive isotope such as Cobalt 60, which is used in Gamma sterilization,
but rather through accelerated electrical energy. Accordingly, a SureBeam
facility does not need to be out of service for any period of time in order
to re-introduce the pasteurization or sterility source into operation.
SAFETY. SureBeam facilities do not use Gamma or EtO radiation. They
operate using electrical power and, in the event of a problem, can be
deactivated by simply shutting off the power.
Titan Scan provides its customers with turnkey SureBeam systems for use in
their own production lines and provides processing services for food
pasteurization and medical device sterilization. In anticipation of the recently
issued USDA regulations, Titan Scan built, at Cloverleaf Cold Storage's facility
in Sioux City, Iowa, the first electron food pasteurization facility in the
United States. This facility is specifically designed for the pasteurization of
various types of food. The Sioux City facility became operational in
December 1999 and, at full capacity, will be able to pasteurize in excess of 250
million pounds of product annually. The facility has the capability of
pasteurizing large cases of products as well as products that are not uniform in
shape or size. In January 2000, Titan Scan announced that it will build a
facility in Arkansas with its partner, Zero Mountain Cold Storage. The facility
is scheduled to become operational in December of 2000. Zero Mountain Cold
Storage will form a new entity to operate the SureBeam system, and Titan Scan
will own a minority interest in the new entity. In January 2000, Titan Scan
announced that it had sold a SureBeam system to Japan's Mitsubishi Corp. that is
expected to be fully operational by the first quarter of 2001. In connection
with the sale, Mitsubishi will form a new entity to operate the SureBeam system,
which is expected to be initially used for medical product sterilization, Titan
Scan will hold an equity interest in the new entity, and Mitsubishi will market
Titan Scan's SureBeam technology in Japan. Titan Scan is also currently
building, with a partner, a SureBeam facility in Hilo, Hawaii for the
disinfestation of fruits and vegetables.
To date, turnkey SureBeam systems are used in medical device production
lines of Guidant Corporation in San Diego, California, Baxter Corporation in the
Dominican Republic, Rochialle Corporation in Wales and BSE-Mediscan in Austria.
In addition, Titan Scan offers contract sterilization services for medical
product manufacturers at facilities that it owns in San Diego and Denver. These
facilities have performed over 100,000 hours of contract sterilization services
and are currently running seven days per week and performing sterilization
services 19 hours per day.
TITAN WIRELESS
OVERVIEW. Titan Wireless develops and produces advanced satellite ground
terminals, satellite voice/ data modems, networking systems and other products
to support telephony in developing countries for government and commercial
customers worldwide. Additionally, Titan Wireless is increasingly generating
recurring service revenues from the telephony systems it installs. Titan
Wireless' technology relies heavily on our DAMA technology, which enables more
cost-effective and efficient use of satellite transmission capacity by allowing
each ground terminal in a satellite network to communicate with any other
terminal in the network. Our DAMA technology was developed under DoD contracts
beginning in 1983. Titan Wireless has also developed substantial expertise in
critical engineering disciplines such as satellite ground system design, radio
frequency and digital engineering, digital and communications signal processing
software, network management and modem technology. With Titan Wireless'
strategic partner, Sakon, we
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are building a global infrastructure of ground based satellite communications
equipment that is interconnected. This network, which once in place is global in
nature, is allowing us to provide telephony, data, wire over IP (Internet
Protocol), and Internet connectivity to the rural and emerging areas of the
world. We believe that our Demand Assigned Multiple Access (DAMA) technology
allows us to route more customer connectivity requests, and route them more
efficiently, than any of our competitors.
Titan Wireless' leading product, Xpress Connection, uses existing
geosynchronous satellites to provide low-cost voice, facsimile and data services
to connect villages to a national public switched telephone network, making it
possible to provide low-cost telephone service to vast unserved areas. Titan
Wireless develops and markets its telephony systems through strategic alliances
for sales of products in developing countries. For example, through its
strategic relationship with Sakon, Titan Wireless is providing international
long distance telephony services in El Salvador, Cameroon, Kuwait, Jordan, Saudi
Arabia, Guatemala, Nigeria and Bangladesh.
INDUSTRY OVERVIEW. Vast regions of the world remain without adequate
telecommunications infrastructure. In 1998, according to the International
Telecommunication Union, countries in our targeted markets, which represent
one-third of the world's population, had fewer than two subscriber lines per 100
inhabitants compared to 66.13 in the United States. Although many of these
countries are developing urban wired telephony systems, economic considerations
in these countries have made the provision of wired telephone service to remote
areas cost prohibitive. A combination of several factors, including advancement
in voice transmission technologies, development of low cost ground terminals and
the existence of commercial satellite availability has made telephone service
(including voice, fax and data services) possible in these remote areas.
Today, there are principally three transmission alternatives available for
providing telephone service in remote areas: wired, terrestrial wireless and
satellite networks. Of these three alternatives, satellite networks are uniquely
suited to provide a rapidly available, lower cost solution for the telephony
market. Wired networks require the installation of significant infrastructure
over long distances and difficult terrain and are generally cost prohibitive for
use in remote areas and can take a number of years to complete. Terrestrial
wireless systems, in particular microwave radio networks, are subject to
line-of-sight limitations requiring a large number of microwave towers (one
approximately every 20 to 50 kilometers), compete for use of radio frequencies
and require substantial time and expense to install. Satellite networks, on the
other hand, provide broad geographic coverage. In fact, most areas with large
rural populations are within the range of one or more commercial satellites in
orbit today. At any location within the range of these satellite networks,
telephony services can be established simply by installing small, low-cost
ground terminals with links to the country's public switched telephone network.
Moreover, such satellite networks have relatively lower infrastructure costs
compared to wired and terrestrial wireless networks, are not constrained by
topographical or climatic characteristics and can be rapidly and economically
deployed, upgraded and reconfigured.
The three principal types of satellite communications networks are direct
broadcast, mobile, and fixed-site. Direct broadcast satellite networks, which
provide a direct transmission link from high-power satellites to customers over
a wide geographic area, are best suited for one-way, continuous transmissions
such as direct-to-home television, music and data. For this reason, direct
broadcast is not optimal in the telephony market. Mobile satellite networks,
which enable voice and data communications through small portable terminals,
utilize specially designed satellites which operate at higher power and at lower
frequencies with less bandwidth. As a result, mobile satellite systems generally
are more expensive and are not as well suited for telephony applications in
developing countries. Fixed-site satellite telephony systems, which provide
television, voice, facsimile and data communications between fixed ground
terminals and geosynchronous satellites, are increasingly being utilized by
developing countries.
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STRATEGY. Titan Wireless' objective is to become a leading provider of
telephony systems and services in developing countries. To achieve this
objective, Titan Wireless intends to pursue the following strategies:
INCREASE SERVICE REVENUES. Titan Wireless intends to expand its sales,
installation and integration activities for telephony systems and
participate in the service revenues from installed equipment. One of its key
initiatives is to provide long distance telecommunications services in
developing countries. Through its Sakon joint venture, Titan Wireless is
currently providing long distance telecommunications services in eight
developing countries, and expects to provide long distance
telecommunications in at least six additional developing countries. Titan
Wireless' business plan is to derive at least 50% of all future revenues
from providing telecommunications services.
EXPAND STRATEGIC ALLIANCES. Titan Wireless utilizes strategic alliances
to enter new markets. Titan Wireless continually evaluates potential
additional strategic alliances that can provide financial, technological
and/or marketing resources for its products. Titan Wireless seeks
partnerships with regional and local telephone service providers who can
obtain operating permits and play a key role in the installation and
operation of a satellite telephone network in a developing country.
LEAD SATELLITE COMMUNICATIONS TECHNOLOGY INNOVATION. Titan Wireless has
combined expertise gained under government-sponsored development projects
and its own internal development efforts to become a leader in low-cost,
efficient satellite communications technology. Titan Wireless' close ties
with satellite-based telecommunications service providers enable it to
identify and understand the current needs of the market, anticipate future
trends and develop technologies and products that are designed to address
those needs and trends.
PRODUCTS AND SERVICES. Titan Wireless develops and sells bandwidth
efficient, turnkey systems and products which address the demand for
telephony solutions in developing countries. Titan Wireless' commercial
products include:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------- -----------
<S> <C>
Xpress Connection.............. Network of fixed-site satellite ground terminals
designed to provide basic telephony solutions to
remote areas of developing countries. Interoperable
with national public switched telephone network.
Multi-Media Very Small Aperture
Terminals or VSATs........... Key portions of ground terminal, primarily software
and Application Specific Integrated Circuit chip
sets to be used in a satellite-based communication
system designed to provide quality and cost
competitive multi-function telecommunications
services to individual homes and businesses in areas
not adequately served by the public switched
telephone network. Interoperable with Xpress
Connection and public switched telephone network,
the Internet and other public data networks.
CCM 4000....................... Modem product designed to allow a single ground
terminal to provide service for up to four
simultaneous users. Utilized in Xpress Connection
networks and in private telephone and data networks.
Cost-effective alternative to installing additional
terminals where demand warrants.
MRVC........................... Voice digitizing, compression and multiplexing
product sold to commercial markets.
</TABLE>
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Titan Wireless establishes switched telephone network gateways in developing
countries that effectively route calls via satellite through a bank of local
telephone lines. The quality of service provided by Titan Wireless is near toll
quality, which we believe will satisfy the quality demands of many citizens of
developing countries. Through one network management center, or hub, Titan
Wireless can manage up to 50 gateways, which connect directly into the hub, and
10,000 VSATs. Titan Wireless currently operates a hub and intends to add other
hubs in key geographic locations which will enable it to provide global
telephony coverage.
Titan Wireless' project for the national telephone company of Benin, Africa,
illustrates the combination of Titan Wireless' product and services offerings.
Titan Wireless, the prime contractor for the project, will install the major
satellite hub, the VSAT hardware, the billing system and network control system.
Alcatel of France is a major subcontractor to Titan Wireless on this project,
and will handle the delivery, installation and integration of the digital
cellular system, wireless local loop, fiber optic system and primary hub
switching technology of the system. Titan Wireless will build out the entire
system, which is expected to be completed in 2001, co-operate the system with
the national telephone company for approximately eight years, and then transfer
the operations to the national telephone company. In addition to realizing
revenue and profit on the equipment portion of the project, Titan Wireless will
share in the revenue and profit generated by the system while it is co-operating
the system.
Titan Wireless is also building upon its experience in telephony to
selectively pursue private networking opportunities in developing countries. For
example, in Thailand, Titan Wireless sold key elements of a private voice, data
and facsimile communications network to The Bank for Agriculture and
Agricultural Cooperatives.
EMERGING TECHNOLOGIES AND BUSINESSES
Emerging Technologies consists of new technologies and early-stage
businesses, including some businesses in which we own only a minority interest.
Emerging Technologies pursues commercial applications for technologies
originally developed in government-sponsored research and development programs
and, to a lesser extent, in internally funded programs. Emerging Technologies
employs our rich technology portfolio, superior research and development
capabilities and stream of government-funded projects to create solutions for
technology-related problems that we can sell to multiple commercial markets.
The following are examples of some of the technologies and businesses that
are currently included in our Emerging Technologies segment.
MICRO ELECTROMECHANICAL SYSTEMS (MEMS) technology developed as a result
of our work for the federal government is being applied to commercial uses
for very small wide band antennas.
IMAGCLEAR 5000 automatically scans over 2,500 fingerprint cards per day
and can extract individual fingerprints from each card for electronic
distribution to the FBI and other law enforcement agencies around the globe.
This technology has received the highest level of certification attainable
from the FBI for capturing fingerprint images. To date, we have received
orders to provide over 40 ImagClear 5000 card scan systems and supporting
equipment, including to NEC Technologies, which will use the fingerprint
processors as part of its participation in the FBI's Card Scan Service
program.
WAVX, a publicly traded company, acquired its core encryption technology
from us. WAVX's core product, the embedded application security system, is a
firewall-on-a-chip technology that enables localization of secure e-commerce
transactions at a personal computer, set-top box, or other information
sharing device. We have realized almost a million dollars from sales of our
residual equity interest in WAVX over the past few years. We no longer have
an equity interest in WAVX. We are entitled to receive 5% of any revenues
derived from WAVX products that utilize our technology for the first $1
million in revenues, and 2% on any revenues in excess of $1 million.
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In 1996, we contributed the core technology to form Servnow!
NetTechnologies, Inc., which is now known as IPivot. IPivot develops software
products that improve the performance of server farms, web sites and software
applications. In 1997, we secured $4.6 million of venture capital and ultimately
raised a total of $15 million of venture capital for the development of this
business. In November 1999, we received approximately $42 million in cash for
our approximate 8% equity interest in IPivot when IPivot was acquired by Intel
Corporation. Up to an additional $3 million may be received by Titan within one
year subject to certain post-closing adjustments.
We intend to utilize both public and private investments as the primary
funding source for the continued commercial development of our rich technology
portfolio. We have no capitalized amounts on our consolidated balance sheets for
any of the developing technologies and businesses within our Emerging
Technologies segment.
GOVERNMENT CONTRACTS
A substantial portion of our revenues are dependent upon continued funding
of United States and allied government agencies, as well as continued funding of
the programs targeted by our businesses. Our revenues from U.S. government
business represented approximately 82% of our total revenues for the year ended
December 31, 1997, approximately 80% of our total revenues for the year ended
December 31, 1998, and approximately 75% of our total revenues for the year
ended December 31, 1999. On a pro forma basis giving effect to our acquisition
of Advanced Communication Systems, our revenues from U.S. government business
represented approximately 80% of our total revenues for the year ended December
31, 1999. Any significant reductions in the funding of United States government
agencies or in the funding areas targeted by our businesses could materially and
adversely affect our business, results of operations and financial condition.
U.S. government contracts are subject to termination for the convenience of
the government, as well as termination, reduction or modification in the event
of budgetary constraints or any change in the government's requirements. When we
subcontract with prime contractors, such subcontracts are also subject to the
ability of the prime contractor to perform its obligations under its prime
contract. We 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 our loss of
our subcontract. In addition, our contract-related costs and fees, including
allocated indirect costs, are subject to audits and adjustments by negotiation
between us 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
our contract-related costs and fees could result in material adjustments to our
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 Congress makes appropriations for future
fiscal years. Any failure of such agencies to continue to fund such contracts
could have a material adverse effect on our business, results of operations and
financial condition.
Our business with the U.S. government and prime contractors is generally
performed under cost reimbursement, fixed-price or time and materials contracts.
Cost reimbursement contracts for the government provide for reimbursement of
costs plus the payment of a fee. Under fixed-price contracts, we agree to
perform certain work for a fixed price. Under time and materials contracts, we
are reimbursed for labor hours at negotiated hourly billing rates and are
reimbursed for travel and other direct expenses at actual
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<PAGE>
costs plus applied general and administrative expense. The following table gives
the percentage of revenues realized by us from the three primary types of
government contracts during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
CONTRACT TYPE 1997 1998 1999
- ------------- -------- -------- --------
<S> <C> <C> <C>
Cost Reimbursement................................... 51.6% 49.8% 46.6%
Fixed-Price.......................................... 32.8 32.0 23.6
Time and Materials................................... 15.6 18.2 29.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
RAW MATERIALS
We operate both fabrication and assembly facilities and also purchase
certain components and assemblies from other suppliers. No one supplier accounts
for a significant portion of total purchases.
PATENTS, TRADEMARKS AND TRADE SECRETS
Our policy is to apply for patents and other appropriate statutory
protection when we develop new or improved technology. We presently hold 130
U.S. and international patents, as well as a number of trademarks and
copyrights. However, we do not rely solely on these statutory protections to
protect our technology and intellectual property. In addition to seeking patent
protection for our inventions, we rely on the laws of unfair competition and
trade secrets to protect our unpatented proprietary rights. We attempt to
protect our trade secrets and other unpatented proprietary information through
agreements with customers, vendors, employees and consultants. In addition,
various names used by us for our products and services have been registered with
the United States Patent and Trademark Office.
BACKLOG
Contracts undertaken by us may extend beyond one year. 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 our backlog. Although backlog
represents only business which is considered to be firm, we cannot guarantee
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 us to all or a portion of our costs incurred and potential fees.
Many of our 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 us 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 the aggregate
contract revenues expected to be earned as our customers incrementally allot
funding to existing contracts, whether we are acting as a prime contractor or
subcontractor, and the aggregate contract revenues to be funded on contracts
which have been newly awarded to us. "Backlog" is the total of the government
and commercial funded and unfunded backlog.
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<PAGE>
Our backlog consisted of the following approximate amounts as of
December 31 for the following years:
<TABLE>
<CAPTION>
BACKLOG 1997 1998 1999
- ------- -------- -------- --------
<S> <C> <C> <C>
U.S. Government funded backlog................ $126,720 $106,635 $161,247
U.S. Government unfunded backlog.............. 356,052 466,149 456,021
Commercial backlog............................ 48,367 47,227 86,434
-------- -------- --------
Total backlog................................. $531,139 $620,011 $703,702
======== ======== ========
</TABLE>
In addition to the backlog described above, at December 31, 1999, we had
remaining priced options of over $218 million. We expect that a substantial
number of these options will be exercised in the future, although we cannot
guarantee that any options will be exercised.
Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. Our backlog is typically
subject to large variations from quarter to quarter as existing contracts are
renewed or new contracts are awarded. Additionally, all United States government
contracts included in backlog, whether or not funded, may be terminated at the
convenience of the United States government.
We expect to realize approximately 62% of our December 31, 1999 backlog by
December 31, 2000.
COMPETITION
TITAN SYSTEMS. Titan Systems 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 Systems engages are very competitive and require highly skilled and
experienced technical personnel. Many of Titan Systems' competitors have
significantly greater financial and personnel resources than Titan Systems.
Competitors in this industry include Anteon Corp., Autometrics, BTG, Inc.,
Booz-Allen Hamilton Inc., CACI International, Inc., Comptek Research, Inc.,
Computer Sciences Corporation, Dynamics Research Corporation, General Dynamics
Corporation, Government Technology Services, Inc., Lockheed Martin Corporation,
Metric, Raytheon Company, Science Applications International Corporation,
Tracor, TRW, and ViaSat. Titan Systems believes that the primary competitive
factors for its information systems services and products include technical
skills, experience in the industry and customer relationships.
CAYENTA. The information technology services business is intensely
competitive and subject to rapid technological change. Cayenta expects the
competition to continue and intensify. Cayenta's competitors include:
- application service providers, such as Breakaway Solutions and
USinternetworking;
- information technology service providers and system integrators, such as
Andersen Consulting, Answerthink, Cambridge Technology, EDS, KPMG, Sapient
and Tanning Technology;
- Internet professional service providers, such as Proxicom, Scient, and US
Interactive; and
- internal information technology departments of current and potential
clients.
In comparison with Cayenta, many of its competitors are larger, and have
more brand recognition and substantially greater financial infrastructure,
personnel, and marketing resources. In addition, there are low barriers to entry
into Cayenta's business. Cayenta does not own any technologies that preclude or
inhibit competitors from entering its industry. Existing or future competitors
may independently develop and patent or copyright technologies that are superior
or substantially similar to Cayenta's technologies. The costs to develop and to
provide information technology services are relatively low. Moreover, barriers
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<PAGE>
to entry, particularly in the application integration and consulting components
of Cayenta's TPS offering, are low. Therefore, Cayenta will likely continue to
face additional competition from new entrants into its industry, like software
product companies.
TITAN SCAN. The market for turnkey food pasteurization systems and services
has only recently begun to develop. We expect that food producers and providers
will continue to be reluctant to use Gamma radiation to pasteurize foods. As the
market for electronic pasteurization of food develops, we expect competition to
increase.
The market for medical product sterilization services is intensely
competitive and is characterized by significant price competition. Titan Scan's
market for medical product sterilization services is fragmented as a result of
geographical limitations on the transportation of products for sterilization,
multiple technologies and the mix of in-house and contract sterilization
facilities. Although Titan Scan believes that it is the only provider of
relatively small, low-cost, turnkey systems for in-house use by medical product
manufacturers, Titan Scan currently faces competition from several providers of
contract Gamma sterilization services, several providers of contract electron
beam sterilization services and a significantly larger number of providers of
contract EtO sterilization services. Certain of Titan Scan's competitors and
potential competitors in the medical product sterilization market have
substantially greater financial, marketing, distribution, technical and other
resources than Titan Scan, or offer multiple sterilization technologies or
operate multiple sterilization facilities at geographically advantageous sites,
which may enable them to address a broader range of the sterilization
requirements of individual customers.
TITAN WIRELESS. The industries and markets in which Titan Wireless competes
are highly competitive, and we expect that competition will increase in such
markets. Titan Wireless encounters intense competition from numerous 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 Titan Wireless. Some of Titan
Wireless' 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.
EMERGING TECHNOLOGIES AND BUSINESSES. Because it is attempting to
commercialize a number of diverse technologies and products, Emerging
Technologies effectively competes in many areas. Other companies are engaged in
significant research and development activities in these areas, either on their
own or in collaboration with others. Some of these companies have greater
financial and personnel resources, and more experience in these specific areas
than we do. We anticipate that Emerging Technologies will face increased
competition in the future as new companies enter these areas and additional and
potentially more sophisticated technologies become available.
RESEARCH AND DEVELOPMENT
We maintain 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 $12.8 million in
1997, $10.0 million in 1998 and $10.9 million in 1999. These expenditures
included Titan-funded research and development of $7.5 million in 1997, $5.6
million in 1998 and $6.7 million in 1999. The remainder of our research and
development expenditures were customer-sponsored. The majority of our customer-
sponsored research and development activity is funded under contracts with the
United States government.
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<PAGE>
GOVERNMENT AND ENVIRONMENTAL REGULATIONS
We must comply with and are affected by various government regulations.
These regulations affect how we and our customers can do business and, in some
instances, impose added costs to our businesses. Any changes in applicable laws
could adversely affect the financial performance of the business affected by the
changed regulations. Any failure to comply with applicable laws could result in
material fines and penalties or affect how we conduct our business in the
future.
We are subject to environmental and safety laws and regulations governing
the use, storage and disposal of hazardous substances or wastes and imposing
liability for the cleanup of contamination from these substances. We cannot
completely eliminate the risk of contamination or injury from these substances
or wastes, and, in the event of such an incident, we could be held liable for
any damages that result. From time to time, we have been notified of violations
of government and environmental regulations. We attempt to correct these
violations promptly without any material impact on our operations. In addition,
we may be required to incur significant additional costs to comply with
environmental laws and regulations in the future. These costs, and any future
violations or liability under environmental laws or regulations, could have a
material adverse effect on our business, financial condition and results of
operations.
EMPLOYEES
As of December 31, 1999, we employed approximately 3,200 employees,
predominantly located in the United States. Advanced Communication Systems
employed approximately 2,000 employees as of September 30, 1999.
RISK FACTORS
RISKS RELATING TO OUR BUSINESS AND COMMON STOCK
OUR CAYENTA, TITAN SCAN AND TITAN WIRELESS BUSINESSES OPERATE IN EMERGING
MARKETS AND WE WILL BE UNABLE TO EXPAND THESE BUSINESSES AS WE EXPECT IF THE
PRINCIPAL PRODUCTS AND SERVICES OF THOSE BUSINESSES DO NOT MEET WITH MARKET
ACCEPTANCE.
If any of the primary markets targeted by Cayenta, Titan Scan or Titan
Wireless fails to develop as we anticipate, our revenues will be less than we
expected, our business will suffer and we may be unable to recoup the
investments we have made to develop and market the principal products and
services of those businesses.
To grow as currently contemplated, we will need to derive an increasing
portion of our revenues from our Cayenta, Titan Scan and Titan Wireless
businesses.
To date, none of Cayenta's revenues have been derived from direct sales by
it of its total services provider, or TSP, offering, which combines standard and
proprietary software applications with operational, hosting, management and
support services that Cayenta provides for those software applications.
Cayenta's only TSP-related revenues have resulted from providing TSP services to
the customers of a joint venture in which it holds a 10% equity interest.
Cayenta has only recently begun providing operational, hosting, management and
support services for its software applications, and Cayenta cannot be certain
that the market for TSP offerings will develop.
The use of our Titan Scan electron beam technology for food irradiation has
only recently been approved by the applicable regulatory authorities in the
United States. Accordingly, a market for pasteurized foods has only recently
begun to develop, and its continued development will depend on broad acceptance
of irradiated foods by consumers, food producers and providers, restaurant
chains and food retailers. This acceptance may not occur.
Titan Wireless' principal strategy is to provide products used in telephony
systems in developing countries. We cannot guarantee that a substantial market
for telephony services in developing countries will
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<PAGE>
ever develop, or if such a market does develop, that fixed-site satellite
equipment will capture a significant portion of that market. The development of
a market for telephony services in developing countries will depend upon a
variety of factors including whether a particular country has sufficient
resources to support such a market and whether the telephony services are
offered at a reasonable cost to the end users of such services. Titan Wireless'
ability to penetrate the telephony market in developing countries will be
adversely affected to the extent that other competing elements of the
communications infrastructure, such as telephone lines, other
satellite-delivered solutions and fiber optic cable and television cable, are
installed in the developing countries. In addition, the development and
implementation of telephony systems will be dependent upon, among other items,
the continued development of necessary technologies, continued financial and
other support from governmental agencies, the implementation of cost-effective
systems, market acceptance for such systems and approval by appropriate
regulatory agencies.
WE HAVE A LIMITED HISTORY OF COMMERCIALIZING NEW TECHNOLOGIES AND OUR
COMMERCIAL BUSINESSES MAY NOT REMAIN OR EVER BECOME SUCCESSFUL.
In 1991, we adopted a strategy of seeking to develop commercial businesses
using technology developed in our defense businesses. Our Titan Scan and Titan
Wireless businesses are a product of this strategy. Many of our commercial
businesses are in an early stage of development or have only recently begun to
offer their products, services, systems or solutions in the emerging markets in
which they operate. These technology-based businesses are subject to risks
inherent in companies at these early stages of development, including:
- the risks that their base technology will become obsolete and that they
will fail to respond in a timely and cost-effective manner to rapid
technological changes;
- the risks associated with operating in markets that are subject to a high
degree of competition;
- the risk that they will have inadequate management resources to capitalize
on market opportunities and execute their strategy;
- the risk that they will be unable to manage rapid growth effectively;
- the risk that they will be unable to execute successfully each portion of
their business strategy on schedule;
- the risk that we may not identify markets with sufficient opportunities to
justify our investments in products and solutions for these markets;
- the market and operating risks that are unique to each particular
business; and
- the risk that adequate capital may not be available to fund their
continued development.
WE CANNOT GUARANTEE THAT CAYENTA'S PENDING INITIAL PUBLIC OFFERING WILL
CLOSE OR THAT WE WILL BE ABLE TO EXECUTE ON OUR STRATEGY OF OBTAINING PUBLIC OR
PRIVATE FINANCING TO FUND THE GROWTH OF OUR COMMERCIAL BUSINESSES.
As part of our strategy of seeking external financing to grow our commercial
businesses, our Cayenta subsidiary has filed a registration statement for an
initial public offering of its common stock. We cannot guarantee that Cayenta
will succeed in completing the offering, which may be adversely affected by
market conditions or other factors. We have extended a credit facility of up to
a maximum of $70.0 million to Cayenta under which Cayenta owed us approximately
$68.4 million as of March 20, 2000. Cayenta may not use the proceeds of its
initial public offering to pay amounts outstanding under its credit facility
with us.
In addition, we may seek public or private financing for one or more of our
commercial businesses to fund their growth, including through initial public
offerings or spin-offs for any of our segments. We cannot
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<PAGE>
guarantee that adequate capital to fund our growth will be available to us or be
available on acceptable terms or that we will complete any spin-off of any of
our segments.
WE DEPEND ON GOVERNMENT CONTRACTS FOR A MAJORITY OF OUR REVENUES.
We earn a majority of our total revenues from U.S. government contracts. Any
cancellations or modifications of our significant contracts or subcontracts, or
failure by the U.S. government to exercise an option period relating to those
contracts or subcontracts, could hurt our business, financial condition and
results of operations in the short or long term. Continuing declines in U.S.
defense and other federal agency budgets also may hurt our prospects. Our
revenues from U.S. government business represented approximately 82% of our
total revenues in 1997, 80% of our total revenues in 1998, and 75% of our total
revenues in 1999. On a pro forma basis giving effect to our acquisition of
Advanced Communication Systems, our revenues from U.S. government business
represented approximately 80% of our total revenues for the year ended December
31, 1999. This percentage may rise in the future. Although we bid for and are
awarded long-term U.S. government contracts and subcontracts, the U.S.
government only funds these contracts on an annual basis, and many of our
contracts and subcontracts include option years. The U.S. government may cancel
these contracts at any time without penalty or may change its requirements,
programs or contract budget, and generally has the right not to exercise option
periods. The U.S. Congress may decline to appropriate funds needed to complete
the contracts awarded to us or the prime contractor. On our subcontracts, we
generally do not control the prime contractor's allocation of resources. We also
depend upon the prime contractor to perform its obligations on the primary
government contract. In addition to contract cancellations and declines in
agency budgets, our prospects may be adversely affected by:
- budgetary constraints affecting U.S. government spending generally, and
changes in fiscal policy or available funding;
- curtailment of the U.S government's use of technology services providers;
- the adoption of new laws or regulations;
- technological developments;
- U.S. government shutdowns, such as that which occurred during the U.S.
government's 1996 fiscal year;
- competition and consolidation in our business areas; and
- general economic conditions.
These or other factors could cause government agencies to reduce their
purchases under contracts, to exercise their right to terminate contracts or not
to exercise options to renew contracts. Any of these actions could have a
material adverse effect on our business, financial condition and results of
operations.
GOVERNMENT AUDITS OF OUR GOVERNMENT CONTRACTS COULD CAUSE A MATERIAL
NEGATIVE ADJUSTMENT TO OUR REVENUES.
Our government contracts are subject to cost audits by the government. These
audits may occur several years after completion of the audited work. Audits may
result in a recalculation of contract revenues or result in the government
refusing to reimburse some of our contract costs and fees. Generally, we resolve
audit issues by negotiation without material adjustments. However, in the
future, we could have a material adjustment to revenue as a result of an audit,
including an audit of one of the companies we have recently acquired. Before we
acquired them, some of our recently acquired companies did not impose internal
controls as rigorous as those we impose on the government contracts we perform.
As part of the integration process, we seek to apply our policies throughout the
acquired companies.
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<PAGE>
OUR OPERATING MARGINS MAY DECLINE UNDER OUR FIXED-PRICE CONTRACTS IF WE FAIL
TO ESTIMATE ACCURATELY THE RESOURCES NECESSARY TO SATISFY OUR OBLIGATIONS.
Some of our contracts are fixed-price contracts under which we bear the risk
of any cost overruns. Our profits are adversely affected if our costs under
these contracts exceed the assumptions we used in bidding for the contract.
WE ARE NOT ABLE TO GUARANTEE THAT WE WILL RETAIN OUR CONTRACTS WITH THE U.S.
GOVERNMENT AND SUBCONTRACTS UNDER U.S. GOVERNMENT PRIME CONTRACTS IN ANY
COMPETITIVE REBIDDING PROCESS.
Upon expiration of a U.S. government contract or subcontract under U.S.
government prime contracts, if the government customer requires further services
of the type provided in the contract, there is frequently a competitive
rebidding process. We cannot guarantee that we, or the prime contractor, will
win any particular bid, or that we will be able to replace business lost upon
expiration or completion of a contract. Further, all U.S. government contracts
are subject to protest by competitors. The unexpected termination of one or more
of our significant contracts could result in significant revenue shortfalls. The
termination or nonrenewal of any of our significant contracts, short-term
revenue shortfalls, the imposition of fines or damages, or our suspension or
debarment from bidding on additional contracts could have a material adverse
effect on our business, financial condition and results of operations.
MANY OF OUR U.S. GOVERNMENT CUSTOMERS SPEND THEIR PROCUREMENT BUDGETS
THROUGH GSA SCHEDULE CONTRACTS, AND WE ARE REQUIRED TO COMPETE FOR POST-AWARD
ORDERS.
Budgetary pressures and reforms in the procurement process have caused many
U.S. government customers increasingly to purchase goods and services through
"indefinite delivery, indefinite quantity" contracts, General Service
Administration, or GSA, Schedule contracts and other multiple award or
government-wide acquisitions contract vehicles. Our failure to compete
effectively in this procurement environment could have a material adverse effect
on our business, financial condition and results of operations. These contract
vehicles have resulted in increased competition and pricing pressure and
required us to make sustained post-award efforts to realize revenues under the
relevant contract. We cannot guarantee that we will continue to increase
revenues or otherwise sell successfully under these contract vehicles.
WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF PROCUREMENT RULES AND
REGULATIONS, AND CHANGES IN GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR
BUSINESS.
Our defense and commercial businesses must comply with and are affected by
various government regulations. Among the most significant regulations are the
following:
- the Federal Acquisition Regulations, which comprehensively regulate the
formation, administration and performance of government contracts;
- the Truth in Negotiations Act, which requires certification and disclosure
of all cost and pricing data in connection with contract negotiations;
- the Cost Accounting Standards, which impose accounting requirements that
govern our right to reimbursement under certain cost-based government
contracts; and
- laws, regulations and Executive Orders restricting the use and
dissemination of information classified for national security purposes and
the exportation of certain products and technical data.
These regulations affect how our customers and we do business and, in some
instances, impose added costs on our businesses. Any changes in applicable laws
could adversely affect the financial performance of the business affected by the
changed regulations. Any failure to comply with applicable laws could result in
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<PAGE>
contract termination, price or fee reductions or suspension or debarment from
contracting with the U.S. government.
OUR FAILURE TO RETAIN QUALIFIED TECHNICAL AND MANAGEMENT PERSONNEL COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.
We need to maintain our workforce of highly qualified technical and
management personnel for each of our segments, including our engineers, computer
programmers and personnel with security clearances required for classified work.
In addition, our future success will depend in part on our ability to identify,
recruit and retain additional qualified personnel, including individuals with
security clearances required for classified work. The loss of any key personnel
could negatively affect our business, financial condition and results of
operations. Our employees generally have many other job opportunities, and there
is intense competition for their services. Consequently, we strive to maintain
an entrepreneurial work environment and provide financial incentives to attract
and retain our key personnel. We cannot guarantee that we will be able to
continue to attract and retain personnel with the advanced technical and
security clearance qualifications necessary for the development of our business.
WE COMPETE IN HIGHLY COMPETITIVE MARKETS AGAINST MANY COMPANIES THAT ARE
LARGER, BETTER FINANCED AND BETTER KNOWN THAN TITAN.
Our businesses operate in highly competitive markets. Many of our
competitors are larger, better financed and better known companies who may
compete more effectively than us. We believe we must continue to expand our
defense information technology business so that we can remain price competitive
and compete for larger contracts. For that reason, we are continuing to look for
acquisition candidates. Our commercial businesses compete against other
technologies as well as against companies with similar products. In order to
remain competitive, we must invest to keep our products technically advanced and
compete on price and on value added to our customers. Our ability to compete may
be adversely affected by limits on our capital resources and our ability to
invest in maintaining and expanding our market share. Any adverse financial
developments could make us a less effective competitor.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR ACQUISITIONS OF OTHER COMPANIES.
Since January 1, 1998, we have acquired seven defense information technology
companies as part of our consolidation strategy for our defense business. Four
of these seven transactions were structured as stock-for-stock pooling of
interests transactions. In addition, since January 1, 1999, we have acquired
four information technology services and solutions companies as part of
Cayenta's development of its total services provider offering. We closed our
acquisition of Advanced Communication Systems on February 25, 2000. Advanced
Communication Systems itself has acquired multiple companies, most recently in
September 1999. We also have agreed to acquire one, and have a non-binding
letter of intent to acquire another, privately-held defense information
technology company. The acquisition and integration of new companies involves
risk. The integration of acquired businesses may be costly and may result in a
decrease in our revenues or a decrease in the value of our common stock for the
following reasons, among others:
- we may need to divert more management resources to integration than we
planned, which may adversely affect our ability to pursue other more
profitable activities;
- 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;
- we may not eliminate as many redundant costs as we anticipated in
selecting our acquisition candidates; and
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- one or more of our acquisition candidates also may have liabilities or
adverse operating issues that we failed to discover through our due
diligence prior to the acquisition.
Consequently, our recent acquisitions may not improve our business, financial
condition and results of operations in the short-term or long-term as we expect
them to do.
We intend to continue to look for complementary businesses or technologies
to acquire so that we can expand our core businesses. However, we may not find
any more attractive candidates or may find that the acquisition terms are not
favorable to us. In addition, we may compete with other companies for these
acquisition candidates. Instability in the U.S. securities markets and
volatility in our stock price may make acquisitions with our stock more
expensive. We also may not adequately assess the risks inherent in a particular
acquisition candidate or correctly assess the candidate's potential contribution
to our financial performance. Accordingly, our acquisition strategy may not
improve our overall business, financial condition and results of operations and
could weaken them.
WE MAY INCUR SIGNIFICANT COSTS IN PROTECTING OUR INTELLECTUAL PROPERTY.
As a policy, we seek to protect our proprietary technology and inventions
through patents, copyrights, trade secret law and other legal protections. While
our patent portfolio is valuable, our financial success ultimately depends upon
our ability to deliver products and services that meet customer needs, not on
intellectual property laws. We may, however, incur significant expense both in
protecting our intellectual property and in defending or assessing claims with
respect to intellectual property owned by others. Any patent or other
infringement litigation by or against us could have an adverse effect on our
business, financial condition and results of operations. We also could be forced
to modify or abandon one or more planned or current products based upon our
assessment of intellectual property risks or actual or threatened claims by
other companies.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position. However, a finding in favor of Ion Beam Applications in this
action could adversely affect our business, financial condition and results of
operations by reducing the growth of our Titan Scan business segment and
preventing us from generating the revenues that we expect from food
pasteurization.
OUR QUARTERLY AND ANNUAL FINANCIAL PERFORMANCE AND STOCK PRICE HAVE
HISTORICALLY FLUCTUATED AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY IN THE
FUTURE.
Our revenues are affected by factors such as the unpredictability of sales
and contracts awards due to the long procurement process for most of our
products and services, defense and intelligence budgets, competition and general
economic conditions. Our product mix and unit volume, our ability to keep
expenses within budgets, our distribution channels and our pricing affect our
gross margins. These factors and other risk factors described herein may
adversely affect our financial performance within a period and cause our
financial results to fluctuate significantly on a quarterly or annual basis.
Consequently, we do not believe that comparison of our financial performance
from period to period is necessarily meaningful or predictive of our likely
future performance. It is possible that in some future quarter or quarters our
operating results will be below the expectations of public market analysts or
investors. If so, the market price of our common stock may decline
significantly.
From time to time, there may be significant volatility in the market price
for our common stock. Over the past three years, the market price of our common
stock has fluctuated over a wide range. During our last four complete fiscal
quarters, the highest sale price of our common stock on the New York Stock
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Exchange was $48.38 and the lowest sale price of our common stock was $4.75. A
number of factors involving Titan and our industry could contribute to future
fluctuations in our stock price, including the risk factors described herein.
RISKS OF OUR INTERNATIONAL OPERATIONS, INCLUDING ECONOMIC CONDITIONS IN
EMERGING MARKETS, COULD ADVERSELY AFFECT THE PROSPECTS OF OUR COMMERCIAL
COMMUNICATIONS BUSINESS.
We sell commercial communications products and services primarily in
developing countries. Our revenues from sales of these products and services in
foreign countries represented 5% of our total revenues for the year ended
December 31, 1999. We expect our revenues from these activities in foreign
countries to increase. Although we generally sell our commercial communications
products and services in U.S. dollars, currency devaluations and adverse market
conditions in emerging markets have negatively affected demand for our
commercial communications products and services and, consequently, our revenues
for this segment. Our commercial communications products generally require
substantial capital investments, and our potential customers have not had the
capital resources to make these investments. We have assisted our established
marketing partner in Indonesia by providing trade credit that has subsequently
been extended with a final installment due in September 2000. Because of market
conditions in Indonesia and other factors, there is a risk that our customer in
Indonesia may not be able to pay this debt in accordance with the extended
terms. Further, we do not have the capital resources or tolerance of risk to
finance the purchase of our commercial communications products, and therefore
rely upon our customers' abilities to obtain financing. As a result, revenues in
this group may be adversely affected by economic conditions in emerging markets
and the unavailability of financing on reasonable terms. We also are
increasingly seeking opportunities to capture operating revenues from the use of
our systems to provide telephony services. These services generally are billed
in U.S. dollars but may in the future be billed in local currency. We do not
believe that our international operations currently subject us to material risks
from fluctuations in currency exchange rates. However, as we increase our
commercial communications activities in foreign countries, our risks from
fluctuations in currency exchange rates could increase.
Selling products or services in international markets also entails other
market, economic, cultural, legal and political risks, conditions and expenses.
These risks include:
- trade barriers;
- export and import restrictions and other applicable laws;
- political and economic instability;
- difficulties in collecting amounts owed to us; and
- difficulties in managing overseas employees and contractors.
Any one of these factors or other international business risks could adversely
affect our financial performance.
OUR OPERATING RESULTS MAY SUFFER IF A SIGNIFICANT NUMBER OF OUR U.S. NAVY
CONTRACTS ARE DELAYED OR CANCELED.
A significant percentage of our products and services are predominantly sold
and performed under contracts with various parts of the U.S. Navy or with prime
contractors to the U.S. Navy. Although these various parts of the U.S. Navy are
subject to common budgetary pressures and other factors, our various U.S. Navy
customers exercise independent purchasing decisions. However, because of such
concentration of our contracts, we are vulnerable to adverse changes in our
business, financial condition and results of operations if a significant number
of our U.S. Navy contracts and subcontracts are simultaneously delayed or
canceled for budgetary or other reasons.
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THE COVENANTS IN OUR NEW CREDIT FACILITY RESTRICT OUR FINANCIAL AND
OPERATIONAL FLEXIBILITY.
Our new credit facility contains covenants that restrict, among other
things, our ability to borrow money, make particular types of investments or
other restricted payments, swap or sell assets, merge or consolidate, or make
acquisitions. An event of default under our credit facility could allow the
lenders to declare all amounts outstanding to be immediately due and payable. We
have pledged substantially all of our consolidated assets and the stock of our
subsidiaries to secure the debt under our credit facility. If the amounts
outstanding under the credit facility were accelerated, the lenders could
proceed against our consolidated assets and the stock of our subsidiaries. Any
event of default, therefore, could have a material adverse effect on our
business. Our credit facility also requires us to maintain specified financial
ratios. Our ability to meet these financial ratios can be affected by events
beyond our control, and we cannot assure you that we will meet those ratios. We
also may incur future debt obligations that might subject us to restrictive
covenants that could affect our financial and operational flexibility or subject
us to other events of default.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY DISRUPTIONS IN OUR SUPPLY
OF PRODUCTS AND COMPONENTS OR SERVICES.
Because our internal manufacturing capacity is limited, we use contract
manufacturers. While we use care in selecting our manufacturers, this
arrangement gives us less control over the quality and price of products or
components than if we manufactured them ourselves. In some cases, we obtain
products from a sole supplier or a limited group of suppliers. Consequently, we
risk disruptions in our supply of key products and components if our suppliers
fail or are unable to perform because of strikes, natural disasters, financial
condition or other factors. Any material supply disruptions could adversely
affect our business, financial condition and results of operations as well as
our ongoing product cost structure.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT ENVIRONMENTAL REGULATION.
We are subject to environmental and safety laws and regulations governing
the use, storage and disposal of hazardous substances or wastes and imposing
liability for the cleanup of contamination from these substances. We cannot
completely eliminate the risk of contamination or injury from these substances
or wastes, and, in the event of such an incident, we could be held liable for
any damages that result. From time to time, we have been notified of violations
of government and environmental regulations. We attempt to correct these
violations promptly without any material impact on our operations. In addition,
we may be required to incur significant additional costs to comply with
environmental laws and regulations in the future. These costs, and any future
violations or liability under environmental laws or regulations, could have a
material adverse effect on our business, financial condition and results of
operations.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE OPEN MARKET BY
FORMER ADVANCED COMMUNICATION SYSTEMS STOCKHOLDERS COULD DEPRESS OUR STOCK
PRICE.
On February 25, 2000, we issued approximately 5,071,000 shares of our common
stock to complete the acquisition of Advanced Communication Systems. If former
stockholders of Advanced Communication Systems sell substantial amounts of our
common stock in the public market, including shares issued on the exercise of
outstanding options, the market price of our common stock could fall. These
sales might also make it more difficult for us to sell equity or equity-related
securities at a time and price that we would deem appropriate. In connection
with our acquisition of Advanced Communication Systems, we also assumed options
to acquire approximately 263,000 shares of our common stock. All of the shares
of our common stock issued to Advanced Communication Systems stockholders,
including those issued upon the exercise of options, are freely tradable without
restrictions or further registration under the Securities Act, unless they were
issued to an "affiliate" of Advanced Communication Systems as that term is
defined
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under the Securities Act, at the time the acquisition was submitted for approval
by Advanced Communication Systems stockholders. The term "affiliate" would
include directors, executive officers and some significant stockholders of
Advanced Communication Systems.
WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS ON OUR COMMON STOCK.
We have not paid cash dividends on our common stock within the past three
years and we do not anticipate that we will pay cash dividends in the
foreseeable future. We may pay cash dividends only if we comply with financial
tests and other restrictions contained in agreements relating to our
indebtedness.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND IN DELAWARE
LAW COULD DISCOURAGE TAKEOVER ATTEMPTS WE OPPOSE EVEN IF OUR STOCKHOLDERS MIGHT
BENEFIT FROM A CHANGE IN CONTROL OF TITAN.
Provisions in our certificate of incorporation and bylaws and in the
Delaware General Corporation Law may make it difficult and expensive for a third
party to pursue a takeover attempt we oppose even if a change in control of
Titan would be beneficial to the interests of our stockholders. Our bylaws
permit our stockholders to take action by written consent instead of at a
meeting and to nominate directors or bring other business before stockholder
meetings only if they comply with advance notice and other procedural
requirements in our bylaws. Our board of directors currently has the authority
under our certificate of incorporation to issue up to 2,500,000 authorized
shares of its preferred stock in one or more series and to fix the powers,
preferences and rights of each series without stockholder approval. The ability
to issue preferred stock could discourage unsolicited acquisition proposals or
make it more difficult for a third party to gain control of Titan, or otherwise
could adversely affect the market price of our common stock. Further, as a
Delaware corporation, we are subject to section 203 of the Delaware General
Corporation Law. This section generally prohibits us from engaging in mergers
and other business combinations with stockholders that beneficially own 15% or
more of our voting stock, or with their affiliates, unless our directors or
stockholders approve the business combination in the prescribed manner.
WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN WHICH COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL IN WHICH OUR STOCKHOLDERS MAY WISH TO PARTICIPATE.
In 1995, our board of directors adopted a "poison pill" shareholder rights
plan, which may discourage a third party from making a proposal to acquire Titan
which we have not solicited or do not approve, even if the acquisition would be
beneficial to our stockholders. As a result, our stockholders who wish to
participate in such a transaction may not have an opportunity to do so. Under
our rights plan, preferred share purchase rights, which are attached to our
common stock, generally will be triggered upon the acquisition, or actions that
would result in the acquisition, of 15% or more of our common stock by any
person or group. If triggered, these rights would entitle our stockholders other
than the acquiror to purchase, for the exercise price, shares of our common
stock having a market value of two times the exercise price. In addition, if a
company acquires us in a merger or other business combination not approved by
the board of directors, these rights will entitle our stockholders other than
the acquiror to purchase, for the exercise price, shares of the common stock of
the acquiring company having a market value of two times the exercise price.
ITEM 2. PROPERTIES
The Company's operations occupy approximately 1,000,000 square feet of space
located throughout the United States. The large majority of the space is office
space. Substantially all of the Company's facilities are leased. For lease
commitment information, reference is made to Note 9 to the accompanying
consolidated financial statements.
It is management's policy to maintain the Company's facilities and equipment
in good condition and at a high level of efficiency. Existing facilities are
considered to be generally suitable and adequate for the
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Company's present needs. The Company owns substantially all of the machinery and
equipment employed by it in its business.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further, the
Company and its subsidiaries are subject to claims and from time to time are
named as defendants in legal proceedings. The Company may also assert claims
from time to time. In the opinion of management, the amount of ultimate
liability or recovery with respect to these actions will not materially affect
the financial position or results of operations of the Company taken as a whole.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required by Item 4.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock and cumulative convertible preferred stock are
traded on the New York Stock Exchange ("NYSE"). As of March 3, 2000, there were
approximately 3,443 holders of record of the Company's common stock and 600
holders of record of the Company's preferred stock, excluding beneficial owners
of shares held in the names of brokers or other nominees. The closing prices for
the common and preferred stock on the NYSE as of March 3, 2000, were $37.81 and
$26.19, respectively. The quarterly market price ranges for the Company's common
and preferred stock on the NYSE in 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
COMMON STOCK ------------------- -------------------
FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
First....................................... $ 6.25 $ 4.75 $ 6.88 $ 5.50
Second...................................... 11.00 4.94 8.25 5.75
Third....................................... 14.63 9.38 6.56 3.81
Fourth...................................... 48.38 13.13 6.19 4.25
<CAPTION>
CUMULATIVE CONVERTIBLE 1999 1998
PREFERRED STOCK ------------------- -------------------
FISCAL QUARTER HIGH LOW HIGH LOW
- ---------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
First....................................... $11.63 $10.63 $13.38 $11.81
Second...................................... 14.25 11.25 14.38 13.19
Third....................................... 15.25 14.06 14.00 11.00
Fourth...................................... 32.00 14.31 11.94 11.25
</TABLE>
No dividends were paid on the Company's common stock in 1999 or 1998.
Regular quarterly dividends of $.25 per share were paid on the cumulative
convertible preferred stock in both years.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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ITEM 6. SELECTED FINANCIAL DATA (in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues.................................. $406,551 $303,428 $275,923 $245,976 $244,882
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle.................... 37,200 7,213 (1,382) 5,342 2,053
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle per common share:
Basic................................. $ .93 $ .18 $ (.07) $ .14 $ .04
Diluted............................... .81 .18 (.07) .14 .04
FINANCIAL POSITION:
Cash, cash equivalents and investments.... $ 11,749 $ 11,079 $ 15,882 $ 15,607 $ 14,477
Total assets.............................. 406,196 192,567 183,703 193,288 163,060
Line of cedit, long-term.................. 129,187 39,632 -- -- --
Other long-term debt...................... 8,556 30,659 37,565 40,521 6,874
Redeemable preferred stock................ -- -- 3,000 3,000 --
Stockholders' equity...................... 110,748 50,711 65,447 82,279 71,691
Preferred dividends....................... 695 778 875 803 695
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included in this document.
OVERVIEW AND OUTLOOK
We are a leading diversified technology company that is dedicated to
creating, building and launching technology-based businesses. We provide
information technology, communications and electron beam food pasteurization and
medical product sterilization systems and services. Through extensive
government-funded research and development activities since 1981 under contracts
totaling in excess of $2 billion, and through a company funded research and
development program, we have accumulated a broad portfolio of technologies,
intellectual property and expertise from which we have developed new businesses.
The core technologies supporting our Titan Scan and Titan Wireless segments were
derived from technologies originally developed for government applications. We
believe that our government contracts business enhances our technical expertise
with sophisticated technologies and facilitates our ability to develop
commercial applications. We fund the development of commercial technologies from
our technology base both internally as well as in conjunction with partners. In
1996, for example, we contributed the core technology to form Servnow!
NetTechnologies, Inc., which is now known as IPivot, Inc. IPivot develops
software products that improve the performance of server farms, web sites and
software applications. We raised the capital required to fund IPivot from
venture capital sources. In November 1999, we received approximately $42 million
in cash for our approximate 8% equity interest when IPivot was acquired by Intel
Corporation. We plan to continue building our technology portfolio, identifying
commercial applications and entering into strategic relationships to further our
growth. We believe that each of our four core businesses -- Titan Systems,
Cayenta, Titan Scan and Titan Wireless -- is well positioned in its respective
market for sustained long-term growth, and our business strategy is to spin
these businesses off to become independent stand-alone public companies.
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We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
<TABLE>
<CAPTION>
SEGMENT SEGMENT DESCRIPTION
- ------- -------------------
<S> <C>
Titan Systems........... Information technology and communications solutions for
defense, intelligence, and other U.S. and allied
government agencies
Cayenta................. Total services provider of comprehensive information
technology solutions for its customers' business
functions, including e-business, finance, accounting,
customer billing and collection, contract management,
supply-chain management and equipment monitoring and
maintenance
Titan Scan.............. Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless.......... Satellite communication systems and services which provide
telephony in developing countries
Emerging Technologies... Development of commercial applications for technologies
created by our other business segments through internal
and government-sponsored research and development programs
</TABLE>
Each of Titan Systems, Titan Scan and Titan Wireless is a wholly owned
subsidiary of ours, and has a management team that has significant relevant
experience in the segment's particular business and market area. Consistent with
our strategy of aligning management motivation with stockholder interests, each
of these wholly owned subsidiaries has its own key employee stock option plan to
foster an entrepreneurial environment. We have created stock option plans for
each of Titan Systems, Titan Scan and Titan Wireless. As of December 31, 1999,
Titan Systems had approximately 13% of its fully diluted common stock that had
been reserved for issuance under its plan, and each of Titan Scan and Titan
Wireless had approximately 16% of their fully diluted common stock that had been
reserved for issuance under their respective plans.
We control approximately 97% of the voting power of Cayenta through our
ownership of 10 million shares of Class B common stock. Each Class A share is
entitled to one vote and each Class B share is entitled to ten votes, with Class
A and Class B shares voting together on all matters submitted to the vote of the
holders of common stock. Cayenta has filed a registration statement on Form S-1
for an initial public offering of an as yet undetermined number of shares of its
Class A common stock. If the proposed offering is completed, the 2,345,000
outstanding shares of Series A preferred stock of Cayenta will convert into
Class A common stock of Cayenta. We cannot be certain that Cayenta will be able
to complete its offering or complete the offering at the currently expected
offering size. We currently expect to retain in excess of 90% of the voting
power of Cayenta following its proposed initial public offering. In addition,
Cayenta has reserved 2,500,000 shares of Class A common stock under stock option
plans. Cayenta has also issued warrants for 495,800 shares of its Class A common
stock that have a weighted average exercise price of $13.11 per share.
TITAN SYSTEMS
Titan Systems provides and is expected to continue to provide the largest
percentage of our consolidated revenues. During the year ended December 31,
1999, Titan Systems had total revenues of $311.4 million, which represented
76.6% of our consolidated revenues for the period. Titan System's revenues have
continued to grow internally and through our well-defined strategy of increasing
our core competencies through acquiring defense information technology companies
as part of the industry
40
<PAGE>
consolidation of defense companies. We expect to continue to support this
segment's growth through strategic acquisitions.
On February 25, 2000, we consummated a merger with Advanced Communication
Systems, Inc. in a stock-for-stock, pooling of interests transaction. Advanced
Communication Systems provides communications, information systems and aerospace
services and solutions primarily to U.S. government agencies. During the twelve
months ended September 30, 1999, Advanced Communication Systems had revenues
from government contracts of approximately $199 million. Advanced Communication
Systems itself has participated in the industry consolidation and acquired
another company in September 1999 in a cash transaction accounted for as a
purchase. As of December 31, 1999, Advanced Communication Systems had recorded
goodwill of $71.2 million that is being amortized over a period from five to 40
years in connection with its acquisitions.
During 1999, Titan Systems acquired System Resources Corporation ("System
Resources") for a cash purchase price of approximately $35 million, subject to
certain post-closing working capital adjustments and offsets for indemnification
claims, consisting of approximately $33 million in cash paid at closing, less a
$0.5 million holdback, and $2 million in promissory notes which bear interest at
7% per annum and become fully payable, subject to purchase price adjustments and
indemnification claims, on June 9, 2000. In addition, we agreed to pay the
System Resources stockholders one-half of approximately $1.5 million in System
Resources receivables aged more than 720 days to the extent that any of those
receivables are collected within the two-year period following the closing date,
net of certain post-closing adjustments and indemnification obligations that are
offset against such collections. We also retired approximately $10 million in
System Resources indebtedness. Also in 1999, Titan Systems acquired Atlantic
Aerospace Electronics Corporation for cash of approximately $18 million, subject
to certain post-closing adjustments, plus potential payments of up to $3 million
contingent upon certain future contract awards, subject to offsets for
indemnification claims. We accounted for both of these acquisitions as purchases
and recorded approximately $44.2 million in goodwill, which is being amortized
on a straight-line basis over 40 years.
During 1998, we completed five acquisitions, DBA Systems, Inc. on
February 27th, Validity Corporation on March 31st, Horizons Technology, Inc. on
June 30th, VisiCom Laboratories, Inc. on August 24th, and Delfin Systems, Inc.
on October 23rd. With the exception of the Validity acquisition, each of these
mergers was a stock-for-stock transaction accounted for as a pooling of
interests. We recorded goodwill of approximately $18.9 million in connection
with the Validity transaction, which is being amortized over 30 years.
Titan Systems' backlog, including both funded and unfunded backlog, was
approximately $615 million at December 31, 1999. Titan Systems also had
remaining priced options of approximately $218 million at December 31, 1999. The
acquisition of Advanced Communication Systems will substantially increase this
backlog. At September 30, 1999, Advanced Communication Systems had funded and
unfunded backlog of $704.6 million, including priced options of $399.8 million
which we do not include in our backlog. Although backlog represents only
business which is considered to be firm, we cannot guarantee that cancellations
or scope adjustments will not occur.
Titan Systems' operating margin is affected by the mix of contract types
(cost reimbursement, fixed-price or time and materials) as well as by the mix of
prime contracts versus subcontracts. Significant portions of Titan Systems'
contracts are cost reimbursement contracts, under which Titan Systems is
reimbursed for all actual costs, plus a fee or profit. The financial risks under
these contracts generally are lower than those associated with other types of
contracts, and margins are also typically lower. The U.S. government also has
awarded Titan Systems fixed-price contracts. Such contracts carry higher
financial risks because Titan Systems must deliver the contracted services at a
cost below the fixed price in order to earn a profit.
41
<PAGE>
The following table summarizes the percentage of government revenues of
Titan Systems attributable to each contract type for the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
CONTRACT TYPE 1998 1999
- ------------- -------- --------
<S> <C> <C>
Cost Reimbursement......................................... 49.8% 48.2%
Fixed-Price................................................ 32.0 21.0
Time and Materials......................................... 18.2 30.8
----- -----
100.0% 100.0%
===== =====
</TABLE>
The percentage of Advanced Communication Systems' revenues attributable to cost
reimbursement contracts was 45.0%, the percentage attributable to fixed-price
contracts was 23.0%, and the percentage attributable to time and materials
contracts was 32.0%, for the twelve months ended September 30, 1999.
Revenues on cost reimbursement contracts are recognized to the extent of
costs incurred plus a proportionate amount of fees earned. Revenues on time and
materials contracts are recognized at the contractual rates as labor hours and
direct expenses are incurred. Revenues on fixed-price contracts are recognized
on the percentage-of-completion method based on costs incurred in relation to
total estimated costs.
CAYENTA
During the period between 1995 and January 1999, Cayenta developed its
systems integration and software application expertise. In January 1999, Cayenta
acquired substantially all of the assets of Transnational Partners II, LLC
("Transnational Partners"), a consulting company that focused on systems
integration and architecture, to broaden its capabilities in those areas and
access Transnational Partners' customer base. Cayenta acquired these assets for
an initial installment of $7.0 million in cash and 2,345,000 shares of its
convertible preferred stock. In February 2000, Cayenta paid off an additional
$2.8 million note that it issued as part of its acquisition of Transnational
Partners, plus 7% interest thereon. During late 1999, Cayenta acquired JB
Systems, Inc., an enterprise asset management company doing business under the
name Mainsaver ("Mainsaver"), that sells software that enables its customers to
efficiently manage their equipment maintenance processes. Cayenta acquired
Mainsaver for $13.2 million in cash, subject to certain post-closing
adjustments, of which $9.7 million was paid at the closing. Of the $3.5 million
withheld at the closing, $0.5 million is due in March 2000, and $3.0 million is
due in May 2001, plus 7.5% interest thereon in each case, after satisfaction of
possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $1.9 million to reduce outstanding
indebtedness of Mainsaver. Also during late 1999, Cayenta acquired Assist
Cornerstone Technologies, Inc. ("Assist"), a company that sells e-commerce
software. Cayenta acquired Assist for 516,458 shares of its Class A common stock
and approximately $13 million in cash, of which $10 million was paid at the
closing. Of the $3.0 million withheld at the closing, $1.7 million is due in
March 2000 and $1.3 million is due in June 2001, plus 8% interest thereon in
each case, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, Cayenta paid approximately $3.2
million to retire outstanding indebtedness of Assist. Cayenta also acquired SFG
Technologies Inc. ("SFG Technologies"), a company that sells software to
utilities that utilities use to manage and monitor rate setting, billing,
collection and settlement transactions, during the fourth quarter of 1999.
Cayenta acquired SFG Technologies for $11.6 million in cash, of which $9.6
million was paid at the closing. Of the approximately $2.0 million placed into
escrow at the closing, approximately $0.5 million is due in March 2000 and $1.5
million is due in June 2001, after satisfaction of possible working capital
adjustments or indemnification obligations. In addition, Cayenta paid
approximately $3.1 million to retire outstanding indebtedness of SFG
Technologies. Cayenta
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<PAGE>
intends to integrate the software and solutions developed by these companies
into its total services provider, or TSP, offering.
In September 1999, together with Sempra Energy Information Solutions, a
subsidiary of Sempra Energy, and modis, a company that focuses on configuring
customers' software applications, Cayenta established Soliance, LLC, a joint
venture that markets and delivers information technology systems and solutions,
including TSP offerings, to the utility industry. Cayenta owns a 10% equity
interest in Soliance and has a management services agreement with Soliance under
which it provides TSP services to Soliance's customers.
Cayenta has historically derived its revenues from its consulting services
and from sales of its proprietary software applications. For the twelve months
ended December 31, 1999, Cayenta's revenues from consulting services represented
94.6% of its actual revenues and its revenues from software applications
represented 5.4% of its actual revenues. Cayenta provides its services primarily
on a fixed-time, fixed-price basis and, to a lesser extent, on a time and
materials basis. Under its fixed-time, fixed-price contracts, Cayenta recognizes
revenues on a percentage of completion basis. Cayenta's fixed-time, fixed-price
contracts usually require an advance payment from its customer with additional
payments due on achievement of specific milestones or on a predetermined
schedule. Revenues earned but not yet billed are recorded as unbilled
receivables. Under its time and materials contracts, Cayenta is paid at an
agreed upon hourly rate for the actual time spent on a customer's projects, and
revenues are recorded at the time services are performed. For the twelve months
ended December 31, 1999, Cayenta's consulting services revenues from fixed-time,
fixed-price contracts represented 70.0% of its actual consulting services
revenues and its consulting services revenues from time and materials contracts
represented 30.0% of its actual consulting services revenues. Each of Mainsaver,
Assist and SFG Technologies recognizes revenues from the sale of its proprietary
software when the software is delivered and accepted, in accordance with the
American Institute of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition." The related software support and maintenance is
billed at the beginning of the maintenance period, recognized ratably over the
term of the applicable contract and recorded as deferred revenues until
recognized.
Cayenta intends to focus its sales and marketing efforts on its TSP
offering. As Cayenta expands the portion of its business that is based on its
TSP offering, Cayenta intends to enter into contracts with terms of between
three and five years. Cayenta expects revenues from its TSP offering to consist
of periodic recurring fees from ongoing services that will be recognized ratably
over the applicable contract's term. To the extent that Cayenta is able to enter
into contracts of this type, we expect that Cayenta's historic consulting
services and software applications types of revenues will decrease as a
percentage of total revenues.
Historically, Cayenta's interest expense has related to borrowings from us
to fund its acquisitions and working capital requirements. As of March 20, 2000,
Cayenta owed approximately $68.4 million to us under a credit facility on which
Cayenta will make quarterly interest payments at the greater of the rate of 10%
per annum or our effective weighted average interest rate under our senior
credit facility. Titan's effective weighted average interest rate is calculated
at any given period of time by multiplying the daily balance of Titan's total
bank debt outstanding times the applicable interest rate for that day, which
yields an interest expense amount for that day. The sum of the daily interest
expense amount is divided by the sum of the daily balances of the total bank
debt outstanding to yield a daily weighted effective interest rate which is then
multiplied by 365 to yield an annual weighted average interest rate. Cayenta may
not use the proceeds of its proposed initial public offering to pay amounts
outstanding under its credit facility with us.
Under its variable stock option plan, Cayenta has granted options to certain
employees who have agreed to resell shares purchased with those options to
Cayenta. Cayenta has recorded deferred compensation related to these option
grants in an aggregate amount of $203 through December 31, 1999. As of December
31, 1999, there are 654,500 options outstanding that are subject to this buyback
provision, for
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<PAGE>
which Cayenta expects to record deferred compensation expense equal to the
difference between these options' exercise price of $0.36 per share and the
price per share in the proposed initial public offering multiplied by all
654,500 options. Upon the occurrence of an initial public offering, the options
convert to fixed price options. Cayenta also issued 645,500 options to employees
not covered by this buyback option at exercise prices that were less than the
deemed fair market value of the underlying common shares on the date of grant.
Cayenta has recognized deferred compensation relating to these grants of $638
and will amortize this deferred charge to expense over the four-year vesting
period of these options. We expect that there will be an additional charge
related to deferred compensation at the time the initial public offering closes,
and that this charge may be material.
If Cayenta completes its proposed initial public offering, Cayenta expects
to incur operating losses as it invests in the further development of its total
services provider, or TSP, offering. Cayenta expects its selling, general and
administrative expenses to increase significantly as it expands its recruiting
efforts, further develops and launches its TSP offering, initiates its branding
campaign, increases its direct sales staff and builds its administrative
infrastructure. Cayenta also expects its research and development expenses to
increase as it integrates recently acquired software into, and further develops,
its TSP offering.
TITAN SCAN
Titan Scan currently derives primarily all its revenues from providing
turnkey medical product sterilization systems for use at a customer's own
facility and from providing medical product sterilization services at
Titan-owned facilities in San Diego and Denver. Titan Scan's San Diego and
Denver facilities currently run seven days per week, perform sterilization
services for an average of 19 hours per day, and have performed over 100,000
hours of contract sterilization services.
Titan Scan currently derives a small portion of its revenues, and in the
future expects to derive significant revenues, from providing electron beam food
pasteurization services using our SureBeam technology. In December 1999, the
U.S. Department of Agriculture ("USDA") issued regulations setting forth
guidelines for the irradiation of meats. In anticipation of these regulations,
Titan Scan built, at Cloverleaf Cold Storage's facility in Sioux City, Iowa, the
first electron beam food pasteurization facility in the United States. In
addition, Titan Scan entered into multiyear arrangements with many of the major
poultry and meat providers in the United States, including Cargill, IBP, Tyson
Foods, Emmpak and Huisken Meats, among others. Titan Scan's multiyear
arrangements with its customers generally provide that Titan Scan will be the
exclusive provider of electronic pasteurization services whenever these
companies elect to use pasteurization technology. Our Sioux City, Iowa facility
became operational in December 1999 and once at full capacity will be able to
pasteurize in excess of 250 million pounds of product annually. In
January 2000, Titan Scan agreed to build a second facility in Arkansas with a
strategic partner. The strategic partner will form a new entity to operate the
SureBeam system, and Titan Scan will own a minority interest in the new entity.
The facility is scheduled to become operational in December 2000. Also in
January 2000, Titan Scan announced that it had sold a SureBeam system to Japan's
Mitsubishi Corp. that is expected to be fully operational by the first quarter
of 2001. In connection with the sale, Mitsubishi will form a new entity to
operate the SureBeam system, which is expected to be initially used for medical
product sterilization, Titan Scan will hold an equity interest in the new
entity, and Mitsubishi will market Titan Scan's SureBeam technology in Japan. We
cannot be certain that consumers will accept irradiated foods and that meat and
poultry providers and producers will begin to use our pasteurization services.
We also cannot guarantee the volume of beef or poultry that meat and poultry
providers and producers will elect to have electronically pasteurized.
Together with a strategic partner, we are currently building a facility in
Hilo, Hawaii that will use our SureBeam technology for the disinfestation of
fruits and vegetables produced in Hawaii. Titan Scan will receive revenues from
the installation of our system in the plant and has an option to purchase up to
a 20% minority equity interest in the entity operating the facility, which will
receive revenues from disinfestation services. We cannot be certain that the
facility will attain market acceptance or generate significant
44
<PAGE>
revenues that will be realized by Titan Scan through profit allocations if Titan
Scan exercises its option to purchase an equity interest in the entity operating
the facility.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position. However, a finding in favor of Ion Beam Applications in this
action could adversely affect our business, financial condition and results of
operation by reducing the growth of our Titan Scan business segment and
preventing us from generating the revenues that we expect from food
pasteurization.
With respect to equipment sales, we recognize revenue on a percentage of
completion basis. Service revenues are recognized as the related services are
performed.
If irradiated foods gain market acceptance, Titan Scan expects that its
revenues from pasteurization services would increase significantly. Depending
upon market demand, Titan Scan may build additional food pasteurization
facilities, which would increase its level of capital expenditures.
TITAN WIRELESS
Titan Wireless develops and produces advanced satellite ground terminals,
satellite voice/data modems, networking systems and other products to support
telephony in developing countries for government and commercial customers
worldwide. Titan Wireless' technology relies heavily on our Demand Assigned
Multiple Access, or DAMA, technology, which enables more cost-effective and
efficient use of satellite transmission capacity by allowing each ground
terminal in a satellite network to communicate with any other terminal in the
network.
To date, Titan Wireless' revenues have been generated primarily through the
sale of products to commercial carriers of telephony services. Titan Wireless is
increasingly seeking to generate recurring service revenues from the telephony
systems it installs, and intends to derive at least 50% of all future revenues
from providing telecommunications services. In 1999, Titan Wireless formed Sakon
LLC with Sakon Corporation to provide carrier, direct dial telephony and
enhanced communications services, including voice over IP and Internet services,
in certain developing countries. In November 1999, Titan Wireless formed a
strategic relationship with Telecel International Limited, a large wireless
communications service provider to the African continent, to provide
satellite-based telecommunications services in Africa.
Titan Wireless' wholly-owned subsidiary, Titan Africa, Inc., is building a
satellite-based telephone system for Benin's national telephone company. Titan
Wireless, the prime contractor for the project, will install the major satellite
hub, the Very Small Aperture Terminal hardware, the billing system and network
control system. Alcatel of France is a major subcontractor to Titan Wireless on
this project, and will handle the delivery, installation and integration of the
digital cellular system, wireless local loop, fiber optic system and primary hub
switching technology of the system. Titan Wireless will build out the entire
system, which is expected to be completed in 2001, co-operate the system with
the national telephone company for approximately eight years, and then transfer
the operations to the national telephone company. A majority of the build-out
costs under this contract will be subcontract costs payable by Titan Wireless to
Alcatel. Titan Wireless' operating margin on work performed by subcontractors is
substantially lower than its operating margin on work it performs itself. In
addition to realizing revenue and profit on the equipment portion of the
project, Titan Wireless will share in the revenue and profit generated by the
system while it is co-operating the system.
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<PAGE>
With respect to systems sales, we recognize revenue on a percentage of
completion basis. For equipment sales, we recognize revenue on shipment. Service
revenues are recognized as the related services are performed. As Titan Wireless
increases the number of developing countries in which it provides international
long distance telecommunications, Titan Wireless expects its revenues and
operating income to increase.
EMERGING TECHNOLOGIES AND BUSINESSES
This segment's operating activities consist primarily of the ImagClear 5000
fingerprint digitization system business, our truck and train tracking and
monitoring system business and other early stage commercial businesses,
including businesses in which we have less than a 20% equity interest. Emerging
Technologies pursues commercial applications for technologies originally
developed in our Titan Systems' segment or developed by defense companies we
have acquired.
In November 1999, we received approximately $42 million in cash for our
approximate 8% equity interest in IPivot, Inc., which was acquired by Intel
Corporation. Up to an additional $3 million may be received by Titan within one
year subject to certain post-closing adjustments. IPivot develops software
products that improve the performance of server farms, web sites and software
applications. In 1996, we contributed the core technology to form Servnow!
NetTechnologies, Inc., which later changed its name to IPivot. IPivot was one of
the businesses contained in our Emerging Technologies segment. The entire amount
received from Intel was recorded as a gain.
[THIS SPACE LEFT INTENTIONALLY BLANK]
46
<PAGE>
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $275,923 $303,428 $406,551
Cost of revenues............................................ 216,553 232,041 314,369
Selling, general and administrative......................... 36,731 37,553 46,583
Research and development.................................... 7,466 5,590 6,690
Acquisition related charges and other....................... 6,600 9,891 (28,880)
-------- -------- --------
Operating profit............................................ 8,573 18,353 67,789
Interest expense, net....................................... 5,771 6,985 8,606
Income tax provision........................................ 4,184 4,155 21,983
Cumulative effect of change in accounting principle, net.... -- (19,474) --
Loss from discontinued operations, net...................... (17,930) (7,444) (5,600)
-------- -------- --------
Net income (loss)........................................... $(19,312) $(19,705) $ 31,600
======== ======== ========
</TABLE>
SEGMENT FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
TITAN SYSTEMS
Revenues.................................................. $225,686 $259,442 $311,412
Operating profit.......................................... 8,361 25,270 24,999
SOFTWARE SYSTEMS
Revenues.................................................. 17,374 21,470 45,922
Operating profit.......................................... 4,580 5,137 6,962
TITAN SCAN
Revenues.................................................. 8,254 11,184 14,295
Operating profit (loss)................................... (204) 1,121 2,039
TITAN WIRELESS
Revenues.................................................. 18,405 6,717 27,325
Operating profit (loss)................................... (1,074) (6,732) 5,063
EMERGING TECHNOLOGIES AND BUSINESSES
Revenues.................................................. 6,204 4,615 7,597
Operating profit (loss)................................... (286) 34 43,143
CORPORATE OTHER............................................. (2,804) (6,477) (14,417)
-------- -------- --------
TOTAL REVENUES.............................................. $275,923 $303,428 $406,551
TOTAL OPERATING PROFIT...................................... $ 8,573 $ 18,353 $ 67,789
</TABLE>
[THIS SPACE LEFT INTENTIONALLY BLANK]
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<PAGE>
AS A PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 78.5 76.5 77.3
Selling, general and administrative......................... 13.3 12.4 11.5
Research and development.................................... 2.7 1.8 1.6
Acquisition related charges and other....................... 2.4 3.3 (7.1)
----- ----- -----
Operating profit............................................ 3.1 6.0 16.7
Interest expense, net....................................... 2.1 2.3 2.1
Income tax provision........................................ 1.5 1.4 5.4
Cumulative effect of change in accounting principle, net.... -- (6.4) --
Loss from discontinued operations, net...................... (6.5) (2.4) (1.4)
----- ----- -----
Net income (loss)........................................... (7.0)% (6.5)% 7.8%
===== ===== =====
</TABLE>
Historically, we operated our business in five segments -- Information
Technologies, Software Systems, Medical Sterilization and Food Pasteurization,
Communications Systems and Emerging Technologies and Businesses. We have renamed
three of our five historical segments as follows: Information Technologies has
been renamed Titan Systems, Medical Sterilization and Food Pasteurization has
been renamed Titan Scan and Communications Systems has been renamed Titan
Wireless. All of our segments are comprised of multiple operating entities.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONSOLIDATED. Our consolidated revenues increased from $275.9 million in
1997 to $303.4 million in 1998 and from $303.4 million in 1998 to $406.6 million
in 1999. Increased revenues were reported across all business units in 1999,
with the most notable increases in our Titan Wireless segment and our Software
Systems segment, with revenue increases of 307% and 114%, respectively in 1999.
Revenue growth in 1999 was primarily attributable to the impact of the
acquisitions of System Resources Corporation and Atlantic Aerospace Electronics
Corporation made in 1999 in our Titan Systems segment, the acquisition of
substantially all of the assets of Transnational Partners II and other new
business by Cayenta, and shipments of hardware to Benin, Africa in our Titan
Wireless segment. Revenue growth in 1998 was primarily attributable to the
impact of acquisitions made and integrated into our Titan Systems segment, work
performed on new business in the Software Systems segment, and the
near-completion of two SureBeam systems in our Titan Scan segment.
TITAN SYSTEMS. Titan Systems' revenues increased from $225.7 million in
1997 to $259.4 million in 1998 and from $259.4 million in 1998 to $311.4 million
in 1999. The increase in 1999 primarily relates to $30.1 million of revenue
generated from System Resources Corporation, which was purchased in June 1999,
and to a lesser extent, due to internal revenue growth experienced in certain of
our information technology businesses. The increase in 1998 primarily relates to
$23.0 million of revenue generated from Validity, which was purchased in
March 1998, and to a lesser degree, revenues related to a claim with the U.S.
government for work performed in a prior year, and internal revenue growth
experienced in certain of our product based businesses.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues increased
from $17.4 million in 1997 to $21.5 million in 1998 and from $21.5 million in
1998 to $45.9 million in 1999. The increase in 1999 resulted primarily from
revenues generated from several new customers, the largest of which was the
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<PAGE>
government of Washington D.C., which revenues derived were $15.3 million in
1999, and revenues of approximately $11.1 million derived from Cayenta's
contract with Sempra Energy. Revenues from the Federal Aviation Administration
accounted for approximately $8.9 million, $11.2 million and $8.5 million of
Software Systems' revenues during 1997, 1998 and 1999, respectively. Cayenta
expects to diversify its customer base as it expands its sales and marketing
efforts and further develops and launches its TSP offering.
TITAN SCAN. Titan Scan's revenues increased from $8.3 million in 1997 to
$11.2 million in 1998 and from $11.2 million in 1998 to $14.3 million in 1999.
The increase in 1999 is primarily related to revenues recognized, using the
percentage-of-completion method of accounting, on the Company's first x-ray
pasteurization system for Hawaii Pride, and to a lesser extent, due to the
completion of two medical sterilization in line systems. The revenue increase in
1998 resulted from the work performed on two medical sterilization systems noted
previously, which were ordered by customers in late 1997, and which were
substantially completed during 1998. Increased processing of medical products at
our two medical sterilization facilities also contributed to this revenue growth
in 1998. Revenues in 1997 were also favorably impacted by increased processing
of medical products as well as the sale of our turnkey sterilization systems to
Guidant Corporation and Baxter Healthcare.
TITAN WIRELESS. Titan Wireless' revenues decreased from $18.4 million in
1997 to $6.7 million in 1998 and increased from $6.7 million in 1998 to $27.3
million in 1999. The increase in 1999 revenues was due primarily to the
shipments of hardware for a telecommunications systems Titan Wireless is
building in Benin, Africa, and, to a lesser extent, the launching of
international long distance service by Titan's consolidated joint venture, Sakon
LLC in the countries of El Salvador, Cameroon, Jordan, Kuwait and Saudi Arabia.
The decline in 1998 revenues was due primarily to the decreased shipments made
on our contract with Pasifik Satelit Nusantara for telephony units in Indonesia,
resulting from the political and economic conditions in Indonesia.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
decreased from $6.2 million in 1997 to $4.6 million in 1998 and increased from
$4.6 million in 1998 to $7.6 million in 1999. The increase in 1999 was due to
increased shipments of digitized fingerprint systems. The decrease in 1998 was
due primarily to the wind-down of our environmental consulting business during
the first quarter of 1998, partially offset by increased sales volume of our
fingerprint digitization systems.
SELLING, GENERAL AND ADMINISTRATIVE
Our SG&A expenses increased from $36.7 million in 1997 to $37.6 million in
1998 and from $37.6 million in 1998 to $46.6 million in 1999. SG&A, as a
percentage of revenues, decreased from 13.3% in 1997 to 12.4% in 1998 and from
12.4% in 1998 to 11.5% in 1999. The reductions in 1998 and 1999 reflect the
impact of cost reduction measures as well as economies of scale and efficiencies
that have been achieved. In addition, we have eliminated many duplicate
functions and costs as part of our process of integrating certain of our
acquired businesses. In early 1997, we implemented a streamlining process of our
administrative functions. This process focused on eliminating redundancies, and
resulted in increased efficiencies, reduced infrastructures, and, ultimately,
reduced costs. This process continued throughout 1998 and 1999, and we intend to
continue to seek these cost savings.
RESEARCH AND DEVELOPMENT
Our R&D expenses decreased from $7.5 million in 1997 to $5.6 million in 1998
and from $5.6 million in 1998 to $6.7 million in 1999. The increased level of
R&D expenditures in 1999 was primarily related to increased development costs
for certain imaging and video processing products. The reduced level of R&D
expenditures in 1998 primarily reflects the completion of certain development
and certification efforts of certain defense communications products within our
Titan Systems segment which were substantially completed in 1997.
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<PAGE>
OPERATING PROFIT
CONSOLIDATED. Our operating profit increased from $8.6 million in 1997 to
$18.4 million in 1998 and increased from $18.4 million in 1998 to $67.8 million
in 1999. Our operating profits have been significantly impacted by a number of
factors in each of 1997, 1998 and 1999. The 1999 operating results include a net
credit of $28.9 million, reflecting a $41.8 million gain we realized on the sale
of our minority ownership interest in IPivot, net of $12.9 million of
acquisition, integration, and reorganization costs. These costs are primarily
comprised of estimated costs to eliminate duplicate leased facilities, including
lease cancellation costs, employee termination costs related to approximately 32
employees, employee relocation costs, and the write-down of certain assets, as
well as direct professional fees related to the reorganization and integration
of certain businesses within our Titan Systems subsidiary. The 1998 operating
results include a charge of $9.9 million primarily related to the direct
transaction costs incurred on the Delfin, VisiCom, Horizons and DBA mergers, and
to a lesser degree certain costs incurred to integrate these businesses into us,
as well as certain integration costs incurred in other business segments. The
1997 operating results include a charge of $9.8 million related primarily to
provisions taken to reflect certain asset impairments and an estimated
environmental liability pertaining to a DBA manufacturing facility which is held
for sale.
TITAN SYSTEMS. Titan Systems' operating profit increased from $8.4 million
in 1997 to $25.3 million in 1998 and decreased slightly from $25.3 million in
1998 to $25.0 million in 1999. The 1999 operating results include a charge of
$4.7 million of acquisition, integration and reorganization costs primarily
comprised of costs to eliminate duplicate facilities, lease termination costs
and employee termination and relocation costs. The 1998 operating income
includes a charge of $7.2 million related to $6.8 million of special acquisition
and integration related charges principally comprised of direct transaction and
integration costs incurred by us in connection with the mergers of DBA,
Horizons, VisiCom and Delfin and $0.4 million of costs incurred to file a
registration statement with the SEC which was ultimately withdrawn. The 1997
operating income includes charges of $9.8 million related to the write down of
property held for sale, an estimated environmental liability for DBA, which we
acquired during 1998 and for which we recorded a special charge of $3.0 million
during 1997, and certain other asset write-downs recorded in connection with the
acquisition of DBA. Excluding the impact of these charges, Titan Systems'
operating income increased from $18.2 million in 1997 to $32.5 million in 1998
and decreased from $32.5 million in 1998 to $29.7 million in 1999. The reduced
operating income in 1999 reflects the increased utilization of subcontractors,
resulting in lower operating margins, and increased planned investments in
research and development for certain imaging and video processing products. We
expect to continue this level of increased research and development expenditures
in fiscal 2000. The increased operating income in 1998 is primarily a result of
the increased revenue volumes.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' operating profit
increased from $4.6 million in 1997 to $5.1 million in 1998 and from $5.1
million in 1998 to $7.0 million in 1999. Included in the 1999 operating results
is a $2.1 million charge related to reorganization and severance costs we
incurred primarily during the fourth quarter to restructure and wind-down our
Year 2000 business unit. Employee termination costs, facilities costs and lease
termination costs comprised a substantial portion of this charge. Excluding the
impact of this charge, Software Systems' operating profit increased from $4.6
million in 1997 to $5.1 million in 1998 and to $9.1 million in 1999. The
increased operating profit in 1999 and 1998 reflects the impact of the increased
revenues discussed previously.
TITAN SCAN. Titan Scan's operating results improved from an operating loss
of $0.2 million in 1997 to operating profit of $1.1 million in 1998 and from
$1.1 million operating income in 1998 to $2.0 million in 1999. Included in the
1999 operating results is $0.8 million of reorganization and restructuring costs
consisting primarily of employee termination and relocation costs. Excluding the
impact of these costs, Scan's operating income increased from an operating loss
of $0.2 million in 1997 to operating income of $1.1 million in 1998 and to
operating income of $2.9 million in 1999. Increased operating profits in 1999
50
<PAGE>
and 1998 were a result of the increased revenue volumes noted previously.
Management does not expect this trend to continue due to increased investments
to be made in this business.
TITAN WIRELESS. Titan Wireless' operating performance declined from an
operating loss of $1.1 million in 1997 to an operating loss of $6.7 million in
1998 and improved from an operating loss of $6.7 million in 1998 to an operating
profit of $5.1 million in 1999. The 1998 operating results include special
charges of $2.4 million including pre-operating and start-up costs of $0.5
million related to the Titan Africa, Benin operation, $1.4 million related to
employee termination and retention costs related to the reorganization of this
business, as well as approximately $0.5 million related to costs on the
previously mentioned registration statement with the SEC which was ultimately
withdrawn. Excluding the impact of these charges, operating loss, as adjusted,
was $4.3 million in 1998 compared to an operating loss of $1.1 million in 1997
and operating income of $5.1 million in 1999. The improved operating income in
1999 is directly related to the increase in revenues noted previously. The
increase in operating loss in 1998 was attributable to the decline in revenues
noted above.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results improved from an operating loss of $0.3 million in 1997 to operating
income of $0.03 million in 1998 and improved from operating income of $0.03
million in 1998 to operating income of $43.1 million in 1999. Included in the
1999 operating results is a $41.8 million gain resulting from the sale of the
Company's approximate 8% equity interest in IPivot. Excluding the impact of this
gain, operating income was $1.4 million. The improved operating results in 1999
and 1998 were due primarily to the increase in revenues discussed above.
INTEREST EXPENSE, NET
Our net interest expense increased from $5.8 million in 1997 to $7.0 million
in 1998 and from $7.0 million in 1998 to $8.6 million in 1999. Net interest
expense has increased over 1997, 1998 and 1999, primarily as a direct result of
the increased level of our borrowings, primarily to fund the growth in the
various segments, and to fund the acquisitions of System Resources Corporation
and Atlantic Aerospace Electronics Corporation in 1999. In 1998 and 1997, the
principal component of interest expense was related to our convertible senior
subordinated debentures, all of which had been converted into our common stock
or redeemed by the end of the fourth quarter of 1999. Borrowings from our
primary bank lines of credit, excluding working capital lines from acquired
companies, averaged $10.8 million in 1997 at a weighted average rate of 8.1%,
$28.9 million at a weighted average interest rate of 7.7% during 1998, and $88.8
million at a weighted average interest rate of 7.9% during 1999. Also included
in interest expense is interest on our deferred compensation and retiree medical
obligations. Interest expense related to these items was $0.8 million for 1997,
$0.9 million for 1998, and $1.1 million for 1999. We expect interest expense to
increase due to increased levels of borrowings, acquisitions and investments in
commercial businesses.
INCOME TAXES
Income taxes reflect effective rates of 149% in 1997 and 37% in 1998 and
1999. The difference between the actual provision and the effective rate (based
on the United States statutory tax rate) was due primarily to the utilization of
net operating losses in 1999 and to state income taxes in 1998. The increased
rate in 1997 was due primarily to significant non-deductible expenses which were
recorded for financial reporting purposes, as well as the inability to offset
losses of certain acquired entities with income of other entities. We anticipate
that our effective income tax rate will remain stable in the foreseeable future
at an approximate rate of 30% to 40%, before the impact of specific transactions
such as acquisitions.
NET INCOME (LOSS)
Our reported net loss increased from $19.3 million in 1997 to $19.7 million
in 1998 and from a net loss of $19.7 million in 1998 to net income of $31.6
million in 1999. Included in the net income for 1999 is the
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<PAGE>
$41.8 million gain from the sale of the Company's interest in IPivot, net of
certain integration, acquisition and reorganization costs of $12.9 million.
Included in the net income for 1999 and the net losses for 1997 and 1998 are net
losses from discontinued operations of $5.6 million, $17.9 million and $7.4
million, respectively, relating to our winding down of our access control
systems and broadband communications businesses as well as operations
discontinued by certain of the companies acquired by us during 1998. In
addition, we adopted Statement of Position (SOP) 98-5 ("Start-up Costs") in
1998, which resulted in a $19.5 million write-off of capitalized start-up costs
recorded as a cumulative effect of a change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
We have used our cash principally to acquire businesses and fund our capital
expenses and working capital. We fund our cash requirements principally from
cash flows from our operations, borrowings under our senior credit facility and
the proceeds from the sale of securities.
Our operating activities provided cash of $21.2 million in 1999, primarily
due to the cash received from the IPivot sale, partially offset by an increase
in receivables and inventory. Our investing activities used cash of
$97.7 million in 1999, primarily to fund the acquisitions that we completed
during that period. Our financing activities provided cash of $81.5 million,
which amount primarily reflected additional borrowings under our then-effective
senior credit facility. We replaced that senior credit facility on February 23,
2000 with a new $275 million facility funded by a new bank syndicate, with
Credit Suisse First Boston as administrative agent.
The new credit facility is secured by substantially all of our and our
subsidiaries' assets and guaranteed by substantially all of our subsidiaries.
The $275 million facility is comprised of a seven-year senior secured multi-draw
term loan facility in an aggregate principal amount of up to $75 million, a
six-year senior secured term loan facility in an aggregate principal amount of
$100 million, and a five-year senior secured revolving credit facility in an
aggregate principal amount of up to $100 million. Loans made under the
multi-draw term loan facility would mature on the sixth anniversary of the
closing date of the new credit facility, and amortize as follows: 2.5% quarterly
in year two of the credit facility, 3.75% quarterly in year three of the credit
facility, 5% quarterly in year four of the credit facility, 6.25% quarterly in
year five of the credit facility and 7.5% quarterly in year six of the credit
facility. Loans made under the term loan facility would mature on the seventh
anniversary of the closing date of the new credit facility, and amortize as
follows: 0.25% quarterly for years one through six of the credit facility and
23.5% quarterly for year seven of the credit facility. Under each of the term
loan facilities and the revolving facility, we would have the option to borrow
at the bank's base rate or at adjusted LIBOR plus, in each case, an applicable
ratio based on the ratio of our total debt to EBITDA (earnings before interest
and taxes and depreciation and amortization). The agreement contains financial
covenants that set maximum debt to EBITDA limits and require us to maintain
minimum interest and fixed charge coverages and levels of net worth. Cayenta and
its subsidiaries shall cease being guarantors under the new credit facility, and
their assets shall no longer be collateral for the new bank syndicate if Cayenta
completes its proposed initial public offering.
On February 9, 2000, Titan Capital Trust, our wholly owned subsidiary,
issued 4 million convertible preferred securities (Remarketable Term Income
Deferrable Equity Securities, "HIGH TIDES") at $50 per security, for an
aggregate total of $200 million, with an overallotment exercised on
February 16, 2000 of an additional 1 million securities, for an additional $50
million. The trust used the proceeds from the sale of the HIGH TIDES to purchase
from us 5 3/4% Convertible Senior Subordinated Debentures, due February 15,
2030. The debentures have the same financial terms as the HIGH TIDES. The HIGH
TIDES will accrue distributions of 5 3/4% per annum, with quarterly
distributions to be paid in arrears on February 15, May 15, August 15 and
November 15, commencing May 15, 2000. The trust's ability to pay distributions
on the HIGH TIDES is solely dependent on its receipt of interest payments from
us on the debentures. Approximately five years after issuance of the HIGH TIDES,
the HIGH TIDES may be remarketed, which means that a remarketing agent will
attempt to establish an annual distribution rate,
52
<PAGE>
conversion price and redemption features for the HIGH TIDES that are consistent
with a price per HIGH TIDES equal to 101% of its liquidation preference and also
are most favorable to us. The 5 3/4% per annum rate will be applicable from the
date of original issuance to, but excluding the reset date established by the
remarketing agent. The reset date is any date (a) not later than February 15,
2005, or the final reset date, or, if the day is not a business day, the next
succeeding day, and (b) not earlier than 70 business days prior to February 15,
2005, as may be determined by the remarketing agent, in its sole discretion. On
or after the reset date, the applicable rate will be the term rate established
by the remarketing agent based on the outcome of the remarketing. We can, on one
or more occasions, defer the interest payments due on the debentures (which will
result in a deferral of the distribution payments due on the HIGH TIDES) for up
to 20 consecutive quarters unless an event of default under the debentures has
occurred and is continuing. The holders of the HIGH TIDES may convert each
security into shares of common stock of Titan at the initial rate of 1.0076
shares of common stock for each HIGH TIDES (equivalent to an initial conversion
price of $49.625 per share of common stock). We may redeem the debentures (which
will result in the redemption of the HIGH TIDES) in whole or in part, at any
time on or after February 20, 2003 until but excluding the tender notification
date established in the remarketing agreement, at a redemption price equal to
101.44% of the principal amount of the debentures, declining to 100% of the
principal amount of the debentures on or after February 20, 2004, plus any
accrued and unpaid interest; and after the reset date, in accordance with the
term call projections, if any, established in the remarketing or, upon a failed
final remarketing, on or after the third anniversary of the reset date at a
redemption price equal to 100% of the principal amount of debentures, plus any
accrued and unpaid interest.
We used $100 million of the new term loan facility and part of the total
$250 million proceeds from the sale of the debentures to repay all outstanding
balances on our previous credit facility, which aggregated approximately $152
million. In addition, we used proceeds of approximately $74 million from the
HIGH TIDES proceeds to repay existing indebtedness of Advanced Communication
Systems when we closed the acquisition on February 25, 2000, and to pay certain
acquisition-related expenses. As of March 8, 2000, we have $100 million in
outstanding borrowings on our secured term loan facility, $1.9 million in
letters of credit and $97 million in cash and cash equivalents.
We have a receivable of approximately $3.9 million from our Indonesian
customer, PSN, due on September 30, 2000, which accrues interest at 10% per
annum. At any time prior to the payment of the obligation in full, we may elect
to convert all or a portion of the principal and interest due into common stock
of PSN, based on its then current market value. In addition, if PSN sells any of
its interest in its wholly-owned subsidiary, subject to other third party
obligations, PSN is required to immediately pay to us the lesser of the $3.9
million or the total amount of the outstanding balance owed to us. In the event
that PSN obtains financing from additional sources, the payment terms of its
obligations to us will be renegotiated at that time. Titan received a payment of
$3.9 million from PSN in the third quarter of 1999, in accordance with the
negotiated payment terms.
In September 1999, Cayenta established Soliance, LLC, a joint venture formed
with Sempra Energy Information Solutions, a subsidiary of Sempra Energy, and
modis. Cayenta invested $5 million in cash in this joint venture.
In November 1999, we received approximately $42 million in cash for our
approximate 8% equity interest in IPivot, Inc. when IPivot was acquired by Intel
Corporation. IPivot develops software products that improve the performance of
server farms, web sites and software applications, and was one of the businesses
in our Emerging Technologies segment. In 1996, we formed Servnow!
NetTechnologies, Inc., which later changed its name to IPivot, and contributed
its core technology. We are entitled to receive up to approximately $3 million
in additional purchase price upon expiration of the escrow arrangements for this
transaction.
During the fourth quarter of 1999, Cayenta acquired Mainsaver, Assist and
SFG Technologies to further develop its TSP offering. Cayenta paid cash at the
closings for these acquisitions of approximately
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$37.5 million, which went to the applicable sellers as well as to retire
outstanding indebtedness and redeem outstanding redeemable preferred stock of
the entities acquired. Holdbacks and other amounts due, subject to post-closing
adjustments and indemnification obligations, within the next eighteen months
related to these acquisitions total $8.5 million at December 31, 1999.
On December 10, 1999, the Company's wholly owned subsidiary, Titan
Africa, Inc. ("Titan Africa"), in connection with its contract to build a
satellite-based telephone system for the national telephone company of Benin,
Africa, entered into a Loan Facility Agreement for up to 30.0 billion Francs CFA
(the currency of the African Financial Community), equivalent to approximately
$45.0 million U.S. dollars, with a syndicate of five banks, with Africa Merchant
Bank as the Arranger. This medium term financing is a non-recourse loan to Titan
Africa which is guaranteed by the national telephone company of Benin, Africa
and secured by the national telephone company's equipment and revenues related
to the project. The facility has a fixed interest rate of 9.5% and will be
repaid in seven equal semi-annual payments beginning on December 31, 2000, and
ending on December 31, 2003. The borrowings on this facility will be utilized to
fund the subcontractor costs incurred by Alcatel of France, a major
subcontractor to this project. The equipment provided by Titan Africa will be
paid for in seven equal semi-annual installments commencing December 31, 2000.
The terms of Titan Africa's agreement with the customer include, among other
things, a revenue sharing of total net receipts earned on this project for up to
a period of 9 years. If Titan Africa's proportionate interest of the revenue
sharing portion of the project exceeds these fixed semi-annual payments, the
amounts outstanding could be paid in full prior to December 31, 2003. As of
December 31, 1999, approximately $8 million was drawn on this facility.
As part of our strategy of seeking external financing to grow our commercial
businesses, our Cayenta subsidiary has filed a registration statement for an
initial public offering of its common stock. We cannot guarantee that Cayenta
will succeed in completing the offering, which may be adversely affected by
market conditions or other factors. We have extended a credit facility of up to
a maximum of $70.0 million to Cayenta under which Cayenta owed us approximately
$68.4 million as of March 20, 2000. Cayenta may not use the proceeds of its
initial public offering to pay amounts outstanding under its credit facility
with us.
Funding for the advancement of our strategic goals, including acquisitions
and continued investment in targeted commercial businesses and start-up
ventures, is expected to continue. We plan to finance these requirements from a
combination of sources, which include cash generation from our core businesses,
our new credit facility as described above and other available cash sources.
Management believes that the combination of net proceeds from the HIGH TIDES
offering, amounts available under the new credit facility and cash flow expected
to be generated from our operations will be sufficient to fund planned
investments and working capital requirements for at least the next twelve
months. However, we could elect, or we could be required, to raise additional
funds during that period and we may need to raise additional capital in the
future. Additional capital may not be available at all, or may not be available
on terms favorable to us. Any additional issuance of equity or equity-linked
securities may result in substantial dilution to our stockholders. Management is
continually monitoring and reevaluating its level of investment in all of its
operations, specifically the increased investment required in fiscal 2000 to
further grow its commercial businesses, and the financing sources available to
achieve our goals in each business area.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The principal objective of our asset/liability management activities is to
maximize net investment income, while maintaining acceptable levels of interest
rate risk and facilitating our funding needs. Our net investment income and
interest expense are subject to the risk of interest rate fluctuations. To
mitigate the impact of fluctuations in interest rates, we manage the structure
of the maturity of debt and investments. As of December 31, 1999, we did not
hold any material amounts of marketable securities. The amount of marketable
securities we hold fluctuates based upon our cash needs, including the use of
our available cash
54
<PAGE>
resources to fund acquisitions in furtherance of our strategy. As a policy
matter, we invest cash in excess of our cash needs for limited periods in cash
equivalents.
The following table provides information about our financial instruments
that are sensitive to changes in interest rates as of December 31, 1999. For
debt obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For terms relating to our
long-term debt, see Note 8 of the notes to our consolidated financial
statements.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 BEYOND TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets: None
Liabilities:
Long-term debt, including debt
due within one year:
Fixed rate.................... $ 3,404 $ 3,765 $ 2,504 $ 2,286 $ -- $ -- $ 11,959
Average interest rate......... 8.35% 9.14% 9.41% 9.50% --% --% 9.04%
Variable rate................. $10,336 $13,562 $18,500 $22,437 $39,063 $35,625 $139,523
Average interest rate......... 8.70% 8.79% 8.78% 9.02% 9.44% 9.50% 9.18%
<CAPTION>
FAIR
VALUE
--------
<S> <C>
Assets: None
Liabilities:
Long-term debt, including debt
due within one year:
Fixed rate.................... $ 11,959
Average interest rate......... 9.04%
Variable rate................. $139,523
Average interest rate......... 9.18%
</TABLE>
On February 9, 2000, we received $250 million in proceeds from the issuance
of 5 million convertible preferred securities (Remarketable Term Income
Deferrable Equity Securities, "HIGH TIDES"). On February 23, 2000, we entered
into a credit agreement for $275 million of financing from a syndicate of
commercial banks which replaced our current credit facility. The terms of both
are more fully discussed in Note 16 of the notes to our consolidated financial
statements. We used $100 million of the new credit facility and part of the HIGH
TIDES proceeds to repay all outstanding balances on our previous credit
facility, which aggregated approximately $152 million. In addition, we used
proceeds of approximately $74 million from the HIGH TIDES proceeds to repay
existing indebtedness of Advanced Communication Systems when we closed the
acquisition on February 25, 2000, and to pay certain acquisition-related
expenses. The remaining HIGH TIDES proceeds were invested in commercial paper
with ratings of A1/P1 and a money market fund with a rating of Class A at
interest rates of 5.60% to 5.97% to fund operations. The funds may also be used
to fund our strategic goals, including acquisitions and continued investment in
targeted commercial businesses and start-up ventures. As of March 20, 2000
approximately $77 million remained invested in these investments at a weighted
average interest rate of 5.84%.
[THIS SPACE LEFT INTENTIONALLY BLANK]
55
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 57
Financial Statements:
Consolidated Statements of Operations..................... 58
Consolidated Balance Sheets............................... 59
Consolidated Statements of Cash Flows..................... 60
Consolidated Statements of Stockholders' Equity........... 61
Notes to Consolidated Financial Statements................ 62
Supporting Financial Schedule Covered by the Foregoing
Report of
Independent Public Accountants:
Schedule II -- Valuation and Qualifying Accounts.......... 94
</TABLE>
56
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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, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and financial statement schedules is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Diego, California
January 31, 2000 (except with respect to
the matters discussed in Note 16,
as to which the date is March 24, 2000)
57
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THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................................... $406,551 $303,428 $275,923
-------- -------- --------
Costs and expenses:
Cost of revenues.......................................... 314,369 232,041 216,553
Selling, general and administrative expense............... 46,583 37,553 36,731
Research and development expense.......................... 6,690 5,590 7,466
Acquisition related charges and other..................... (28,880) 9,891 6,600
-------- -------- --------
Total costs and expenses................................ 338,762 285,075 267,350
-------- -------- --------
Operating profit............................................ 67,789 18,353 8,573
Interest expense............................................ (9,633) (7,377) (6,643)
Interest income............................................. 1,027 392 872
-------- -------- --------
Income from continuing operations before income taxes and
cumulative effect of change in accounting principle....... 59,183 11,368 2,802
Income tax provision........................................ 21,983 4,155 4,184
-------- -------- --------
Income (loss) from continuing operations before cumulative
effect of change in accounting principle.................. 37,200 7,213 (1,382)
Cumulative effect of change in accounting principle, net of
taxes..................................................... -- (19,474) --
Loss from discontinued operations, net of taxes............. (5,600) (7,444) (17,930)
-------- -------- --------
Net income (loss)........................................... 31,600 (19,705) (19,312)
Dividend requirements on preferred stock.................... (695) (778) (875)
-------- -------- --------
Net income (loss) applicable to common stock................ $ 30,905 $(20,483) $(20,187)
======== ======== ========
Basic earnings (loss) per share:
Income (loss) from continuing operations.................. $ 0.93 $ 0.18 $ (0.07)
Cumulative effect of change in accounting principle....... -- (0.56) --
Loss from discontinued operations......................... (0.14) (0.21) (0.54)
-------- -------- --------
Net income (loss)......................................... $ 0.79 $ (0.59) $ (0.61)
======== ======== ========
Weighted average shares................................... 39,318 34,895 33,094
======== ======== ========
Diluted earnings (loss) per share:
Income (loss) from continuing operations.................. $ 0.81 $ 0.18 $ (0.07)
Cumulative effect of change in accounting principle....... -- (0.54) --
Loss from discontinued operations......................... (0.12) (0.21) (0.54)
-------- -------- --------
Net income (loss)......................................... $ 0.69 $ (0.57) $ (0.61)
======== ======== ========
Weighted average shares................................... 46,032 36,177 33,094
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 11,749 $ 11,079
Accounts receivable -- net................................ 151,771 88,068
Inventories............................................... 14,708 8,646
Prepaid expenses and other................................ 8,102 2,176
Deferred income taxes..................................... 13,318 10,978
-------- --------
Total current assets.................................... 199,648 120,947
Property and equipment -- net............................... 35,361 25,702
Goodwill -- net of accumulated amortization of $10,694 and
$7,620.................................................... 149,635 38,694
Other assets -- net......................................... 20,995 6,579
Net assets of discontinued operations....................... 557 645
-------- --------
Total assets............................................ $406,196 $192,567
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of credit........................................... $ 10,035 $ 368
Accounts payable.......................................... 38,987 21,335
Acquisition debt.......................................... 4,800 3,000
Current portion of long-term debt......................... 3,704 1,581
Income taxes payable...................................... 9,119 --
Accrued compensation and benefits......................... 17,873 12,682
Other accrued liabilities................................. 30,490 11,659
Net liabilities of discontinued operations................ 7,142 5,872
-------- --------
Total current liabilities............................... 122,150 56,497
-------- --------
Line of credit.............................................. 129,187 39,632
-------- --------
Long-term debt.............................................. 8,556 30,659
-------- --------
Other non-current liabilities............................... 30,205 15,068
-------- --------
Commitments and contingencies
Minority interests.......................................... 5,350 --
-------- --------
Stockholders' Equity:
Preferred stock: $1 par value:
Cumulative convertible, authorized 2,500,000 shares,
$13,897 liquidation preference:
694,850 and 694,872 shares issued and outstanding..... 695 695
Series A junior participating: authorized 454,071
shares:
None issued........................................... -- --
Common stock: $.01 par value, authorized 100,000,000
shares, issued and outstanding: 45,395,339 and
36,650,460 shares....................................... 454 367
Capital in excess of par value............................ 105,030 75,157
Deferred compensation..................................... (738) --
Retained earnings (deficit)............................... 7,976 (22,929)
Cumulative foreign currency translation adjustment........ (33) --
Treasury stock (966,398 and 962,530 shares), at cost...... (2,636) (2,579)
-------- --------
Total stockholders' equity.............................. 110,748 50,711
-------- --------
Total liabilities and stockholders' equity.................. $406,196 $192,567
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
59
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations.................... $ 37,200 $ 7,213 $ (1,382)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used for) continuing
operations:
Depreciation and amortization........................... 9,788 7,126 9,213
Deferred income taxes and other......................... 6,967 (498) 1,926
Write-off of assets, investments and environmental
accrual............................................... -- -- 9,846
Poolings of interests................................... -- (109) 695
Deferred compensation charge............................ 103 -- --
Changes in operating assets and liabilities, net of
effects from businesses sold and acquired:
Accounts receivable................................... (38,390) (12,427) (4,102)
Inventories........................................... (5,922) (2,290) (1,047)
Prepaid expenses and other assets..................... (11,306) 1,081 (879)
Accounts payable...................................... 10,200 3,705 874
Income taxes payable.................................. 9,357 -- --
Accrued compensation and benefits..................... 1,992 (2,298) 1,531
Restructuring activities.............................. -- -- (815)
Other liabilities..................................... 1,196 (1,635) (6,165)
--------- -------- --------
Net cash provided by (used for) continuing operations....... 21,185 (132) 9,695
--------- -------- --------
Loss from discontinued operations........................... (5,600) (7,444) (17,930)
Changes in net assets and liabilities of discontinued
operations................................................ 1,358 5,630 7,426
--------- -------- --------
Net cash used for discontinued operations................... (4,242) (1,814) (10,504)
--------- -------- --------
Net cash provided by (used for) operating activities........ 16,943 (1,946) (809)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (12,738) (4,038) (6,647)
Proceeds, net of transaction costs, from sale of
businesses................................................ -- -- 200
Payment for purchase of businesses, net of cash acquired.... (79,984) (11,679) --
Proceeds from sale of investments........................... -- 4,499 19,199
Purchase of investments..................................... (5,400) -- (15,410)
Other....................................................... 388 146 235
--------- -------- --------
Net cash used for investing activities...................... (97,734) (11,072) (2,423)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to debt........................................... 98,250 16,870 12,671
Retirements of debt......................................... (14,897) (1,447) (3,137)
Redemption of Series B Preferred Stock...................... -- (3,000) --
Deferred debt issuance costs................................ (3,260) -- --
Proceeds from stock issuances............................... 2,656 1,214 708
Purchase of stock from benefit plan......................... -- -- (471)
Dividends paid.............................................. (695) (778) (875)
Other....................................................... (560) (145) --
--------- -------- --------
Net cash provided by financing activities................... 81,494 12,714 8,896
--------- -------- --------
Effect of exchange rate changes on cash..................... (33) -- --
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 670 (304) 5,664
Cash and cash equivalents at beginning of year.............. 11,079 11,383 5,719
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 11,749 $ 11,079 $ 11,383
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
60
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE CAPITAL FOREIGN
CONVERTIBLE IN EXCESS RETAINED CURRENCY
PREFERRED COMMON OF PAR DEFERRED EARNINGS TRANSLATION TREASURY
STOCK STOCK VALUE COMPENSATION (DEFICIT) ADJUSTMENT STOCK TOTAL
----------- -------- --------- ------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996....................... $695 $339 $ 66,999 $ -- $ 17,206 $ -- $(2,960) $ 82,279
Conversion of subordinated
debt..................... -- 5 1,597 -- -- -- -- 1,602
Exercise of stock options
and other................ -- 2 726 -- (51) -- 37 714
Stock issued for
acquisition.............. -- 2 503 -- -- -- -- 505
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....... -- -- -- -- 695 -- -- 695
Dividends on preferred
stock --
Cumulative Convertible,
$1.00 per share........ -- -- -- -- (695) -- -- (695)
Series B, 6% annual...... -- -- -- -- (180) -- -- (180)
Net loss................... -- -- -- -- (19,312) -- -- (19,312)
---- ---- -------- ----- -------- ---- ------- --------
Balances at December 31,
1997....................... 695 348 69,332 -- (2,337) -- (2,591) 65,447
Conversion of subordinated
debt..................... -- 15 5,368 -- -- -- -- 5,383
Stock repurchase........... -- (1) (752) -- -- -- -- (753)
Exercise of stock options
and other................ -- 4 848 -- -- -- 12 864
Conversion of warrants..... -- 1 349 -- -- -- -- 350
Poolings of interests...... -- -- -- -- (109) -- -- (109)
Shares contributed to
employee benefit plans... -- -- (100) -- -- -- -- (100)
Income tax benefit from
employee stock
transactions............. -- -- 112 -- -- -- -- 112
Dividends on preferred
stock --
Cumulative Convertible,
$1.00 per share........ -- -- -- (695) -- -- (695)
Series B, 6% annual...... -- -- -- -- (83) -- -- (83)
Net loss................... -- -- -- -- (19,705) -- -- (19,705)
---- ---- -------- ----- -------- ---- ------- --------
Balances at December 31,
1998....................... 695 367 75,157 -- (22,929) -- (2,579) 50,711
Conversion of subordinated
debt..................... -- 79 26,191 -- -- -- -- 26,270
Exercise of stock options
and other................ -- 8 2,648 -- -- -- (57) 2,599
Shares contributed to
employee benefit plans... -- -- (537) -- -- -- -- (537)
Deferred compensation,
related to the issuance
of stock options......... -- -- 841 (738) -- -- -- 103
Income tax benefit from
employee stock
transactions............. -- -- 730 -- -- -- -- 730
Dividends on preferred
stock --
Cumulative Convertible,
$1.00 per share........ -- -- -- (695) -- -- (695)
Foreign currency
translation adjustment... -- -- -- -- -- (33) (33)
Net income................. -- -- -- -- 31,600 -- -- 31,600
---- ---- -------- ----- -------- ---- ------- --------
Balances at December 31,
1999....................... $695 $454 $105,030 $(738) $ 7,976 $(33) $(2,636) $110,748
==== ==== ======== ===== ======== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
61
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Titan Corporation (the "Company" or "Titan") is a
diversified technology company dedicated to creating, building and launching
technology-based businesses. The Company provides information technology,
communications and electron beam food pasteurization and medical product
sterilization systems and services to government and commercial customers. The
Company groups its businesses into four core business segments -- Titan Systems,
Software Systems, Titan Scan, and Titan Wireless -- and a fifth business
segment, Emerging Technologies and Businesses. Titan Systems provides
information technology and communications solutions for defense, intelligence,
and other U.S. and allied government agencies. Software Systems is a total
services provider of comprehensive information technology solutions for its
customers' business functions, including e-business, finance, accounting,
customer billing and collection, contract management, supply-chain management
and equipment monitoring and maintenance. Titan Scan manufactures electron beam
food pasteurization and medical product sterilization systems and provides
sterilization and pasteurization services at its own facilities. Titan Wireless
designs, manufactures and installs satellite communication systems and provides
services which support telephony and Internet access in developing countries.
The Emerging Technologies and Businesses segment develops commercial
applications for technologies created by our other business segments through
government-sponsored and internally-funded research and development programs.
The Company is involved in a number of start-up businesses, most notably the
TSP business in Software Systems, the commercial satellite communications
business in the Titan Wireless segment and the electronic food pasteurization
business of Titan Scan. The Company believes that the primary source of revenues
for the Titan Wireless business will be international customers in developing
countries, primarily within Asia, Africa and South America.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Titan and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. From time to time, the Company
makes investments in joint ventures which primarily involve international
locations and operations. Management evaluates its investment in each joint
venture on an individual basis for purposes of determining whether or not
consolidation is appropriate. Investments in such ventures are generally
consolidated in instances where the Company retains control through
decision-making ability and/or a greater than 50% ownership interest. In the
absence of such factors, the Company generally accounts for these investments
under the equity method.
MINORITY INTEREST IN SUBSIDIARIES. Minority interest in subsidiaries
consists primarily of equity securities issued in 1999 by the Company's
subsidiary Cayenta, Inc., which is the primary ongoing operations of the
software systems business. The Company owned substantially all of the voting
equity of the subsidiary both before and after the transactions. The Company
records minority interest expense which reflects the portion of the earnings of
majority-owned operations which are applicable to the minority interest
partners. These amounts were not significant in 1999.
FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's one
foreign subsidiary are measured using the local functional currency. Assets and
liabilities of the subsidiary are translated at exchange rates in effect as of
the balance sheet date. Revenues and expenses are translated at average rates of
exchange in effect during the year. The resulting cumulative translation
adjustments have been recorded as a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included in consolidated net
income.
62
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the Company's revenue, both government
and commercial, is derived from products manufactured and services performed
under cost-reimbursement, time-and-materials, and fixed-price contracts wherein
revenues are generally recognized as services are performed, using the
percentage-of-completion method, which includes revenues recognized as units are
delivered. Total estimated costs are based on management's assessment of costs
to complete the project based upon evaluation of the level of work achieved and
costs expended to date. Estimated contract losses are fully charged to
operations when identified.
The Company's Software Systems segment also generates revenues from
licensing the rights to use its software products primarily to end users. This
segment further generates revenues from post-contract support (maintenance),
consulting and training services performed for customers who license its
products.
Revenues from software license agreements are recognized currently, provided
that all of the following conditions are met, a noncancelable license agreement
has been signed, the software has been delivered, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable and the risk of concession is deemed remote, and
no other significant vendor obligations exist. Revenues from maintenance
services are recognized ratably over the term of the maintenance period,
generally one year. Maintenance revenues which are handled with license
agreements are unbundled using vendor specific objective evidence.
DEFERRED REVENUES. Included in other accrued liabilities are deferred
revenues which consist principally of customer deposits and payments for
software maintenance agreements with customers whereby the Company receives
payment in advance of performing the service. Revenue from these contracts is
recognized ratably over the contract period.
CASH EQUIVALENTS. All highly liquid investments purchased with an original
maturity of three months or less are classified as cash equivalents.
UNBILLED ACCOUNTS RECEIVABLE. Unbilled accounts receivable include
work-in-process which will be billed in accordance with contract terms and
delivery schedules, as well as amounts billable upon final execution of
contracts, contract completion, milestones or completion of rate negotiations.
Generally, unbilled accounts receivable are expected to be collected within one
year. Payments to the Company for perfor-mance 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.
CONCENTRATION OF CREDIT RISK. As the Company expands its business into
international markets and developing countries, certain accounts receivable may
be exposed to credit risk due to political and economic instability in these
areas. To mitigate credit risk in foreign countries, the Company generally
denominates its foreign contracts in U.S. dollars and requires payment primarily
in the form of stand-by letters of credit, advance deposits, or wire transfers,
prior to shipment. In addition, the Company has
63
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
obtained political risk insurance to cover equipment located in certain foreign
countries to cover loss or damage resulting from abandonment, deprivation,
expropriation, riot and terrorism and other acts of revolution in those
countries.
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. The Company periodically
evaluates its on-hand stock and makes appropriate disposition of any stock
deemed excess or obsolete.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with estimated useful
lives of 25 to 40 years for buildings, 2 to 40 years for leasehold improvements
and 3 to 10 years for machinery and equipment and furniture and fixtures.
Certain machinery and equipment in the Company's medical sterilization and food
pasteurization 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 40 years. The Company periodically re-evaluates
the original assumptions and rationale utilized in the establishment of the
carrying value and estimated lives of its goodwill. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate positive income from operations and positive cash flow in future
periods as well as the strategic significance of the intangible asset to the
Company's business objectives.
IMPAIRMENT OF LONG-LIVED ASSETS. Periodically, the Company reviews for
possible impairment its long-lived assets and certain identifiable intangibles
to be held and used. Whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be fully recoverable based on evaluation
of the estimated undiscounted future cash flow to derived from the asset, asset
values are adjusted to fair value accordingly.
STOCK-BASED COMPENSATION. The Company has elected to adopt the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company
will continue to account for its stock-based compensation plans under the
provisions of APB No. 25.
INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the use of the liability method of accounting for deferred
income taxes. Under this method, deferred income taxes are recorded to reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
PER SHARE INFORMATION. The Company computes earnings per share based on the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128").
64
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following data summarize information relating to the per share
computations for continuing operations before the cumulative effect of a change
in accounting principle:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Income from continuing operations................. $37,200
Less preferred stock dividends.................... (695)
-------
Basic EPS:
Income from continuing operations available to
common stockholders........................... 36,505 39,318 $ .93
Effect of dilutive securities: Stock Options,
including dilutive effect of subsidiary stock
options......................................... -- 2,322 (.05)
Debentures...................................... 769 4,392 (.07)
------- ------ -----
Diluted EPS:
Income from continuing operations available to
common stockholders plus assumed
conversions................................... $37,274 46,032 $ .81
======= ====== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Income from continuing operations................. $ 7,213
Less preferred stock dividends.................... (778)
-------
Basic EPS:
Income from continuing operations available to
common stockholders........................... 6,435 34,895 $ .18
Effect of dilutive securities: Stock Options...... -- 1,282 --
------- ------ -----
Diluted EPS:
Income from continuing operations available to
common stockholders plus assumed
conversions................................... $ 6,435 36,177 $ .18
======= ====== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------
INCOME SHARES (000'S) PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Loss from continuing operations................... $(1,382)
Plus preferred stock dividends.................... (875)
-------
Basic EPS:
Loss from continuing operations available to
common stockholders........................... $(2,257) 33,094 $(.07)
======= ====== =====
Diluted EPS: Same as basic
</TABLE>
65
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1999 and 1998, options to purchase approximately 8,000 and 742,000
shares, respectively, of common stock were not included in the computation of
diluted EPS, because the options' exercise price was greater than the average
market price of the common shares. In 1999, 1998 and 1997, approximately 463,200
shares of common stock that could result from the conversion of cumulative
convertible preferred stock, 8,513,000 common shares in 1998 and 9,823,000
common shares in 1997 that could result from the conversion of the Company's
convertible subordinated debentures and 500,000 common shares in 1997 that could
result from the conversion of Series B cumulative convertible redeemable
preferred stock, were not included in the computation of diluted EPS, as the
effect would have been anti-dilutive on the results of continuing operations.
The effect of minority interests outstanding in 1999 did not affect the above
computation.
COMPREHENSIVE INCOME. Effective January 1, 1998, the Company adopted
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 is the total of net income and all other nonowner changes
in equity.
During the year ended December 31, 1999, the Company's only element of other
comprehensive income resulted from foreign currency translation adjustments in
1999, which are reflected in the consolidated statements of changes in
stockholders' equity as foreign currency translation adjustments.
START-UP COSTS. The Company expenses the costs of start-up activities as
incurred in accordance with the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). The Company
adopted SOP 98-5 in 1998, recording a one-time, non-cash charge of $19,474,
reflected as a cumulative effect of a change in accounting principle in the
Statement of Operations for the year ended December 31, 1998. The charge
primarily represents previously capitalized start-up costs and deferred contract
costs as well as non-recurring engineering costs previously carried in
inventory.
BUSINESS SEGMENTS. The Company reports its business segment information in
accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). On March 31, 1999, the Company realigned and renamed certain operations
among its business segments to better position these operations for strategic
transactions pursuant to the Company's corporate strategy. As a result, the
Company is reporting all commercial satellite communications operating results
in its Titan Wireless segment, and all defense information technologies and
services operating results are reported in its Titan Systems segment. This
realignment also conforms to the provisions of SFAS 131. All prior year segment
data presented in these financial statements have been restated to conform to
the 1999 realignment.
NEW ACCOUNTING STANDARDS. In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." This SAB summarizes the SEC's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. This SAB is effective for all registrants during the
second quarter of fiscal
66
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2000. Management has reviewed the impact of SAB 101 on the Company's financial
statements, and does not believe that its adoption will have a material impact
on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the effective date of SFAS 133 was amended to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of Effective Date of
FASB Statement No. 133". The Company anticipates that the adoption of SFAS 133
will not have a material impact on the Company's financial position or results
of operations.
NOTE 2. MERGERS, ACQUISITIONS AND JOINT VENTURES
On December 22, 1999, Cayenta Operating Company (formerly known as Titan
Software Systems Corporation) and Cayenta, Inc. (collectively "Cayenta" which
comprises the principal operations of the Software Systems segment) acquired
substantially all of the outstanding stock of SFG Technologies Inc. ("SFG"), a
solutions and software provider focusing on revenue cycle management services
for the utilities industry. The purchase price, subject to certain post-closing
adjustments was $11.6 million in cash, less a $2 million holdback. Of the $2
million holdback placed into escrow at the closing, $0.4 million was paid in
March 2000, $0.1 was offset against post-closing adjustments in March 2000, and
$1.5 million is due in June 2001, after satisfaction of certain working capital
adjustments or indemnification obligations. In addition, Cayenta paid
approximately $3.1 million to retire outstanding indebtedness of SFG. The
transaction was accounted for as a purchase and, accordingly, SFG's results of
operations have been consolidated with the Company's results of operations since
December 23, 1999. The excess of the purchase price over the estimated fair
value of the net assets acquired, to be amortized on a straight-line basis over
20 years, was approximately $17.5 million at December 31, 1999.
On December 13, 1999, Cayenta acquired all of the outstanding stock of
Assist Cornerstone Technologies, Inc. ("Assist"), an e-commerce solutions and
software provider, for approximately 5% of the outstanding common stock of
Cayenta, Inc., plus approximately $13 million in cash, subject to certain post-
closing adjustments, less a $3 million holdback. Of the $3 million holdback,
which bears interest at 8% per annum, $1.7 million is due in March 2000 and $1.3
million is due in June 2001, after satisfaction of certain working capital
adjustments or indemnification obligations. In addition, Cayenta paid
approximately $3.2 million to retire outstanding indebtedness of Assist. The
transaction was accounted for as a purchase, and accordingly, Assist's results
of operations have been consolidated with the Company's results of operations
since December 14, 1999. The excess of the fair market value of the net assets
acquired, to be amortized on a straight-line basis over 20 years, was
approximately $20.1 million at December 31, 1999.
On November 2, 1999, Cayenta acquired all of the outstanding stock of JB
Systems, Inc. doing business as Mainsaver, a provider of enterprise asset
management software and distributed workflow management technology to global
customers, for a purchase price of $13.2 million in cash, subject to certain
post-closing adjustments, less a $3.5 million holdback, bearing interest at
7.5%. Of the $3.5 million holdback, $0.5 million is due in March 2000, and $3.0
million is due in May 2001, after satisfaction of
67
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 2. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $1.9 million to reduce outstanding
indebtedness of Mainsaver. The transaction was accounted for as a purchase, and
accordingly, Mainsaver's results of operations have been consolidated with the
Company's results of operations since November 3, 1999. The excess of the fair
market value of the net assets acquired, to be amortized on a straight-line
basis over 20 years, was approximately $17.7 million at December 31, 1999.
In connection with the SFG, Assist and Mainsaver acquisitions described
above, Cayenta, Inc. issued warrants to a financial advisor to purchase 495,800
shares of subsidiary common stock. The warrants are exercisable at any time at a
value of $13.11 per share and expire in 5 years.
In November 1999, the Company entered into a definitive agreement with
Telecel International Limited ("Telecel"), a wireless communications service
provider in Africa, to create a joint venture that will provide satellite based
telecommunications services in Africa. The joint venture has the right to
provide rural telephony service in each market in which Telecel owns a license.
In September 1999, together with Sempra Energy Information Solutions, a
subsidiary of Sempra Energy, and modis, a company that focuses on configuring
customers' software applications, Cayenta established Soliance, LLC, a joint
venture that markets and delivers information technology systems and solutions,
including TSP offerings, to the utility industry. Cayenta owns a 10% equity
interest in Soliance and has a management services agreement with Soliance under
which it provides TSP services to Soliance's customers. At December 31, 1999,
the Company's investment of $5 million in this joint venture is included in
Other Assets. The investment is being accounted for under the cost method.
On July 22, 1999, the Company's wholly owned subsidiary Titan Systems
Corporation ("TSC"), (formerly named Titan Technologies and Information Systems
Corporation) acquired all of the outstanding stock of Atlantic Aerospace
Electronics Corporation ("AAEC"), a defense and commercial technology and
systems company which focuses on applied research and development in information
technologies, for cash of approximately $18 million, subject to certain
post-closing adjustments, plus potential payments of up to $3 million contingent
upon certain future contract awards, subject to offsets for indemnification
claims. The transaction was accounted for as a purchase, and the excess of the
purchase price over the estimated fair value of the net assets acquired, to be
amortized on a straight-line basis over 40 years, was approximately $11.8
million at December 31, 1999. AAEC's results of operations have been
consolidated with the Company's results of operations since July 23, 1999.
On June 9, 1999, TSC acquired System Resources Corporation ("SRC"), an
information technology government contractor, through a stock purchase for a
purchase price of approximately $35 million, subject to certain post-closing
working capital adjustments and offsets for indemnification claims, consisting
of approximately $33 million in cash paid at closing, less a $0.5 million
holdback, and $2 million in promissory notes which bear interest at 7% per annum
and become fully payable, subject to purchase price adjustments and
indemnification claims, on June 9, 2000. In addition, the Company agreed to pay
the SRC stockholders one-half of approximately $1.5 million in SRC receivables
aged more than 720 days to the extent that any of those receivables are
collected within the two year period following the closing date, net of certain
post-closing adjustments and indemnification obligations that are offset against
such collections. The Company also retired approximately $10 million in SRC
indebtedness. The transaction was accounted
68
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 2. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
for as a purchase, and, accordingly, SRC's results of operations have been
consolidated with the Company's results of operations since June 10, 1999. The
purchase agreement provided for a post-closing adjustment to the purchase price
based on the final valuation of the acquired assets and assumed liabilities,
which resulted in an increase of approximately $4.1 million to the excess of the
purchase price over the estimated fair value of the net assets acquired
(goodwill) in the quarter ended September 30, 1999. In connection with the
determination of the fair value of assets acquired in the quarter ended
December 31, 1999, and pursuant to the provisions of Accounting Principles Board
Opinion No. 16, the Company has valued acquired contracts in process at contract
price, minus the estimated costs to complete and an allowance for the normal
industry profit on its effort to complete such contracts, which amounted to
$2,709. This adjustment has been reflected in the accompanying balance sheet as
an increase to goodwill and a corresponding increase to deferred profit. The
Company recognized approximately $861 as a reduction of costs in 1999, with the
remaining $1,848 to be recorded as a reduction of costs in future periods as
work on certain contracts is performed, which is estimated to be through fiscal
2002. The goodwill, to be amortized on a straight-line basis over 40 years, was
approximately $31.8 million at December 31, 1999.
On January 1, 1999, Cayenta acquired substantially all of the assets of
Transnational Partners II, LLC ("TNP"), a software services company which
provides infrastructure and electronic business solutions for major
corporations, for a purchase price of $9.8 million, consisting of $7 million
cash, a $2.8 million note paid in February 2000 (plus interest at 7%), and
preferred stock representing a minority interest in Cayenta. The transaction was
accounted for as a purchase, and the excess of the purchase price over the
estimated fair value of net assets acquired, to be amortized on a straight-line
basis over 30 years, was approximately $12.3 million at December 31, 1999. TNP's
results of operations have been consolidated with the Company's results of
operations since January 2, 1999.
On March 31, 1998, the Company acquired all of the outstanding common stock
of Validity Corporation ("Validity"), for $12 million in cash, and notes payable
to the shareholders of Validity totaling $3 million (bearing interest at the
prime rate), subject to post-closing adjustments, if any, due and payable
March 31, 1999. The notes and interest were paid in April 1999. The transaction
was accounted for as a purchase, and accordingly, Validity's results of
operations have been consolidated with the Company's results of operations
beginning April 1, 1998. The Company has valued acquired contracts in process at
contract price, minus the estimated costs to complete and an allowance for the
normal industry profit on its effort to complete such contracts, which amounted
to $1,852. This estimate has been reflected in the accompanying balance sheet as
an increase to goodwill and a corresponding increase to deferred profit. The
Company recognized approximately $721 as a reduction of costs in 1999, with the
remaining $1,131 to be recorded as a reduction of costs in future periods as
work on certain contracts is performed, which is estimated to be through fiscal
2002. The goodwill is being amortized on a straight-line basis over 30 years,
and amounted to approximately $17.9 million as of December 31, 1999.
[THIS SPACE LEFT INTENTIONALLY BLANK]
69
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 2. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
Unaudited proforma data giving effect to the purchase of SRC, AAEC,
Mainsaver, Assist and SFG as if they had been acquired at the beginning of 1998
are shown below. Proforma information related to the TNP and Validity
acquisitions is not included, because the effect is not significant.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues................................................ $463,194 $403,188
Income (loss) from continuing operations before
cumulative effect of change in accounting principle... 26,646 (1,747)
Net income (loss)....................................... 21,046 (28,665)
Basic earnings (loss) per share:
Income from continuing operations before cumulative
effect of change in accounting principle............ $ .66 $ (.07)
Net income (loss)..................................... .52 (.84)
Diluted earnings (loss) per share:
Income from continuing operations before cumulative
effect of change in accounting principle............ $ .58 $ (.07)
Net income (loss)..................................... .46 (.81)
</TABLE>
On October 23, 1998, the Company consummated a merger with Delfin Systems
("Delfin") in a stock-for-stock transaction. Titan issued approximately
3,628,000 shares of Titan common stock in exchange for all the outstanding
shares of Delfin common stock and assumed Delfin stock options representing
approximately 823,000 shares of Titan common stock, based on an exchange ratio
of approximately .50 shares of Titan common stock for each share of Delfin
common stock. The merger constituted a tax-free reorganization and was accounted
for as a pooling of interests.
On August 24, 1998, the Company consummated a merger with VisiCom
Laboratories, Inc., ("VisiCom") in a stock-for-stock transaction. Titan issued
approximately 4,172,000 shares of common stock in exchange for all the
outstanding shares of VisiCom and assumed VisiCom's stock options representing
approximately 593,000 shares of Titan common stock, based on an exchange ratio
of approximately .45 shares of Titan common stock for each share of VisiCom's
common stock. The merger constituted a tax-free reorganization and was accounted
for as a pooling of interests. In February 2000, the Company received back
153,067 previously escrowed shares as settlement of contingencies.
On June 30, 1998 the Company consummated a merger with Horizons Technology,
Inc., ("Horizons") in a stock-for-stock transaction. Titan issued approximately
3,200,000 shares of common stock in exchange for all the outstanding shares of
Horizons stock based on exchange ratios of approximately .37 and .82 shares of
Titan common stock for each share of Horizons' common stock and Horizons'
preferred stock, respectively. The merger constituted a tax-free reorganization
and was accounted for as a pooling of interests.
On February 27, 1998, the Company consummated a merger with DBA
Systems, Inc. ("DBA"), in a stock-for-stock transaction. Titan issued
approximately 6,100,000 shares of common stock in exchange for
70
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 2. MERGERS, ACQUISITIONS AND JOINT VENTURES (CONTINUED)
all the outstanding shares of DBA stock and assumed options representing
approximately 441,000 shares of Titan common stock based on an exchange ratio of
approximately 1.37 shares of Titan's common stock for each share of DBA stock.
The merger constituted a tax-free reorganization and was accounted for as a
pooling of interests.
Effective January 1, 1998, Delfin's September 30, VisiCom's March 31,
Horizons' January 31 and DBA's June 30 fiscal year-ends were changed to coincide
with Titan's year-end. Adjustments to conform Delfin's, VisiCom's and Horizons'
fiscal year-ends were not significant and resulted in a net pooling adjustment
of $(109) in 1998, which is reflected in the accompanying Statement of
Stockholders' Equity for the year ended December 31, 1998.
The separate and combined results of Titan, Delfin, VisiCom, Horizons and
DBA in 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
INCOME
(LOSS) FROM
CONTINUING NET INCOME
REVENUES OPERATIONS (LOSS)
-------- ----------- ----------
<S> <C> <C> <C>
Titan........................................ $167,050 $ 5,188 $ 5,165
Delfin....................................... 26,534 (127) (127)
VisiCom...................................... 31,360 (1,352) (13,397)
Horizons..................................... 26,281 1,640 (4,222)
DBA.......................................... 24,698 (6,731) (6,731)
-------- ------- --------
$275,923 $(1,382) $(19,312)
======== ======= ========
</TABLE>
DBA's loss from continuing operations and net loss for the year ended
December 31, 1997 include recognition of a special charge of $9,846 for the
write-down of certain assets to net realizable value and accrual for certain
liabilities as described in Notes 9 and 15. Net income (loss) reflects the
discontinued operations of the broadband communications business, the access
control systems business and certain operations discontinued by companies prior
to their acquisition by Titan. Refer to Note 4 for further discussion.
NOTE 3. ACQUISITION RELATED CHARGES AND OTHER
During the year ended December 31, 1999, the Company recorded acquisition
and related charges of $12,908, which include approximately $3.6 million of
legal costs and approximately $9.3 million of integration and restructuring
expenses. The integration and restructuring expenses include $2.1 million
related to the wind-down of our Year 2000 business, consisting primarily of
employee termination costs and lease termination costs, a $2.1 million write-off
of intangible costs to estimated realizable value, approximately $1.7 million
for severance, outplacement and relocation costs related to approximately 32
employees across the Company, except in the Emerging Businesses and Technologies
segment, and $3.4 million related to the closure and elimination of leased
facilities, primarily duplicate field offices. These charges were all cash
charges, with the exception of the write-off of intangible costs. Accruals for
unpaid
71
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 3. ACQUISITION RELATED CHARGES AND OTHER (CONTINUED)
special charges of $5,880 remain in other current liabilities at December 31,
1999. Unpaid amounts at year-end are primarily termination and other integration
costs which will be paid by December 31, 2000.
On October 26, 1999, the Company received approximately $41.8 million in
cash as a result of the acquisition by Intel Corporation of IPivot, Inc.
("IPivot"), a technology spin-off from Titan. The cash payment to the Company
was for its ownership interest in IPivot of approximately 8% after the dilutive
impact of IPivot stock options, warrants and other equity investments. The
income is netted against the charges discussed above in acquisition related
charges and other.
During the year ended December 31, 1998, the Company recorded
acquisition-related and other charges of $9,891, which includes approximately
$5.5 million of direct transaction costs (consisting primarily of investment
banking and other professional fees), $3.8 million of integration expenses and
$0.6 million of pre-operating and start-up costs of the Titan Africa, Inc.,
Benin operation. Approximately $4.6 million of the direct transaction costs were
incurred in connection with the Delfin, VisiCom, Horizons and DBA mergers. The
remaining $0.9 million in transaction fees were related to costs incurred to
file a withdrawn registration statement of the Company's former Communications
Systems segment. The integration costs included approximately $3.5 million for
severance, outplacement and retention costs incurred in the Titan Systems and
Titan Wireless segments. Included in these amounts were termination benefits
associated with employment agreements, as well as retention amounts associated
with employee retention agreements. The integration costs also included $0.3
million related to the closure and elimination of leased facilities, primarily
duplicate field offices. Accruals for unpaid special charges of $2,785 and $250
were in other current and non-current liabilities, respectively, at
December 31, 1998. All amounts accrued at December 31, 1998 were substantially
paid by December 31, 1999.
NOTE 4. DISCONTINUED OPERATIONS
In 1998 and 1997, the Company's Board of Directors adopted a plan to wind
down the Company's access control systems business and broadband communications
business, respectively. Accordingly, the results of these businesses have been
accounted for as discontinued operations. In addition, the accompanying
consolidated financial statements reflect operations discontinued by certain of
the companies acquired by Titan during 1998. All periods presented reflect these
specific operations as discontinued operations. Net liabilities of discontinued
operations of approximately $7,100 at December 31, 1999 consist primarily of
accrued liabilities of approximately $11,100 net of current assets of
approximately $4,000 (primarily accounts receivable and inventories). The
liabilities consist of accruals for contract losses, estimated wind-down costs
and costs related to the closure and elimination of certain leased facilities.
Charges of approximately $6,200 were made against the accrued liabilities in
1999. The liabilities were increased by a $5,600 charge in 1999 based on
management's most recent review of estimated future wind-down costs. Long-term
net assets of discontinued operations are primarily fixed assets. Management
continues to assess the estimated wind-down and and/or disposal costs associated
with the businesses, and may from time to time adjust the allowance for such
costs accordingly.
72
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 5. OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts Receivable:
U.S. Government -- billed............................. $ 71,513 $ 44,021
U.S. Government -- unbilled........................... 34,749 30,710
Trade................................................. 46,277 13,586
Less allowance for doubtful accounts.................. (768) (249)
-------- --------
$151,771 $ 88,068
======== ========
Inventories:
Materials............................................. $ 7,725 $ 3,871
Work-in-process....................................... 4,357 1,788
Finished goods........................................ 2,626 2,987
-------- --------
$ 14,708 $ 8,646
======== ========
Property and Equipment:
Machinery and equipment............................... $ 57,677 $ 45,299
Furniture and fixtures................................ 11,374 8,320
Land, buildings and leasehold improvements............ 15,124 13,902
Construction in progress.............................. 2,023 358
-------- --------
86,198 67,879
Less accumulated depreciation and amortization........ (50,837) (42,177)
-------- --------
$ 35,361 $ 25,702
======== ========
</TABLE>
Other non-current liabilities at December 31, 1999 include a tax liability
of $6,964.
NOTE 6. SEGMENT INFORMATION
Management evaluates the performance of its operating segments separately to
individually monitor the different factors affecting financial performance.
Segment profit or loss includes substantially all of the segment's costs of
operations and administration. The Company manages income taxes on a corporate-
wide basis. Thus, the Company evaluates segment performance based on profit or
loss before income taxes and before allocated costs of corporate overhead,
exclusive of any significant gains or losses on the disposition of investments
or other assets. The Company typically manages and evaluates equity investments
and related income on a segment level. However, certain significant investments
are managed at the corporate level. Financial costs, such as gains and losses
and interest income and expense, are managed at the Corporate segment.
On March 31, 1999, the Company realigned certain operations among its
business segments to better position these operations for strategic transactions
pursuant to the Company's corporate strategy. As a result, the Company is
reporting all commercial satellite communications operating results in its Titan
Wireless segment, and all defense information technologies and services
operating results are reported in its Titan Systems segment. This realignment
also conforms to the provisions of SFAS 131. All current and
73
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 6. SEGMENT INFORMATION (CONTINUED)
prior year segment data presented in these financial statements have been
restated to conform to the 1999 realignment.
The Titan Systems segment provides information systems solutions primarily
to government customers with large data management, information manipulation,
information fusion, knowledge-based systems and communications requirements,
develops and produces advanced satellite communications products 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 Software Systems segment is a total services provider of comprehensive
information technology for commercial and non-defense customers' business
functions, including e-commerce, finance, accounting, customer billing and
collection, contract management, supply-chain management and equipment
monitoring and maintenance. Also included in this segment is the Company's Year
2000 business unit, which is being wound-down.
The Titan Scan 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 Titan Wireless segment develops and produces advanced satellite
communication systems and services which support telephony and Internet access
in developing countries.
The Software Systems segment contains the Company's majority owned
subsidiary, Cayenta, Inc. In December 1999, the Company filed a registration
statement including a preliminary prospectus with the Securities and Exchange
Commission ("SEC") for an initial public offering. The Company controls
approximately 97% of the voting power of Cayenta through its ownership of 10
million shares of Class B common stock. Each Class A share is entitled to one
vote and each Class B share is entitled to ten votes, with Class A and Class B
shares voting together on all matters submitted to the vote of the holders of
common stock. Cayenta has filed a registration statement on Form S-1 for an
initial public offering of an as yet undetermined number of shares of its
Class A common stock. If the proposed offering is completed, the 2,345,000
outstanding shares of Series A preferred stock of Cayenta will convert into
Class A common stock of Cayenta. The Company cannot be certain that Cayenta will
be able to complete its offering. Approximately $0.5 million in costs related to
this offering have been deferred and are classified as prepaid expenses at
December 31, 1999.
The Emerging Technologies and Businesses segment includes several businesses
which apply the Company's proprietary knowledge and core competencies to
industrial and commercial opportunities.
Substantially all of the Company's operations are located in the United
States. Export and foreign revenues amounted to approximately $33,901, $18,893,
and $21,365 in 1999, 1998 and 1997, respectively, primarily to countries in
Africa, Asia and Western Europe. Substantially all international sales are
denominated in U.S. dollars.
74
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 6. SEGMENT INFORMATION (CONTINUED)
The following tables summarize industry segment data for 1999, 1998 and
1997.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Titan Systems............................... $311,412 $259,442 $225,686
Software Systems............................ 45,922 21,470 17,374
Titan Scan.................................. 14,295 11,184 8,254
Titan Wireless.............................. 27,325 6,717 18,405
Emerging Technologies and Businesses........ 7,597 4,615 6,204
-------- -------- --------
$406,551 $303,428 $275,923
======== ======== ========
</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 $303,591 in 1999, $242,560 in 1998, and $225,016 in
1997. Inter-segment sales were not significant in any year.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Profit (Loss):
Titan Systems................................. $ 24,999 $25,270 $ 8,361
Software Systems.............................. 6,962 5,137 4,580
Titan Scan.................................... 2,039 1,121 (204)
Titan Wireless................................ 5,063 (6,732) (1,074)
Emerging Technologies and Businesses.......... 43,143 34 (286)
Corporate..................................... (14,417) (6,477) (2,804)
-------- ------- -------
$ 67,789 $18,353 $ 8,573
======== ======= =======
</TABLE>
Operating profit for the Titan Systems, Software Systems and Titan Scan
segments for the year ended December 31, 1999, included acquisition and other
charges of $4,690, $2,111 and $811 respectively. Operating profit for Emerging
Technologies and Businesses includes the $41,788 gain on IPivot stock as
discussed in Note 2. Operating profit for the Titan Systems and Titan Wireless
segments for the year ended December 31, 1998, included acquisition-related and
other charges of $7,218 and $2,398 respectively. Operating profit for Titan
Systems in 1997 includes recognition of a special charge of $9,846 for the
write-down of certain assets to net realizable value and accrued for certain
liabilities as discussed in Notes 9 and 15.
Corporate includes corporate general and administrative expenses, certain
corporate, integration, legal and restructuring charges ($5,296 in 1999 and $275
in 1998), and gains or losses from the sale of
75
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 6. SEGMENT INFORMATION (CONTINUED)
businesses. Corporate general and administrative expenses are generally
recoverable from contract revenues by allocation to operations.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets:
Titan Systems............................... $194,063 $131,371 $109,383
Software Systems............................ 94,450 14,959 8,114
Titan Scan.................................. 24,242 14,518 15,466
Titan Wireless.............................. 35,598 5,085 10,655
Emerging Technologies and Businesses........ 3,829 67 6,391
Discontinued Operations, net................ 557 645 7,605
General corporate assets.................... 53,457 25,922 26,089
-------- -------- --------
$406,196 $192,567 $183,703
======== ======== ========
</TABLE>
General corporate assets are principally cash, accounts receivable, prepaid
expenses, property and equipment, deferred income taxes and other assets.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Depreciation and Amortization of Property and
Equipment, Goodwill, and Other Assets:
Titan Systems.................................... $ 6,078 $4,769 $6,395
Software Systems................................. 1,063 475 617
Titan Scan....................................... 840 876 681
Titan Wireless................................... 607 381 453
Emerging Technologies and Businesses............. 71 25 85
Corporate........................................ 1,129 600 982
------- ------ ------
$ 9,788 $7,126 $9,213
======= ====== ======
Capital Expenditures:
Titan Systems.................................... $ 3,387 $2,651 $4,988
Software Systems................................. 1,002 325 453
Titan Scan....................................... 3,605 211 643
Titan Wireless................................... 3,839 463 358
Emerging Technologies and Businesses............. 73 30 86
Corporate........................................ 832 358 119
------- ------ ------
$12,738 $4,038 $6,647
======= ====== ======
</TABLE>
76
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 7. INCOME TAXES
The components of the income tax provision (benefit) from continuing
operations are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $19,013 $ 782 $2,046
State............................................ 3,563 278 374
------- ------ ------
22,576 1,060 2,420
Deferred......................................... (593) 3,095 1,764
------- ------ ------
$21,983 $4,155 $4,184
======= ====== ======
</TABLE>
Following is a reconciliation of the income tax provision from continuing
operations expected (based on the United States federal income tax rate
applicable in each year) to the actual tax provision on income:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected Federal tax provision on continuing
operations....................................... $20,714 $3,865 $ 953
State income taxes, net of Federal income tax
benefit.......................................... 3,551 341 92
Research credit.................................... -- -- (324)
Goodwill amortization.............................. 378 218 351
Keyman life insurance.............................. -- 24 24
Acquistion charges and other....................... (660) (293) 3,088
Utilization of NOL not realized in prior periods... (2,000) -- --
------- ------ ------
Actual tax provision on continuing operations...... $21,983 $4,155 $4,184
======= ====== ======
</TABLE>
The deferred tax asset as of December 31, 1999 and 1998, results from the
following temporary differences:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Loss carryforward....................................... $ 9,037 $ 7,746
Employee benefits....................................... 4,659 4,275
Tax credit carryforwards................................ 999 2,096
Inventory and contract loss reserves.................... 9,639 10,199
Depreciation............................................ (1,293) (1,378)
Other................................................... 184 (306)
-------- --------
23,225 22,632
Valuation allowance..................................... (11,200) (11,200)
-------- --------
Net deferred tax asset.................................. $ 12,025 $ 11,432
======== ========
</TABLE>
Realization of certain components of the net deferred tax asset is dependent
upon the Company 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
77
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 7. INCOME TAXES (CONTINUED)
be realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are changed. Also, under Federal tax law, certain
potential changes in ownership of the Company which may not be within the
Company's control may limit annual future utilization of these carryforwards.
Other non-current liabilities at December 31, 1999 include a deferred liability
of $1,293. Deferred income tax assets of $454 are included in Other Assets at
December 31, 1998.
Cash paid for income taxes was $3,405, $1,343 and $1,195 in 1999, 1998 and
1997, respectively.
NOTE 8. DEBT
In June 1999, in conjunction with the acquisition of SRC (see Note 2), the
Company's bank syndicate, with The Bank of Nova Scotia ("Scotia Bank") as the
administrative agent, amended and increased the Company's existing credit
facility. The revised credit facility, totaling $190 million, included a $55
million line of credit for working capital and general corporate purposes, $60
million ($25 million original and $35 million new facility) in lines of credit
dedicated to acquisitions and a $75 million term loan. At December 31, 1999,
total borrowings outstanding were $138,250 at a weighted average interest rate
of 8.79%. Commitments under letters of credit, which reduce availability of the
working capital line, were $1,872 at December 31, 1999. Of the total borrowings,
$9,063 was short-term. At December 31, 1999, deferred financing costs included
in Other Assets related primarily to this facility were $3,633 and are being
amortized over the term of the agreement. In February 2000, the Company entered
into a new credit facility agreement which replaces this facility and which is
described in Note 16. As a result, the deferred financing costs related to the
current agreement will be expensed as an extraordinary item in the first quarter
of 2000.
In November 1996, Titan issued $34,500 of 8 1/4% convertible subordinated
debentures due 2003. On September 7, 1999, the Company announced a call for
redemption on November 2, 1999, of the debentures still outstanding. At the time
of the call, the Company had outstanding debentures in the aggregate principal
amount of approximately $11.6 million. All except $1 of the debentures were
converted prior to the redemption date. Accordingly, the remaining $1 was
redeemed on November 2, 1999. The conversion of the debentures was a non-cash
transaction.
On December 10, 1999, the Company's wholly owned subsidiary, Titan
Africa, Inc. ("Titan Africa"), in connection with its contract to build a
satellite-based telephone system for the national telephone company of Benin,
Africa, entered into a Loan Facility Agreement for up to 30.0 billion Francs CFA
(the currency of the African Financial Community), equivalent to approximately
$45.0 million U.S. dollars, with a syndicate of five banks, with Africa Merchant
Bank as the Arranger. This medium-term financing is a non-recourse loan to Titan
Africa which is guaranteed by the national telephone company of Benin, Africa
and secured by the national telephone company's equipment and revenues related
to the project. The facility has a fixed interest rate of 9.5% and will be
repaid in seven equal semi-annual payments beginning on December 31, 2000, and
ending on December 31, 2003. Approximately $8 million was drawn on this facility
at December 31, 1999.
At December 31, 1999 and 1998, Titan had $2,227 and $3,328, respectively,
outstanding under two promissory notes, secured by certain machinery and
equipment, at interest rates of 8.5% and 7.42%. At December 31, 1999, $1,004 is
due within one year. At December 31, 1999 and 1998, the Company also had
78
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 8. DEBT (CONTINUED)
outstanding a mortgage note collateralized by real estate with a balance of $698
and $747, respectively, at an interest rate of LIBOR plus 2.5%, which was paid
in full in February 2000. Long-term debt at entities acquired by the Company in
1998 was $1,867 ($471 short-term) at December 31, 1999. A line of credit
remaining at one of the Company's 1999 acquisitions was $973 at December 31,
1999. Maturities of long-term debt, excluding the Company's line of credit with
Scotia Bank, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 3,704
2001........................................................ 3,766
2002........................................................ 2,504
2003........................................................ 2,286
-------
$12,260
=======
</TABLE>
Cash paid for interest, primarily on these borrowings, was $9,067, $6,491
and $6,254 in 1999, 1998 and 1997, respectively. At December 31, 1999 the
Company was in compliance with all financial covenants under its various debt
agreements.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases certain buildings and equipment under non-cancelable
operating lease agreements. These leases generally require the Company to pay
all executory costs such as taxes, insurance and maintenance related to the
leased assets. Certain of the leases contain provisions for periodic rate
accelerations to reflect cost-of-living increases. Rental expense under these
leases was $11,225 in 1999, $10,130 in 1998 and $9,457 in 1997. Through August
1999, the Company was obligated under a long-term lease agreement for facilities
which are owned by an entity in which Titan has a minority ownership interest.
Rental expense in 1999, 1998 and 1997 includes $593, $921 and $904,
respectively, paid under this agreement. In February 2000, Cayenta entered into
a new long-term lease agreement with this entity which requires future minimum
lease payments of approximately $6.6 million over 7 years. There is additional
space in the facilities which, if vacant or desired by Cayenta, could obligate
Cayenta for additional future minimum lease payments of approximately $0.7
million over the 7 years. The Company is a guarantor on the lease.
Future minimum lease payments under noncancellable operating leases at
December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 8,434
2001........................................................ 6,816
2002........................................................ 5,971
2003........................................................ 4,905
2004........................................................ 3,214
Thereafter.................................................. 7,899
-------
Total minimum lease payments.............................. $37,239
=======
</TABLE>
In 1997, DBA recorded a $3.0 million charge in recognition of certain
environmental matters at its Kissimmee facility including, but not limited to,
soil contamination and potential asbestos and lead-based
79
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
paint contamination. These matters became known to DBA as a result of an
environmental study performed as part of Titan's due diligence process related
to the merger with DBA. The accrual has been recorded in accordance with SFAS
No. 5 and SOP 96-1 and represents an initial estimate which could change
significantly as further studies are performed. In the accompanying balance
sheet, approximately $.2 million is included in other current liabilities and
the remaining $2.8 million is included in other non-current liabilities based on
the estimated timing of continued assessments and remediation work to be
performed. The Company's cleanup activities are substantially complete, and the
property is currently in escrow (see Note 15). The liabilities recorded for the
cleanup will be evaluated in total with the net book value of the property
against the final proceeds from the sale of the building.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against the Company relating to its patent for
SureBeam technology. The action attacks the validity of the Company's patent,
seeks a declaration that Ion Beam Applications and its customers have not
infringed any of the 62 claims in the Company's patent, and alleges that the
Company has engaged in unfair competition and that Titan's conduct constitutes
patent misuse. The Company intends to vigorously defend its patent position.
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further, the
Company and its subsidiaries are subject to claims and from time to time are
named as defendants in legal proceedings. The Company may also assert claims
from time to time. In the opinion of management, the amount of ultimate
liability or recovery with respect to these actions will not materially affect
the financial position or results of operations of the Company.
NOTE 10. SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company's Series B Preferred Stock had a par value of $1.00, accrued
dividends at a rate of 6% per annum payable quarterly in arrears cumulatively,
had a liquidation preference of $6.00 per share plus accrued and unpaid
dividends (the "Series B Liquidation Preference") and entitled 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 was redeemable at the Series B Liquidation Preference
(i) at the holder's option, after May 24, 1998 until May 24, 2001, and (ii) at
the Company's option, after May 24, 2001 until May 24, 2006. The Company
redeemed all of the outstanding shares of Series B Preferred Stock in 1998.
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 the Company's common stock (subject to customary anti-dilution
adjustments). Common stock of 463,233 shares has been reserved for this purpose.
The $1.00 cumulative convertible preferred stock is redeemable at the Company's
option at a redemption price of $20 per share, plus cumulative dividends in
arrears. 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.
80
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 12. COMMON STOCK
At December 31, 1999, approximately 9,207,000 common shares were reserved
for future issuance for conversion of preferred stock, employee benefit and
stock incentive plans and acquisition-related obligations.
On August 17, 1995, the Board of Directors adopted a Shareholder Rights
Agreement and subsequently distributed one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $1.00 per
share (the "Preferred Shares") at a price of $42.00 per one one-hundredth of a
Preferred Share, subject to adjustment. The Rights become exercisable if a
person or group acquires, in a transaction not approved by the Company's Board
of Directors ("Board"), 15% or more of the Company's common stock or announces a
tender offer for 15% or more of the stock.
If a person or group acquires 15% or more of the Company's common stock,
each Right (other than Rights held by the acquiring person or group which become
void) will entitle the holder to receive upon exercise a number of shares of the
Company's common stock having a market value of twice the Right's exercise
price. If the Company is acquired in a transaction not approved by the Board,
each Right may be exercised for common shares of the acquiring company having a
market value of twice the Right's exercise price. 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
The Company provides stock-based compensation to officers, directors and key
employees through various fixed stock option plans and to all non-executive
employees through an employee stock purchase plan. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the fixed stock option or stock purchase plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's results of
operations would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss).................. As reported $31,600 $(19,705) $(19,312)
Pro forma 28,761 (20,827) (21,019)
Net income (loss) per share,
basic............................ As reported .79 (.59) (.61)
Pro forma .71 (.62) (.66)
Net income (loss) per share,
diluted.......................... As reported .69 (.57) (.61)
Pro forma .61 (.60) (.66)
</TABLE>
Options authorized for grant under the Stock Option Plans of 1994 and 1997,
and The 1996 Directors' Stock Option and Equity Participation Plan (the "1996
Directors' Plan") are 2,000,000 and 125,000, 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. Grants in 1999 exceeded the
remaining shares available under these plans. A proposal for a Stock Option Plan
of 2000 is subject to shareholder approval at the
81
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 13. STOCK-BASED COMPENSATION PLANS (CONTINUED)
Company's Annual Meeting of Stockholders on May 30, 2000. Under all plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant. Under the employee plans, an option's maximum term is ten
years. Under the directors' plan, 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. All options vest in 25% increments
beginning one year after the grant date. Stock options assumed by the Company as
a result of the mergers discussed in Note 2 generally retain the terms under
which they were granted.
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 67% in 1999, 71% in 1998 and 70% in 1997; and a risk free
interest rate of 6.55% in 1999, 4.74% in 1998 and 5.72% in 1997.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1999, 1998 and 1997, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
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........................... 3,658 $3.77 3,697 $3.66 3,155 $3.37
Granted.......................... 1,140 9.79 808 4.30 1,175 3.77
Exercised........................ (742) 2.95 (258) 2.70 (207) 2.75
Canceled......................... (230) 3.92 (589) 4.31 (426) 3.10
----- ----- -----
Outstanding at end of year....... 3,826 5.73 3,658 3.77 3,697 3.66
===== ===== =====
Options exercisable at
year-end....................... 1,885 1,898 1,994
Weighted-average fair value of
options granted during the
year........................... $6.01 $5.46 $3.42
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.04 - $3.94 1,104,860 5.08 years $ 2.06 965,112 $2.01
4.00 - 9.50 1,749,044 7.39 years 5.40 919,669 5.58
9.75 - 22.38 972,000 9.63 years 10.52 -- --
--------- ---------
3,825,904 7.29 years 1,884,781
========= =========
</TABLE>
Under the 1995 Employee Stock Purchase Plan, the Company is authorized to
issue up to 500,000 shares of common stock to its full-time employees. Elected
officers of the Company are not eligible to participate. Under the terms of the
plan, employees may elect to have between 1 and 10 percent of their regular
earnings, as defined in the plan, withheld to purchase the Company's common
stock. The purchase
82
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 13. STOCK-BASED COMPENSATION PLANS (CONTINUED)
price of the stock is 85 percent of the lower of its market price at the
beginning of a two-year period or at the end of each offering period. An
offering period is two years, beginning January 1 and July 1 of each year.
Approximately 10%, 13% and 11% of eligible employees participated in the Plan
and purchased 215,907, 92,089 and 110,461 shares of the Company's common stock
in 1999, 1998 and 1997, respectively. The weighted-average fair value of the
purchase rights granted in 1999, 1998 and 1997 was $5.60, $1.61 and $1.06,
respectively.
Each of Titan Systems, Titan Scan and Titan Wireless is a wholly owned
subsidiary of Titan and has its own key employee stock option plan. The Company
has created stock option plans for each of Titan Systems, Titan Scan and Titan
Wireless. As of December 31, 1999, Titan Systems had approximately 13% of its
fully diluted common stock that had been reserved for issuance under its plan,
and each of Titan Scan and Titan Wireless had approximately 16% of their fully
diluted common stock that had been reserved for issuance under their respective
plans.
Cayenta has reserved 2,500,000 shares of Class A common stock under stock
option plans. Under its variable stock option plan, Cayenta has granted options
to certain employees who have agreed to resell shares purchased with those
options to Cayenta. Cayenta has recorded deferred compensation related to these
option grants in an aggregate amount of $203 through December 31, 1999. As of
December 31, 1999, there are 654,500 options outstanding that are subject to
this buyback provision, for which Cayenta expects to record deferred
compensation expense equal to the difference between these options' exercise
price of $0.36 per share and the price per share in the proposed initial public
offering multiplied by all 654,500 options. Upon the occurrence of an initial
public offering, the options convert to fixed price options. Cayenta also issued
645,500 options to employees not covered by this buyback option at exercise
prices that were less than the deemed fair market value of the underlying common
shares on the date of grant. Cayenta has recognized deferred compensation
relating to these grants of $638 and will amortize this deferred charge to
expense over the four-year vesting period of these options.
NOTE 14. BENEFIT PLANS
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $5,074, $3,326 and
$2,914 in 1999, 1998 and 1997, respectively. The Company's combined
discretionary contributions to their Employee Stock Ownership Plans were $1,055,
$295 and $372 in 1999, 1998 and 1997, respectively. Discretionary contributions
to a profit sharing plan covering certain employees were $150, $150 and $175 in
1999, 1998 and 1997, respectively. During 1997, the Company utilized treasury
stock of $344 for benefit plan contributions.
The Company has a non-qualified executive deferred compensation plan for
certain officers and key employees. The Company's expense for this plan was
$1,039, $824 and $821 in 1999, 1998 and 1997, respectively. Interest expense for
the years ended December 31, 1999, 1998 and 1997 includes $828, $650 and $527,
respectively, related to the plan. Included in other non-current liabilities is
$4,643 and $4,311 related to this plan at December 31, 1999 and 1998,
respectively. Cash surrender value of the life insurance related to this plan
was $8,401 and $976 (net of loans) included in Other Assets at December 31, 1999
and 1998, respectively. The Company also has performance bonus plans for certain
of its employees. Related expense amounted to approximately $4,687, $3,316 and
$2,125 in 1999, 1998 and 1997, respectively.
83
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 14. BENEFIT PLANS (CONTINUED)
The Company has previously provided for postretirement benefit obligations
of operations discontinued in prior years. The Company has no postretirement
benefit obligations for any of its continuing operations nor for its recently
discontinued businesses.
NOTE 15. DBA ASSET IMPAIRMENTS
The Company has a 141,000 square foot manufacturing facility located in
Kissimmee, Florida which was acquired in the merger with DBA. The property has
been held for sale since June 1996. As a result of several factors, including
offers received by third parties, management concluded that there had been an
impairment in the carrying value of the asset. A charge of $2.0 million was
recorded in the Company's financial statements for the year ended December 31,
1997 which reflects management's estimate of the impairment, including estimated
disposal costs. Titan management has a program of ongoing maintenance (and
environmental remediation -- see Note 9) and the property is currently in
escrow. Management regularly reviews this asset for further impairment, and
believes that the recorded book value at December 31, 1999 reflects an amount
which is not less than net realizable value.
In September 1997, DBA invested $1.6 million in a start-up venture. To date,
this start-up venture has not yet generated any significant business and has
generated no significant revenue. In light of these circumstances, Titan
management believed that there was an impairment in the value of the investment
as recorded by DBA. An adjustment to write down the investment by $1.6 million
was recorded in the results of operations for the year ended December 31, 1997.
NOTE 16. SUBSEQUENT EVENTS
On January 31, 2000, the Company entered into a definitive agreement to
acquire substantially all of the stock of LinCom Corporation ("LinCom"), for a
purchase price of approximately $23 million in cash, subject to certain
post-closing adjustments and indemnification obligations, less a $1 million
holdback and a $2 million promissory note. The $1 million holdback is due
approximately 60 days after the closing date, and the $2 million note is due one
year after the closing date and accrues interest at 7%. LinCom is a developer of
wireless communications and information systems for both commercial and
government customers. The transaction is expected to close by March 31, 2000 and
will be accounted for as a purchase.
On February 9, 2000, the Company and Titan Capital Trust (the "Trust"), our
wholly owned subsidiary, issued 4 million convertible preferred securities
(Remarketable Term Income Deferrable Equity Securities, "HIGH TIDES") at $50 per
security, for an aggregate total of $200 million, with an overallotment
exercised on February 16, 2000 of an additional 1 million securities, for an
additional $50 million. The Trust used the proceeds from the sale of the HIGH
TIDES to purchase from the Company 5 3/4% Convertible Senior Subordinated
Debentures, due February 15, 2030. The debentures have the same financial terms
as the HIGH TIDES. The HIGH TIDES will accrue distributions of 5 3/4% per annum,
with quarterly distributions to be paid in arrears on February 15, May 15,
August 15 and November 15, commencing May 15, 2000. The Trust's ability to pay
distributions on the HIGH TIDES is solely dependent on its receipt of interest
payments from the Company on the debentures. Approximately five years after
issuance of the HIGH TIDES, the HIGH TIDES may be remarketed, which means that a
remarketing agent will attempt to establish an annual distribution rate,
conversion price and redemption features for the HIGH TIDES that are consistent
with a price per HIGH TIDES equal to 101% of its liquidation preference and also
are most favorable to the Company. The 5 3/4% per annum rate will be
84
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
applicable from the date of original issuance to, but excluding the reset date.
The reset date is any date (a) not later than February 15, 2005, or the final
reset date, or, if the day is not a business day, the next succeeding day, and
(b) not earlier than 70 business days prior to February 15, 2005, as may be
determined by the remarketing agent, in its sole discretion. On or after the
reset date, the applicable rate will be the term rate established by the
remarketing agent based on the outcome of the remarketing. We can, on one or
more occasions, defer the interest payments due on the debentures for up to 20
consecutive quarters unless an event of default under the debentures has
occurred and is continuing. The holders of the HIGH TIDES may convert each
security into shares of common stock of Titan at the initial rate of 1.0076
shares of common stock for each HIGH TIDES (equivalent to an initial conversion
price of $49.625 per share of common stock). The Company may redeem the
debentures in whole or in part, at any time on or after February 20, 2003 until
but excluding the tender notification date, at a redemption price equal to
101.44% of the principal amount of the debentures, declining to 100% of the
principal amount of the debentures on or after February 20, 2004, plus any
accrued and unpaid interest; and after the reset date, in accordance with the
term call projections, if any, established in the remarketing or, upon a failed
final remarketing, on or after the third anniversary of the reset date at a
redemption price equal to 100% of the principal amount of debentures, plus any
accrued and unpaid interest.
On February 23, 2000, the Company entered into a credit agreement for $275
million of financing from a syndicate of commercial banks including Credit
Suisse First Boston acting as Lead Arranger and Administrative Agent, First
Union Securities, Inc. acting as Co-Arranger and Syndication Agent and the Bank
of Nova Scotia serving as Documentation Agent. The proceeds of the loan were
used in part to refinance outstanding indebtedness on the Company's $190 million
credit facility arranged by Bank of Nova Scotia in June 1999 (see Note 8). The
balance at March 20, 2000 on the new facility was $100 million on the term loan.
The new credit facility is secured by substantially all of our and our
subsidiaries' assets and guaranteed by substantially all of our subsidiaries.
The $275 million facility is comprised of a seven-year senior secured multi-draw
term loan facility in an aggregate principal amount of up to $75 million, a
six-year senior secured term loan facility in an aggregate principal amount of
$100 million, and a five-year senior secured revolving credit facility in an
aggregate principal amount of up to $100 million. Loans made under the
multi-draw term loan facility would mature on the sixth anniversary of the
closing date of the new credit facility, and amortize as follows: 2.5% quarterly
in year two of the credit facility, 3.75% quarterly in year three of the credit
facility, 5% quarterly in year four of the credit facility, 6.25% quarterly in
year five of the credit facility and 7.5% quarterly in year six of the credit
facility. Loans made under the term loan facility would mature on the seventh
anniversary of the closing date of the new credit facility, and amortize as
follows: 0.25% quarterly for years one through six of the credit facility and
23.5% quarterly for year seven of the credit facility. Under each of the term
loan facilities and the revolving facility, we would have the option to borrow
at the bank's base rate or at adjusted LIBOR plus, in each case, an applicable
ratio based on the ratio of our total debt to EBITDA (earnings before interest
and taxes and depreciation and amortization). The agreement contains financial
covenants that set maximum debt to EBITDA limits and require us to maintain
minimum interest and fixed charge coverages and levels of net worth. Cayenta and
its subsidiaries shall cease being guarantors under the new credit facility, and
their assets shall no longer be collateral for the new bank syndicate if Cayenta
completes its proposed initial public offering.
85
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
On February 25, 2000, the Company consummated a merger with Advanced
Communication Systems, Inc. ("ACS"), a government information technology
services company, in a stock-for-stock transaction. ACS will be reported in the
Titan Systems segment. Titan issued approximately 5,071,000 shares of Titan
common stock for all the outstanding shares of ACS and assumed ACS stock options
representing approximately 263,000 shares of Titan common stock for each share
of ACS common stock. The merger constituted a tax-free reorganization and will
be accounted for as a pooling of interests. In connection with the merger, ACS'
September 30 fiscal year-end has been changed to coincide with the Company's
year-end. The following unaudited pro forma data summarize the combined
operating results of the Company and ACS as if the merger had occurred at the
beginning of the periods presented.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues...................................... $624,803 $411,180 $328,117
Net income (loss)............................. 35,181 (15,331) (17,576)
Net income (loss) per share:
Basic....................................... $ .77 $ (.40) $ (.48)
Diluted..................................... .69 (.39) (.48)
</TABLE>
Prior to the merger, ACS used a fiscal year ending September 30.
Accordingly, the combined pro forma results reflect the results for the Titan
fiscal years ended December 31, 1999, 1998 and 1997 combined with ACS' results
for fiscal years ended September 30, 1999, 1998 and 1997, respectively. ACS
revenues and net income for the three months ended December 31, 1999 were
$46,255 and $1,352, respectively.
On March 24, 2000, the Company completed the acquisition of all the
outstanding stock of Pulse Engineering ("Pulse") for a purchase price of
approximately $27.4 million in cash, subject to certain post-closing adjustments
and indemnification obligations, less a $1 million holdback and a $2 million
deferred payment. The holdback is due approximately 90 days from the closing
date and the deferred payment is due one year from the closing date. Pulse
provides highly specialized security and signal intelligence systems and
services to the intelligence community. The transaction will be accounted for as
a purchase.
On March 24, 2000, the Company signed a definitive agreement for the
acquisition of AverStar, Inc., a private company headquartered in Burlington,
Massachusetts, which provides information technology services in the areas of
information assurance, information operations and network and information
security for government and commercial customers. Under the terms of the
definitive agreement, AverStar will receive a total equity value of
approximately $140 million, if Titan's share price is between $44.00 and $56.00
per share at the time of closing. If Titan's share price is between $39.60 and
$44.00, the equity value will decrease ratably from $140 million to
approximately $126 million. At a Titan share price of less than $39.60, AverStar
has the right to terminate the definitive agreement subject to a Titan option to
assure a minimum equity value of approximately $126 million. If Titan's share
price is between $56.00 and $61.60, the equity value will increase ratably from
$140 million to approximately $154 million. At a Titan share price of more than
$61.60, Titan has the right to terminate the definitive agreement subject to an
AverStar option to agree to receive a maximum equity value of approximately
$154 million. The transaction has been approved by the board of directors of
both companies and is subject to regulatory and shareholder
86
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
approval. The transaction, which is expected to close by the end of June 2000,
will be accounted for as a pooling of interests.
NOTE 17. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 78,689 $89,471 $105,899 $132,492 $406,551
Gross profit............................... 17,138 21,521 24,253 29,270 92,182
Income from continuing operations.......... 2,712 4,204 6,042 24,242 37,200
Net income................................. 2,712 4,204 6,042 18,642 31,600
Basic earnings per share:
Income from continuing operations........ $ .07 $ .11 $ .14 $ .56 $ .93
Net income............................... .07 .11 .14 .43 .79
Diluted earnings per share:
Income from continuing operations........ .07 .10 .13 .52 .81
Net income............................... .07 .10 .13 .40 .69
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 64,630 $75,413 $ 78,635 $ 84,750 $303,428
Gross profit............................... 15,163 17,071 17,628 21,525 71,387
Income from continuing operations before
cumulative effect of change in accounting
principle................................ 954 2,973 1,948 1,338 7,213
Net income (loss).......................... (18,349) 3,184 (4,051) (489) (19,705)
Basic earnings per share:
Income from continuing operations........ $ .02 $ .08 $ .05 $ .03 $ .18
Net income (loss)........................ (.55) .09 (.11) (.02) (.59)
Diluted earnings per share:
Income from continuing operations........ .02 .07 .05 .03 .18
Net income (loss)........................ (.53) .08 (.09) (.02) (.57)
</TABLE>
The above financial information for each quarter reflects all normal and
recurring adjustments.
Income (loss) from continuing operations and net income (loss) include other
income of $41.8 million, net of acquisition and integration charges of $12.9
million, in the fourth quarter of 1999, and acquisition and other charges of
$1,460, $3,093 and $5,338 in the first, third and fourth quarters of 1998,
respectively (see Notes 2 and 15).
87
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No information is required by Item 9.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10 with respect to the directors and the
executive officers of the Company is incorporated herein by this reference to
such information on pages 5-8 and 27 of the Company's definitive proxy statement
for the 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by this reference
to such information on pages 9-14 of the Company's definitive proxy statement
for the 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by this reference
to such information on page 4 of the Company's definitive proxy statement for
the 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No information is required by Item 13.
88
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial Statements being filed as part of this report are listed
in the index in Item 8, on page 56.
(b) The Company filed the following reports on Form 8-K during the fourth
quarter of 1999:
(1) Current Report on Form 8-K, dated November 2, 1999, regarding the
acquisition of JB Systems, Inc., d.b.a. Mainsaver Corporation.
(2) Current Report on Form 8-K, dated December 9, 1999, regarding the merger
agreement between the Registrant and Advanced Communication
Systems, Inc., ("ACS"), whereby Titan will acquire ACS.
(3) Current Report on Form 8-K, dated December 22, 1999, regarding the
acquisition of SFG Technologies Inc.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
3.1 Registrant's Certificate of Amendment of Restated *
Certificate of Incorporation dated as of October 21, 1998,
which was Exhibit No. 3.1 to Registrant's Quarterly Report
on Form 10-Q dated November 16, 1998, is incorporated herein
by this reference. Registrant's Restated Certificate of
Incorporation dated as of November 6, 1986, which was
Exhibit No. 3.1 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
Registrant'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 Registrant's By-laws, as amended, which was filed with the *
Company's Quarterly Report on Form 10-Q dated November 13,
1995, as Exhibit 6(a)(3)is incorporated herein by this
reference.
3.3 Registrant's By-laws, as amended.
4.1 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.
4.2 Letter Agreement dated February 4, 1998 between the Company *
and DBA Systems, Inc. ("DBA") regarding certain registration
rights granted in connection with the acquisition of DBA
which was Exhibit 10.38 to Registration Statement on Form
S-4 (no. 333-45719) is incorporated herein by this
reference.
10.1 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 10-K is incorporated
herein by this reference.
10.2 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.
10.3 Amendment to Stock Option Plan Of 1994.
10.4 Stock Option Plan of 1997, which was filed in the Company's
1997 Definitive Proxy Statement as Appendix A, is
incorporated herein by this reference.
10.5 Amendment to Stock Option Plan of 1997.
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
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 Amendment to The Titan Corporation Supplemental Retirement
Plan For Key Executives dated February 17, 2000.
10.10 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.
10.11 Lease Agreement dated as of July 9, 1991, by and between *
Torrey Pines Limited Partnership, a California limited
partnership, as landlord, and Registrant, as tenant, which
was Exhibit 10.1 to Registrant's Form 8-K dated July 11,
1991 is incorporated herein by this reference.
10.12 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.
10.13 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.
10.14 Executive Severance Plan entered into by the Company with *
Ronald B. Gorda, 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.
10.15 Executive Severance Plan entered into by the Company with
Gene W. Ray, Eric M. DeMarco and Nicholas J. Costanza.
10.16 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 by this
reference.
10.17 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.
10.18 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.
10.19 Agreement and Plan of Merger and Reorganization dated *
January 6, 1998 among The Titan Corporation, Titan
Acquisition Sub, Inc. and DBA Systems, Inc. which was filed
as Exhibit 2.1 to the Company's Registration Statement on
Form S-4 (No. 333-45719), is incorporated herein by this
reference.
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
10.20 Agreement and Plan of Merger and Reorganization dated *
February 26, 1998, among The Titan Corporation, Sunrise
Acquisition Sub, Inc., Horizons Technology, Inc.
("Horizons") and certain stockholders of Horizons, which was
filed as Appendix A to the Company's Registration Statement
on Form S-4 (No. 333-47633) is incorporated herein by this
reference.
10.21 Stock Purchase Agreement dated as of March 24, 1998 between
Titan Technologies and Information Systems Corporation,
Validity Corporation and the Shareholders of Validity
Corporation.
10.22 Agreement and Plan of Reorganization dated as of June 30, *
1998 by and among The Titan Corporation, Delsys Merger
Corp., and Delfin Systems, which was filed as Exhibit 2.1 to
the Company's Registration Statement on Form S-4 (No.
333-60127) is incorporated herein by this reference.
10.23 Agreement and Plan of Merger and Reorganization dated as of
August 7, 1998 among The Titan Corporation, Merger Sub
Acquisition Corp., VisiCom Laboratories, Inc., and Certain
Shareholders of VisiCom Laboratories, Inc.
10.24 Stock Purchase Agreement dated as of June 9, 1999 among *
Titan Technologies and Information Systems Corporation,
System Resources Corporation and the Stockholders of System
Resources Corporation, which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated June 9, 1999 is
incorporated herein by this reference.
10.25 Agreement and Plan of Merger and Reorganization dated as of
July 1, 1999 among Titan Technologies and Information
Systems Corporation, TTIS MergerCo, Inc., Atlantic Aerospace
Electronics Corporation, and the Designated Stockholders.
10.26 Limited Liability Company Agreement of Soliance Networks,
LLC dated as of August 25, 1999 among Sempra Energy
Information Solutions, modis, Inc., and Cayenta.com, Inc.
10.27 Agreement and Plan of Merger, as amended, dated as of
October 4, 1999 among IPIVOT, Inc., Intel Corporation, WCXT
Acquisition Corporation and Brett Helm and William Strensrud
as the representatives of the Escrow Securityholders.
10.28 Stock Purchase Agreement dated as of November 2, 1999 among *
Cayenta.com, Inc., J B Systems, Inc, d.b.a. Mainsaver
Corporation and Mainsaver, JKS Separate Property Trust, The
Gehl Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation, which was filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 2, 1999 is
incorporated herein by this reference.
10.29 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone
Technologies, Inc. and the Selling Shareholders We have not
filed Schedules and similar attachments to this Exhibit.
Upon request, the Company will furnish supplementally to the
Commission a copy of any omitted schedule.
10.30 Agreement and Plan of Merger dated as of December 9, 1999 *
among The Titan Corporation, Advanced Communication
Systems, Inc., and AT Acquisition Corp, which was filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated December 9, 1999 is incorporated herein by this
reference.
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
10.31 Agreement and Plan of Merger, dated as of December 9, 1999 *
as amended as of January 20, 2000, among the Company, Merger
Sub and ACS, which was filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-95245) is
incorporated herein by this reference.
10.32 Loan Facility Agreement dated as of December 10, 1999 among
Titan Africa, Inc., Office des Postes et Telecommunications
of the State of Benin, Banque Belgolaise, Eco Bank Benin,
Banque Ouest Africain pour le Developpement, Banque
Internationale du Benin, Continental Bank Benin and Bank of
Africa Benin.
10.33 Stock Purchase Agreement dated as of December 23, 1999 among *
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders, which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 22, 1999
is incorporated herein by this reference.
10.34 Agreement and Plan of Reorganization dated as of
January 28, 2000 among The Titan Corporation, MT Acquisition
Corp., William C. Lindsey, Inc. (DBA LinCom Corporation) and
the Principal Shareholder of William C. Lindsey, Inc. We
have not filed Schedules and similar attachments to this
Exhibit. Upon request, the Company will furnish
supplementally to the Commission a copy of any omitted
schedule.
10.35 5 3/4 % Convertible Preferred Securities Remarketable Term
income Deferrable Equity Securities (High Tides) dated as of
February 3, 2000.
10.36 Senior Secured Credit Agreement, dated as of February 23,
2000 among the Company, Various financial institutions from
time to time parties thereto (the "Lenders"), Credit Suisse
First Boston, as the Lead Arranger and as the Administrative
Agent for the Lenders, First Union Securities, Inc. as
Co-Arranger and as Syndication Agent and The Bank of Nova
Scotia as the Documentation Agent.
10.37 Agreement and Plan of Merger dated as of March 10, 2000
among The Titan Corporation, Titan Acquisition Corporation
and Pulse Engineering, Inc. We have not filed Schedules and
similar attachments to this Exhibit. Upon request, the
Company will furnish supplementally to the Commission a copy
of any omitted schedule.
13 The Titan Corporation 1999 Annual Report to Shareholders.
21 Subsidiaries of Registrant as of December 31, 1999.
23 Consent of Arthur Andersen LLP, Independent Public
Accountants.
27 Financial Data Schedule for the year ended December 31,
1999.
</TABLE>
- ------------------------
* Previously filed as indicated and incorporated herein by reference from
filings previously made by the Company.
92
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
THE TITAN CORPORATION
By: /s/ GENE W. RAY
-----------------------------------------
Gene W. Ray,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
March 29, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GENE W. RAY
-------------------------------------- President, Chief Executive Officer March 29, 2000
Gene W. Ray and Chairman of the Board
/s/ ERIC M. DEMARCO Executive Vice President and Chief
-------------------------------------- Financial Officer (Principal March 29, 2000
Eric M. DeMarco Financial Officer)
/s/ DEANNA HOM PETERSEN Vice President, Corporate
-------------------------------------- Controller (Principal Accounting March 29, 2000
Deanna Hom Petersen Officer)
/s/ CHARLES R. ALLEN
-------------------------------------- Director March 24, 2000
Charles R. Allen
/s/ JOSEPH F. CALIGIURI
-------------------------------------- Director March 29, 2000
Joseph F. Caligiuri
/s/ DANIEL J. FINK
-------------------------------------- Director March 29, 2000
Daniel J. Fink
/s/ ROBERT M. HANISEE
-------------------------------------- Director March 29, 2000
Robert M. Hanisee
/s/ ROBERT E. LA BLANC
-------------------------------------- Director March 29, 2000
Robert E. La Blanc
/s/ THOMAS G. POWNALL
-------------------------------------- Director March 29, 2000
Thomas G. Pownall
/s/ JAMES ROTH
-------------------------------------- Director March 29, 2000
James Roth
</TABLE>
93
<PAGE>
THE TITAN CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF (CHARGES TO BALANCE AT
YEAR EXPENSE) DEDUCTIONS END OF YEAR
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
1999:
Accrued merger and integration costs............ $3,035 $9,288 $6,443 $5,880
Allowance for doubtful accounts................. 249 677(b) 158 768
1998:
Accrued merger and integration costs............ -- 5,038 2,003 3,035
Allowance for doubtful accounts................. 718 -- 469(a) 249
1997:
Accrued merger and integration costs............ -- -- -- --
Allowance for doubtful accounts................. 481 297 60 718
</TABLE>
- ------------------------
(a) Includes $267 reclassed to unbilled accounts receivable.
(b) Includes $279 added through acquisitions.
94
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
3.1 Registrant's Certificate of Amendment of Restated *
Certificate of Incorporation dated as of October 21, 1998,
which was Exhibit No. 3.1 to Registrant's Quarterly Report
on Form 10-Q dated November 16, 1998, is incorporated herein
by this reference. Registrant's Restated Certificate of
Incorporation dated as of November 6, 1986, which was
Exhibit No. 3.1 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
Registrant'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 Registrant's By-laws, as amended, which was filed with the *
Company's Quarterly Report on Form 10-Q dated November 13,
1995, as Exhibit 6(a)(3)is incorporated herein by this
reference.
3.3 Registrant's By-laws, as amended.
4.1 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.
4.2 Letter Agreement dated February 4, 1998 between the Company *
and DBA Systems, Inc. ("DBA") regarding certain registration
rights granted in connection with the acquisition of DBA
which was Exhibit 10.38 to Registration Statement on Form
S-4 (no. 333-45719) is incorporated herein by this
reference.
10.1 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 10-K is incorporated
herein by this reference.
10.2 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.
10.3 Amendment to Stock Option Plan Of 1994.
10.4 Stock Option Plan of 1997, which was filed in the Company's
1997 Definitive Proxy Statement as Appendix A, is
incorporated herein by this reference.
10.5 Amendment to Stock Option Plan of 1997.
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 Amendment to The Titan Corporation Supplemental Retirement
Plan For Key Executives dated February 17, 2000.
10.10 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.
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
10.11 Lease Agreement dated as of July 9, 1991, by and between *
Torrey Pines Limited Partnership, a California limited
partnership, as landlord, and Registrant, as tenant, which
was Exhibit 10.1 to Registrant's Form 8-K dated July 11,
1991 is incorporated herein by this reference.
10.12 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.
10.13 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.
10.14 Executive Severance Plan entered into by the Company with *
Ronald B. Gorda, 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.
10.15 Executive Severance Plan entered into by the Company with
Gene W. Ray, Eric M. DeMarco and Nicholas J. Costanza.
10.16 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 by this
reference.
10.17 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.
10.18 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.
10.19 Agreement and Plan of Merger and Reorganization dated *
January 6, 1998 among The Titan Corporation, Titan
Acquisition Sub, Inc. and DBA Systems, Inc. which was filed
as Exhibit 2.1 to the Company's Registration Statement on
Form S-4 (No. 333-45719), is incorporated herein by this
reference.
10.20 Agreement and Plan of Merger and Reorganization dated *
February 26, 1998, among The Titan Corporation, Sunrise
Acquisition Sub, Inc., Horizons Technology, Inc.
("Horizons") and certain stockholders of Horizons, which was
filed as Appendix A to the Company's Registration Statement
on Form S-4 (No. 333-47633) is incorporated herein by this
reference.
10.21 Stock Purchase Agreement dated as of March 24, 1998 between
Titan Technologies and Information Systems Corporation,
Validity Corporation and the Shareholders of Validity
Corporation.
10.22 Agreement and Plan of Reorganization dated as of June 30, *
1998 by and among The Titan Corporation, Delsys Merger
Corp., and Delfin Systems, which was filed as Exhibit 2.1 to
the Company's Registration Statement on Form S-4 (No.
333-60127) is incorporated herein by this reference.
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
10.23 Agreement and Plan of Merger and Reorganization dated as of
August 7, 1998 among The Titan Corporation, Merger Sub
Acquisition Corp., VisiCom Laboratories, Inc., and Certain
Shareholders of VisiCom Laboratories, Inc.
10.24 Stock Purchase Agreement dated as of June 9, 1999 among *
Titan Technologies and Information Systems Corporation,
System Resources Corporation and the Stockholders of System
Resources Corporation, which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated June 9, 1999 is
incorporated herein by this reference.
10.25 Agreement and Plan of Merger and Reorganization dated as of
July 1, 1999 among Titan Technologies and Information
Systems Corporation, TTIS MergerCo, Inc., Atlantic Aerospace
Electronics Corporation, and the Designated Stockholders.
10.26 Limited Liability Company Agreement of Soliance Networks,
LLC dated as of August 25, 1999 among Sempra Energy
Information Solutions, modis, Inc., and Cayenta.com, Inc.
10.27 Agreement and Plan of Merger, as amended, dated as of
October 4, 1999 among IPIVOT, Inc., Intel Corporation, WCXT
Acquisition Corporation and Brett Helm and William Strensrud
as the representatives of the Escrow Securityholders.
10.28 Stock Purchase Agreement dated as of November 2, 1999 among *
Cayenta.com, Inc., J B Systems, Inc, d.b.a. Mainsaver
Corporation and Mainsaver, JKS Separate Property Trust, The
Gehl Living Trust, JBS Acquisition Company, LLC, Epicor
Software Corporation, Mark Stevens and The Titan
Corporation, which was filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 2, 1999 is
incorporated herein by this reference.
10.29 Stock Exchange and Stock Purchase Agreement dated as of
December 7, 1999 among Cayenta, Cayenta Operating Company,
The Titan Corporation, Assist Cornerstone
Technologies, Inc. and the Selling Shareholders We have not
filed Schedules and similar attachments to this Exhibit.
Upon request, the Company will furnish supplementally to the
Commission a copy of any omitted schedule.
10.30 Agreement and Plan of Merger dated as of December 9, 1999 *
among The Titan Corporation, Advanced Communication
Systems, Inc., and AT Acquisition Corp, which was filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated December 9, 1999 is incorporated herein by this
reference.
10.31 Agreement and Plan of Merger, dated as of December 9, 1999 *
as amended as of January 20, 2000, among the Company, Merger
Sub and ACS, which was filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (No. 333-95245) is
incorporated herein by this reference.
10.32 Loan Facility Agreement dated as of December 10, 1999 among
Titan Africa, Inc., Office des Postes et Telecommunications
of the State of Benin, Banque Belgolaise, Eco Bank Benin,
Banque Ouest Africain pour le Developpement, Banque
Internationale du Benin, Continental Bank Benin and Bank of
Africa Benin.
10.33 Stock Purchase Agreement dated as of December 23, 1999 among *
Cayenta, SFG Technologies, Inc., the Common Selling
Shareholders, the Preferred Selling Shareholders and the
Option Holders, which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 22, 1999
is incorporated herein by this reference.
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- --------------------- ----------- --------
<C> <S> <C>
10.34 Agreement and Plan of Reorganization dated as of
January 28, 2000 among The Titan Corporation, MT Acquisition
Corp., William C. Lindsey, Inc. (DBA LinCom Corporation) and
the Principal Shareholder of William C. Lindsey, Inc. We
have not filed Schedules and similar attachments to this
Exhibit. Upon request, the Company will furnish
supplementally to the Commission a copy of any omitted
schedule.
10.35 5 3/4 % Convertible Preferred Securities Remarketable Term
income Deferrable Equity Securities (High Tides) dated as of
February 3, 2000.
10.36 Senior Secured Credit Agreement, dated as of February 23,
2000 among the Company, Various financial institutions from
time to time parties thereto (the "Lenders"), Credit Suisse
First Boston, as the Lead Arranger and as the Administrative
Agent for the Lenders, First Union Securities, Inc. as
Co-Arranger and as Syndication Agent and The Bank of Nova
Scotia as the Documentation Agent.
10.37 Agreement and Plan of Merger dated as of March 10, 2000
among The Titan Corporation, Titan Acquisition Corporation
and Pulse Engineering, Inc. We have not filed Schedules and
similar attachments to this Exhibit. Upon request, the
Company will furnish supplementally to the Commission a copy
of any omitted schedule.
13 The Titan Corporation 1999 Annual Report to Shareholders.
21 Subsidiaries of Registrant as of December 31, 1999.
23 Consent of Arthur Andersen LLP, Independent Public
Accountants.
27 Financial Data Schedule for the year ended December 31,
1999.
</TABLE>
- ------------------------
* Previously filed as indicated and incorporated herein by reference from
filings previously made by the Company.
98
<PAGE>
THE TITAN CORPORATION
Amendments to By-Laws
1. Article III, Section 3.02 of the By-Laws is hereby amended to read in its
entirety as follows:
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.02 Number, Qualification, and Term of Office. The number of
directors shall be nine (9); provided, however, that the number of directors may
be increased in the event of certain specified arrearages in the payment of
dividends on the $1.00 Cumulative Convertible Preferred Stock of the
Corporation, such increases to be in the number, for the period of time effected
in the manner, prescribed in the Certificate of Incorporation. Directors need
not be stockholders. Each of the directors of the Corporation shall hold office
until the annual meeting of stockholders held next after his election and until
his successor shall have been duly elected and shall qualify, or until his death
in office, or until he shall resign or shall have been removed in the manner
hereinafter provided.
2. Article III of the By-Laws shall remain the same in all other respects.
3. Article VIII of the By-Laws is hereby amended to read in its entirety as
follows:
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification and Insurance. (a) Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall
<PAGE>
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in paragraph (c) of this By-Law, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors. The
right to indemnification conferred in this By-Law shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such advances
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that if the General
Corporation Law of the State of Delaware requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this By-Law or otherwise.
(b) To obtain indemnification under this By-Law, a claimant shall
submit to the Corporation a written request, including therein or therewith
such documentation and information as is reasonably available to the claimant
and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. Upon written request by a claimant
for indemnification pursuant to the first sentence of this paragraph (b), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the
claimant, by Independent Counsel (as hereinafter defined), or (2) if no
request is made by the claimant for a determination by Independent Counsel,
(i) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to the claimant, or (iii) if a quorum of
Disinterested Directors so directs, by the stockholders of the Corporation.
In the event the determination of entitlement to indemnification is to be
made by Independent Counsel at the request of the claimant, the Independent
Counsel shall be selected by the Board of Directors unless there shall have
occurred within two years prior to the date of the commencement of the
action, suit or proceeding for which indemnification is claimed a "Change of
Control," as defined in the Change of Control Employment Agreement dated
February 17, 2000 between the Corporation and certain senior executives, in
which case the Independent Counsel shall be selected by the claimant unless
the claimant shall request that such selection be made by the Board of
Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after
such determination.
(c) If a claim under paragraph (a) of this By-Law is not paid in
full by the Corporation within thirty days after a written claim pursuant to
paragraph (b) of this By-Law has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a
-2-
<PAGE>
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(d) If a determination shall have been made pursuant to paragraph
(b) of this By-Law that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (c) of this By-Law.
(e) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to paragraph (c) of this By-Law that the
procedures and presumptions of this By-Law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.
(f) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this By-Law shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(g) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (h) of this By-Law,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
(h) The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the Corporation to
the fullest extent of the provisions of this By-Law with
-3-
<PAGE>
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
(i) If any provision or provisions of this By-Law shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any paragraph of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
Section 8.02 Certain Definitions. For purposes of this By-Law:
(a) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the matter in respect of which indemnification is
sought by the claimant.
(b) "Independent Counsel" means a law firm, a member of a law firm,
or an independent practitioner, that is experienced in matters of corporation
law and shall include any person who, under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest in
representing either the Corporation or the claimant in an action to determine
the claimant's rights under this By-Law.
Section 8.03 Written Communication Required. Any notice, request or other
communication required or permitted to be given to the Corporation under this
By-Law shall be in writing and either delivered in person or sent by telecopy,
telex, telegram, overnight mail or courier service, or certified or registered
mail, postage prepaid, return receipt requested, to the Secretary of the
Corporation and shall be effective only upon receipt by the Secretary.
-4-
<PAGE>
AMENDMENT TO
THE TITAN CORPORATION STOCK OPTION PLAN OF 1994
The Titan Corporation Stock Option Plan of 1994 (the "Plan") is
hereby amended as set forth below.
1. Section 13 of the Plan is hereby amended to read in its entirety as
follows:
Notwithstanding any other provisions of this Plan, upon any Change in
Control (as defined hereinbelow), all then outstanding options and Stock
Appreciation Rights (as defined hereinbelow) will become fully vested and
exercisable and all restricted stock (as defined hereinbelow) will become fully
vested and all restrictions against sale or transfer or hypothecation thereof
shall lapse and expire. The term "Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that,
for purposes of this clause (a), the following acquisitions shall
not constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any affiliated company or
(D) any acquisition by any corporation pursuant to a transaction
that complies with subclauses (i), (ii) and (iii) of clause (c) of
this definition;
(b) Individuals who, as of February 17, 2000, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.
(c) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities that were
<PAGE>
the beneficial owners of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation that, as a result of
such transaction, owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to
the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. This amendment shall be effective as of February 17, 2000, with respect to
all awards granted under the Plan, whether on, before or after such
effective date; provided, that notwithstanding the foregoing, this
amendment shall not be effective if and to the extent that it would cause
a Change in Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that is intended to be, and would but for the
application of the foregoing be, eligible for such accounting treatment.
3. The Plan is in all other respects ratified and confirmed without
amendment.
-2-
<PAGE>
AMENDMENT TO
THE TITAN CORPORATION STOCK OPTION PLAN OF 1997
The Titan Corporation Stock Option Plan of 1997 (the "Plan") is
hereby amended as set forth below.
1. The second sentence of Section 13 of the Plan is hereby amended to read in
its entirety as follows:
"Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that,
for purposes of this clause (a), the following acquisitions shall
not constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any affiliated company or
(D) any acquisition by any corporation pursuant to a transaction
that complies with subclauses (i), (ii) and (iii) of clause (c) of
this definition;
(b) Individuals who, as of February 17, 2000, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.
(c) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of
the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the
then-
<PAGE>
outstanding shares of common stock and the combined voting power of
the then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation that, as a result of such transaction,
owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately
prior to such Business Combination of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then-outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then-outstanding voting securities of such
corporation, except to the extent that such ownership existed prior
to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement or of the action of
the Board providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. This amendment shall be effective as of February 17, 2000, with respect to
all awards granted under the Plan, whether on, before or after such
effective date; provided, that notwithstanding the foregoing, this
amendment shall not be effective if and to the extent that it would cause
a Change in Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that is intended to be, and would but for the
application of the foregoing be, eligible for such accounting treatment.
3. The Plan is in all other respects ratified and confirmed without
amendment.
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<PAGE>
AMENDMENT TO
THE TITAN CORPORATION
SUPPLEMENTAL RETIREMENT PLAN FOR KEY EXECUTIVES
The Titan Corporation Supplemental Retirement Plan for Key
Executives (the "Plan") is hereby amended as set forth below.
1. Section 14.5 of the Plan is hereby amended to read in its entirety as
follows:
Change in Control. Notwithstanding any other provisions of this Plan: (a)
upon any Change in Control (as defined below), all Participants who are
then employed by the Company shall be deemed to have attained not less
than six Years of Service for all purposes under the Plan; and (b) the
Plan may not be amended after a Change in Control, or before a Change in
Control but in anticipation thereof or at the request of a person seeking
to effectuate a Change in Control, in any manner that reduces the
then-existing Account Balances of Participants or the rates of interest
with which such Account Balances are credited. The term "Change in
Control" shall mean:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the
then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power
of the then-outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that, for purposes
of this clause (1), the following acquisitions shall not constitute
a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any affiliated company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with subclauses
(A), (B) and (C) of clause (3) of this definition;
(2) Individuals who, as of February 17, 2000, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board;
<PAGE>
(3) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities that were the beneficial owners of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the
then-outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including,
without limitation, a corporation that, as a result of such
transaction, owns the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to
the extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. The Plan is in all other respects ratified and confirmed without
amendment.
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<PAGE>
EXECUTIVE AGREEMENT
AGREEMENT, dated as of the ____ day of ___________, 2000 (this
"Agreement"), by and between The Titan Corporation, a Delaware corporation (the
"Company"), and ____ (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined herein). The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the current Company and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive
will be satisfied and that are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the
first date during the Change of Control Period (as defined herein) on which a
Change of Control occurs. Notwithstanding anything in this Agreement to the
contrary, if a Change of Control occurs and if the Executive's employment with
the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably believed by the Executive that such termination
of employment (1) was at the request of a third party that has taken steps
reasonably calculated to effect a Change of Control or (2) otherwise arose in
connection with or anticipation of a Change of Control, then "Effective Date"
means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the
date hereof and ending on the third anniversary of the date hereof; PROVIDED,
HOWEVER, that, commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof, the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date.
(c) "Affiliated Company" means any company controlled by,
controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
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election of directors (the "Outstanding Company Voting Securities"); PROVIDED,
HOWEVER, that, for purposes of this Section 1(d), the following acquisitions
shall not constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any affiliated company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C).
(2) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; PROVIDED, HOWEVER, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
(3) Consummation of a reorganization, merger, consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities that
were the beneficial owners of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that, as a result of
such transaction, owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement or of the action of the Board
providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to
continue the Executive in its employ, subject to the terms and conditions of
this Agreement, for the period commencing on the Effective Date and ending on
the third anniversary of the Effective Date (the
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"Employment Period"). The Employment Period shall terminate upon the
Executive's termination of employment for any reason.
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1)
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the office where the Executive was
employed immediately preceding the Effective Date or at any other location less
than 20 miles from such office.
(2) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that, to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period,
the Executive shall receive an annual base salary and the highest car allowance
then in effect during the Change of Control Period (collectively the "Annual
Base Salary") at an annual rate at least equal to 12 times the highest monthly
base salary (inclusive of car allowance) paid or payable, including any base
salary that has been earned but deferred, to the Executive by the Company and
the affiliated companies in respect of the 12-month period immediately preceding
the month in which the Effective Date occurs. The Annual Base Salary shall be
paid at such intervals as the Company pays executive salaries generally. During
the Employment Period, the Annual Base Salary shall be reviewed at least
annually, beginning no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date. Any increase in the
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. The Annual Base Salary shall not be reduced
after any such increase and the term "Annual Base Salary" shall refer to the
Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus earned under the Company's Incentive Plan, or any
comparable bonus under any predecessor or successor plan, for the last three
full fiscal years prior to the Effective Date (or for such lesser number of full
fiscal years prior to the Effective Date for which the Executive was eligible to
earn such of
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bonus, and annualized in the case of any bonus earned for a partial fiscal year)
(the "Recent Annual Bonus"). (If the Executive has not been eligible to earn
such a bonus for any period prior to the Effective Date, the "Recent Annual
Bonus" shall mean the Executive's target annual bonus for the year in which the
Effective Date occurs.) Each such Annual Bonus shall be paid no later than the
end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all cash incentive,
equity incentive, savings and retirement plans, practices, policies, and
programs applicable generally to other peer executives of the Company and the
affiliated companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate, than the
most favorable of those provided by the Company and the Affiliated Companies for
the Executive under such plans, practices, policies and programs as in effect at
any time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and the Affiliated
Companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and the Affiliated
Companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and the Affiliated Companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
that are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the Affiliated
Companies.
(5) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and the affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and the
affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and the
Affiliated Companies in effect for the Executive at any time during the 120-day
period
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immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and the Affiliated Companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and the Affiliated Companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and the Affiliated Companies.
(8) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and the Affiliated Companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and the Affiliated Companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive's employment shall terminate automatically if the Executive dies
during the Employment Period. If the Company determines in good faith that the
Disability (as defined herein) of the Executive has occurred during the
Employment Period (pursuant to the definition of "Disability"), it may give to
the Executive written notice in accordance with Section 11(b) of its intention
to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
PROVIDED that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties. "Disability"
means the absence of the Executive from the Executive's duties with the Company
on a full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness that is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform
substantially the Executive's duties (as contemplated by Section
3(a)(1)(A)) with the Company or any Affiliated Company (other than any such
failure resulting from incapacity due to physical or mental illness or
following the Executive's delivery of a Notice of Termination for Good
Reason), provided that the Company demonstrates that such failure has a
material and injurious effect on the Company and provided, further, that a
written demand for substantial performance is first delivered to the
Executive by the Board or the Chief Executive Officer of the Company that
specifically identifies the manner in which the Board or the Chief
Executive Officer of the Company believes that the Executive has not
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substantially performed the Executive's duties and the resulting material,
injurious effect on the Company, or
(2) the willful engaging by the Executive in gross misconduct or the
conviction of the Executive of a felony (such conviction having been
finally adjudicated without further appeal) that is materially and
demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board (excluding the Executive,
if the Executive is a member of the Board) at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to the Executive and
the Executive is given an opportunity, together with counsel for the Executive,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in Section 4(b)(1) or
5(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by
the Executive for Good Reason or by the Executive voluntarily without Good
Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 3(a), or any other diminution in such position,
authority, duties or responsibilities (whether or not occurring solely as a
result of the Company's ceasing to be a publicly traded entity), excluding
for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and that is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions
of Section 3(b), other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(3) the Company ceasing to be a publicly traded company, or the
Company's requiring the Executive (i) to be based at any office or location
other than as provided in Section 3(a)(1)(B), (ii) to be based at a
location other than the principal executive offices of the Company if the
Executive was employed at such location immediately preceding
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the Effective Date, or (iii) to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(4) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section
10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason
whatsoever (or for no reason) pursuant to a Notice of Termination given during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement. The Executive's mental or physical incapacity following the
occurrence of an event described above in clauses (1) through (5) shall not
affect the Executive's ability to terminate employment for Good Reason.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b).
"Notice of Termination" means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (3) if the Date of Termination (as defined herein)
is other than the date of receipt of such notice, specifies the Date of
Termination (which Date of Termination shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance that contributes to
a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination, (which date shall not be
more than 30 days after the giving of such notice), as the case may be, (2) if
the Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be 30 days after the date on which the
Company notifies the Executive of such termination, and (3) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD
REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment
Period, the Company terminates the Executive's employment other than for Cause
or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash on
the Date of Termination the aggregate of the following amounts:
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(A) the sum of (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (ii) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
that has been earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the Executive
was employed for less than 12 full months), for the most recently
completed fiscal year during the Employment Period, if any (such
higher amount, the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination and the denominator of which is 365,
and (iii) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case, to the extent not theretofore paid
(the sum of the amounts described in subclauses (i), (ii) and (iii),
the "Accrued Obligations"); and
(B) the amount equal to the product of (i) three and (ii) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus;
(2) for three years after the later of: (x) the Executive's Date of
Termination; or (y) expiration of the Executive's Cobra benefits rights
following the Executive's Date of Termination, (or such longer period as
may be provided by the terms of the appropriate plan, program, practice or
policy), the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those that would have been provided to
them in accordance with the plans, programs, practices and policies
described in Section 3(b)(4) if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and the affiliated companies and their families, PROVIDED, HOWEVER, that,
if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three years
after the Date of Termination and to have retired on the last day of such
period;
(3) all options that have previously been granted to the Executive
to acquire shares of any affiliate of the Company that have not previously
been forfeited or exercised shall vest and be exercisable in full and shall
remain exercisable for the remainder of their original terms; provided,
that the foregoing shall not apply to the extent that it would cause a
Change of Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that is intended to be, and would but for the
application of the foregoing be, eligible for such accounting treatment;
(4) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the
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Executive in the Executive's sole discretion PROVIDED, that the cost of
such outplacement shall not exceed $100,000; and
(5) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or that the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and the Affiliated Companies (such other amounts
and benefits, the "Other Benefits"). Notwithstanding anything to the
contrary in this Agreement or otherwise: (x) upon any Change in Control,
the Executive shall be deemed to have attained not less than six years of
service and all rights and privileges under The Titan Supplemental
Retirement Plan for Key Executives ("SERP") shall be deemed to be "vested"
for all purposes; and (y) the SERP may not be amended after a Change in
Control, or before a Change in Control but in anticipation thereof or at
the request of a person seeking to effectuate a Change in Control, in any
manner that reduces the then-existing account balances of the Executive or
the rates of interest with which such account balances are credited.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, the Company shall provide
the Executive's estate or beneficiaries with the Accrued Obligations and the
timely payment or delivery of the Other Benefits, and shall have no other
severance obligations under this Agreement. The Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 10 days of the Date of Termination. With respect to the provision
of the Other Benefits, the term "Other Benefits" as utilized in this Section
5(b) shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and the Affiliated Companies to the
estates and beneficiaries of peer executives of the Company and the Affiliated
Companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and the affiliated
companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, the Company
shall provide the Executive's estate or beneficiaries with the Accrued
Obligations and the timely payment or delivery of the Other Benefits, and shall
have no other severance obligations under this Agreement. The Accrued
Obligations shall be paid to the Executive in a lump sum in cash on the Date of
Termination. With respect to the provision of the Other Benefits, the term
"Other Benefits" as utilized in this Section 6(c) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most favorable of those
generally provided by the Company and the Affiliated Companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
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generally with respect to other peer executives of the Company and the
Affiliated Companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated for Cause during the Employment Period, the Company
shall provide to the Executive (1) the Executive's Annual Base Salary through
the Date of Termination, (2) the amount of any compensation previously deferred
by the Executive, and (3) the Other Benefits, in each case, to the extent
theretofore unpaid, and shall have no other severance obligations under this
Agreement. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, the Company shall
provide to the Executive the Accrued Obligations and the timely payment or
delivery of the Other Benefits, and shall have no other severance obligations
under this Agreement. In such case, all the Accrued Obligations shall be paid
to the Executive in a lump sum in cash on the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the Affiliated
Companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any other contract or agreement with the Company or the
affiliated companies. Amounts that are vested benefits or that the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or the Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement, except as explicitly
modified by this Agreement. Notwithstanding the foregoing, if the Executive
receives payments and benefits pursuant to Section 5(a) of this Agreement, the
Executive shall not be entitled to any severance pay or benefits under any
severance plan, program or policy of the Company and the Affiliated Companies,
unless otherwise specifically provided therein in a specific reference to this
Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right or action that the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred (within 10 days following the Company's
receipt of an invoice from the Executive), to the full extent permitted by law,
all legal fees and expenses that the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus, in each case, interest on any delayed payment
at the applicable federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
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(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any Payment
would be subject to the Excise Tax, then the Executive shall be entitled to
receive an additional payment (the "Gross-Up Payment") in an amount such that,
after payment by the Executive of all taxes (and any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the
Parachute Value of all Payments do not exceed 110% of the Safe Harbor Amount,
then no Gross-Up Payment shall be made to the Executive and the amounts payable
under this Agreement shall be reduced so that the Parachute Value of all
Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 5(a)(i)(B), unless an alternative method of reduction is
elected by the Executive, and in any event shall be made in such a manner as to
maximize the Value of all Payments actually made to the Executive. For purposes
of reducing the Payments to the Safe Harbor Amount, only amounts payable under
this Agreement (and no other Payments) shall be reduced. If the reduction of
the amount payable under this Agreement would not result in a reduction of the
Parachute Value of all Payments to the Safe Harbor Amount, no amounts payable
under the Agreement shall be reduced pursuant to this Section 8(a). The
Company's obligation to make Gross-Up Payments under this Section 8 shall not be
conditioned upon the Executive's termination of employment.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made by Ernst & Young,
LLP, or such other nationally recognized certified public accounting firm as may
be designated by the Executive (the "Accounting Firm"). The Accounting Firm
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 8, shall be paid by the Company to the Executive within
5 days of the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made (the "Underpayment"), consistent with the calculations
required to be made hereunder. In the event the Company exhausts its remedies
pursuant to Section 8(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive.
11
<PAGE>
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable, but no later than 10 business days after the Executive is
informed in writing of such claim. The Executive shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that the Company desires to
contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claim,
(2) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to
contest such claim, and
(4) permit the Company to participate in any proceedings relating to
such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 8(c),
the Company shall control all proceedings taken in connection with such contest,
and, at its sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the applicable taxing
authority in respect of such claim and may, at its sole discretion, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties) imposed with respect to such
advance or with respect to any imputed income in connection with such advance;
and PROVIDED, FURTHER, that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which the Gross-Up Payment would be payable hereunder,
and the Executive shall be entitled to
12
<PAGE>
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 8(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 8(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
(e) Notwithstanding any other provision of this Section 8, the
Company may, in its sole discretion, withhold and pay over to the Internal
Revenue Service or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of the Gross-Up Payment, and the Executive hereby
consents to such withholding.
(f) DEFINITIONS. The following terms shall have the following
meanings for purposes of this Section 8.
(i) "Excise Tax" shall mean the excise tax imposed by Section 4999
of the Code, together with any interest or penalties imposed with respect to
such excise tax.
(ii) The "Net After-Tax Amount" of a Payment shall mean the Value of
a Payment net of all taxes imposed on the Executive with respect thereto under
Sections 1 and 4999 of the Code and applicable state and local law, determined
by applying the highest marginal rates that are expected to apply to the
Executive's taxable income for the taxable year in which the Payment is made.
(iii) "Parachute Value" of a Payment shall mean the present value as
of the date of the change of control for purposes of Section 280G of the Code of
the portion of such Payment that constitutes a "parachute payment" under Section
280G(b)(2), as determined by the Accounting Firm for purposes of determining
whether and to what extent the Excise Tax will apply to such Payment.
(iv) A "Payment" shall mean any payment or distribution in the nature
of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of the Executive, whether paid or payable pursuant to this Agreement
or otherwise.
(v) The "Safe Harbor Amount" means the maximum Parachute Value of
all Payments that the Executive can receive without any Payments being subject
to the Excise Tax.
13
<PAGE>
(vi) "Value" of a Payment shall mean the economic present value of a
Payment as of the date of the change of control for purposes of Section 280G of
the Code, as determined by the Accounting Firm using the discount rate required
by Section 280G(d)(4) of the Code.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or the Affiliated
Companies, and their respective businesses, which information, knowledge or data
shall have been obtained by the Executive during the Executive's employment by
the Company or the affiliated companies and which information, knowledge or data
shall not be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those persons designated
by the Company. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the
Executive, and, without the prior written consent of the Company, shall not be
assignable by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Except as provided in Section
10(c), without the prior written consent of the Executive this Agreement shall
not be assignable by the Company.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. "Company" means the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid that assumes and agrees to
perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified other than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
14
<PAGE>
if to the Executive:
if to the Company:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such United States federal, state or local or foreign taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a), prior to the Effective Date, the Executive's
employment may be terminated by either the Executive or the Company at any time
prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement. From and after the Effective Date, except as
specifically provided herein, this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof, including without
limitation the Agreement dated _____________, ____, by and between the Executive
and the Company pursuant to the Company's Executive Severance Plan.
15
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from the Board, the Company has caused
these presents to be executed in its name on its behalf, all as of the day and
year first above written.
-------------------------------------
[EXECUTIVE]
THE TITAN CORPORATION
By
-----------------------------------
Name:
Title:
16
<PAGE>
STOCK PURCHASE AGREEMENT
between
TITAN TECHNOLOGIES AND INFORMATION SYSTEMS CORPORATION,
VALIDITY CORPORATION
and
THE SHAREHOLDERS OF
VALIDITY CORPORATION
March ___, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF STOCK..............................................1
2. PURCHASE PRICE..........................................................1
2.1 Purchase Price....................................................1
3. THE CLOSING; DELIVERY...................................................2
3.1 The Closing.......................................................2
3.2 Delivery..........................................................2
4. REPRESENTATIONS AND WARRANTIES OF VALIDITY..............................3
4.1 Organization and Standing.........................................3
4.2 No Subsidiaries...................................................3
4.3 Authorization.....................................................3
4.4 Title to Stock; Encumbrances......................................4
4.5 No Breach, Etc....................................................4
4.6 Capitalization....................................................4
4.7 Taxes.............................................................5
4.8 Financial Statements..............................................6
4.9 No Undisclosed Liabilities........................................7
4.10 Absence of Certain Changes........................................7
4.11 Title to Assets...................................................8
4.12 Bank Accounts; Receivables........................................9
4.13 Equipment.........................................................9
4.14 Litigation, Etc...................................................9
4.15 Intellectual Property.............................................9
4.16 Contracts........................................................10
4.17 Security Matters.................................................14
4.18 Employee and Labor Matters; Benefit Plans........................15
4.19 Compliance with Laws.............................................17
4.20 Governmental Authorizations......................................17
4.21 Related Persons..................................................18
4.22 Insurance........................................................18
4.23 Real Property; Owned or Leased...................................18
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.24 Environmental Matters............................................19
4.25 Corporate Records................................................19
4.26 Full Disclosure..................................................19
4.27 Brokers..........................................................20
4.28 Disallowable Director Expense Items..............................20
4.29 Certain Definitions..............................................20
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.....................21
5.1 Title to Stock; Encumbrances.....................................21
6. REPRESENTATIONS AND WARRANTIES OF BUYER................................21
6.1 Organization and Standing........................................21
6.2 Corporate Power; Authorization...................................21
6.3 Brokers..........................................................21
6.4 Consents.........................................................21
6.5 Litigation, Etc..................................................22
6.6 Investment Purpose...............................................22
7. CERTAIN COVENANTS OF VALIDITY AND THE SHAREHOLDERS.....................22
7.1 Access and Investigation.........................................22
7.2 Operation of Validity's Business.................................22
7.3 Notification; Updates to Disclosure Schedule.....................24
7.4 No Negotiation...................................................24
8. ADDITIONAL COVENANTS OF THE PARTIES....................................25
8.1 Filings and Consents.............................................25
8.2 Public Announcements.............................................25
8.3 Best Efforts.....................................................25
8.4 Noncompetition Agreements........................................25
8.5 Employee Retention Program.......................................26
8.6 Release..........................................................26
8.7 Stock Options....................................................26
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER...........................26
9.1 Accuracy of Representations......................................26
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
9.2 Performance of Covenants.........................................26
9.3 Consents.........................................................26
9.4 Agreements and Documents.........................................26
9.5 Lease Amendment..................................................26
9.6 No Restraints....................................................27
9.7 No Legal Proceedings.............................................27
9.8 Legends..........................................................27
9.9 Invention Assignments............................................27
9.10 No Material Adverse Effect.......................................27
9.11 Termination of Executive Employment Agreements...................27
9.12 Termination of Right of First Refusal............................28
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS................28
10.1 Accuracy of Representations......................................28
10.2 Performance of Covenants.........................................28
10.3 Documents........................................................28
10.4 No Restraints....................................................28
10.5 No Legal Proceedings.............................................28
10.6 Guaranty.........................................................28
11. ADDITIONAL AGREEMENTS..................................................29
11.1 Payment of Taxes.................................................29
11.2 Tax Election.....................................................29
11.3 Tax Allocations..................................................29
12. TERMINATION............................................................30
12.1 Termination Events...............................................30
12.2 Termination Procedures...........................................30
12.3 Termination Fees.................................................30
12.4 Effect of Termination............................................31
13. INDEMNIFICATION........................................................31
13.1 Survival of Representations, Etc.................................31
13.2 Indemnification by Shareholders..................................31
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
13.3 Threshold; Ceiling...............................................32
13.4 No Contribution..................................................32
13.5 Defense of Third Party Claims....................................33
13.6 Definitions......................................................33
13.7 Recovery of Damages from Notes...................................33
13.8 Shareholders' Agent..............................................34
14. MISCELLANEOUS..........................................................35
14.1 Further Assurances...............................................35
14.2 Fees and Expenses................................................35
14.3 Attorneys' Fees..................................................35
14.4 Notices..........................................................35
14.5 Time of the Essence..............................................36
14.6 Headings.........................................................36
14.7 Counterparts.....................................................36
14.8 Governing Law....................................................37
14.9 Successors and Assigns...........................................37
14.10 Remedies Cumulative; Specific Performance........................37
14.11 Waiver...........................................................37
14.12 Amendments.......................................................37
14.13 Severability.....................................................37
14.14 Parties in Interest..............................................37
14.15 Entire Agreement.................................................38
14.16 Construction.....................................................38
14.17 Negotiation of Disputes..........................................38
14.18 Arbitration......................................................38
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBITS
Exhibit A - Schedule of Shareholders
Exhibit B - Form of Secured Promissory Note
Exhibit C - Form of Pledge Agreement
Exhibit D - Form of Release
Exhibit E - Opinion of Shareholders' Counsel
Exhibit F - Opinion of Buyer's Counsel
Exhibit G - Schedule of Key Employees
v.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the
24th day of March, 1998 between TITAN TECHNOLOGIES AND INFORMATION SYSTEMS
CORPORATION, a Delaware corporation ("Buyer"), a wholly-owned subsidiary of The
Titan Corporation ("Titan"), VALIDITY CORPORATION, a California corporation
("Validity"), and the shareholders of Validity (each a "Shareholder,"
collectively the "Shareholders") identified on Exhibit A hereto (the "Schedule
of Shareholders").
RECITALS
A. The Shareholders own a total of 60,650 shares of Common Stock of
Validity, in the amounts indicated on the Schedule of Shareholders, which
constitute all of the outstanding capital stock of Validity (the "Shares").
B. Buyer wishes to acquire from the Shareholders and the Shareholders wish
to sell to Buyer all of the Shares upon the terms and subject to the conditions
contained in this Agreement.
C. This Agreement has been approved by the boards of directors of
Validity, Titan and Buyer.
D. Buyer and the Shareholders desire that Buyer and the Shareholders make
a joint election under Sections 338(a) and 338(h)(10) of the Internal Revenue
Code (and a comparable election under state or local Law) with respect to the
purchase and sale of the Shares by Buyer.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth below, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1. PURCHASE AND SALE OF STOCK. Subject to the terms and conditions of this
Agreement, in consideration of the payments to be made to the Shareholders by
Buyer pursuant to Section 2 below, each of the Shareholders hereby sells,
assigns, conveys and transfers to Buyer, and Buyer hereby purchases from each of
the Shareholders, all right, title and interest in and to the Shares held by the
Shareholders free and clear of any liens or other Encumbrances.
2. PURCHASE PRICE.
2.1 Purchase Price. The aggregate purchase price for the Shares (the
"Purchase Price") shall be $15,000,000 payable as follows:
(a) $12,000,000 [less the amount of any cash advance, in an
amount not to exceed $600,000, made by Buyer to Validity (for payment as
directed by the Shareholders) made not more than five business days prior to the
Closing for the purpose of
1.
<PAGE>
enabling the Shareholders to compensate certain persons for their efforts in
connection with the transactions contemplated herein] payable in immediately
available funds; and
(b) Promissory notes of Buyer in the aggregate principal
amount of $3,000,000 (each a "Note," collectively the "Notes"), substantially in
the form attached hereto as Exhibit B. Each Note shall bear interest at the
Prime Rate of Imperial Bank and shall be secured by a pledge by Titan of
treasury shares of Titan common stock with a fair market value of $3,000,000
("Titan Shares") based upon the average of the closing price of Titan common
stock on the New York Stock Exchange during the ten trading days ending the day
before Closing, pursuant to a pledge agreement substantially in the form
attached as Exhibit C ("Pledge Agreement"). Each Note shall mature and shall be
fully due and payable (subject to offset as expressly provided in this
Agreement) on the first anniversary of this Agreement.
2.2 Allocation of Purchase Price. At the Closing, Buyer shall pay
each Shareholder an amount in cash equal to the product of (i) the Shareholder's
"Applicable Fraction" multiplied (ii) by $12,000,000 (or such lesser amount as
Buyer delivers at the Closing, as set forth in Section 2.1(a) hereof) and shall
deliver to each Shareholder a Note in the principal amount equal to the product
of (x) the Shareholder's Applicable Fraction and (y) $3,000,000. A Shareholder's
"Applicable Fraction" shall be the fraction (i) having a numerator equal to the
number of Shares held by such Shareholder on the Closing Date as set forth on
the Schedule of Shareholders, and (ii) having a denominator equal to the total
number of Shares held by all of the Shareholders on the Closing Date as set
forth on the Schedule of Shareholders.
3. THE CLOSING; DELIVERY.
3.1 The Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall take place at the offices of Cooley Godward LLP,
4365 Executive Drive, Suite 1100, San Diego, California 92121, at 10:00 a.m. on
a date that is no later than March 31, 1998 (the "Closing Date"), or at such
other place, time and date as Buyer and the Shareholders may agree.
3.2 Delivery. At the Closing:
(a) The Shareholders shall deliver to Buyer stock
certificates, with duly executed assignments separate from certificate endorsing
the certificates in Buyer's name, representing the Shares being sold, assigned,
conveyed and transferred hereunder by the Shareholders to Buyer.
(b) Each Shareholder shall receive an amount in cash (paid by
wire transfer, cashier's or certified check, or other means of payment of
immediately available funds) equal to the amount specified by Section 2.2.
(c) Each Shareholder shall receive a Note, for the principal
amount specified by Section 2.2, and the Pledge Agreement together with a stock
certificate and assignment separate from certificate endorsed in blank for the
Titan Shares to be held by an escrow agent on behalf of the pledgees.
2.
<PAGE>
(d) Buyer shall have received from each of the Shareholders a
general release in the form of Exhibit D.
(e) Buyer shall have received from the Shareholders' counsel
an opinion of such counsel in the form of Exhibit E.
(f) The Shareholders shall have received from Buyer's counsel
an opinion of such counsel in the form of Exhibit F.
(g) Buyer shall have received from Validity resignations of
all of the directors of Validity.
(h) Each of the Shareholders shall have delivered to Buyer the
Election pursuant to Section 11.2 of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF VALIDITY. Except as set forth in the
disclosure schedules attached hereto (each a "Schedule," collectively, the
"Disclosure Schedule"), Validity represents and warrants to Buyer, as of the
Closing Date, as follows:
4.1 Organization and Standing. Validity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and is qualified or licensed to do business and is in good standing
under the laws of the States of Arizona and Maryland. Validity has all requisite
corporate power and all necessary governmental approvals to own, lease and
operate its properties and assets, and to carry on its business as presently
conducted. Validity is qualified or licensed to do business in all jurisdictions
in which the nature of its business or properties requires such qualification,
except where the failure to so qualify will not cause a material adverse effect
on the business, assets or financial condition of Validity. Validity has not
conducted business under, or otherwise used, for any purpose or in any
jurisdiction any fictitious name, assumed name, trade name or other name other
than "Validity Corporation."
4.2 No Subsidiaries. Validity has no direct or indirect subsidiaries
and does not own or control, directly or indirectly, any interest in any other
corporation, association, partnership, joint venture or other business entity.
Validity has not agreed and is not obligated to make any future investment in or
capital contribution to any other corporation, association, partnership, joint
venture or other business entity.
4.3 Authorization. The Shareholders have all requisite power and
authority to enter into this Agreement, to sell and transfer the Shares pursuant
to this Agreement and to carry out and perform all of their obligations under
the terms of this Agreement. All corporate action on the part of Validity, if
any, and all actions on the part of Validity's officers, directors, shareholders
and security holders that are necessary for the authorization, execution,
delivery and performance of the Agreement have been taken. The Agreement, when
executed and delivered, shall constitute the legal and binding obligation of
Validity and the Shareholders, enforceable against Validity and the
Shareholders, respectively, in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and by rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.
<PAGE>
4.4 Title to Stock; Encumbrances. The Shareholders are the true,
lawful record and beneficial owners of the Shares being transferred and sold to
Buyer hereunder, with no restrictions on the Shareholders' voting rights or
rights of transfer or disposition pertaining to such Shares, and the Shares
constitute all of the shares of capital stock of Validity owned beneficially or
of record by the Shareholders. None of the Shares is subject to any voting trust
or other agreement or arrangement with respect to the voting thereof. Upon the
Closing, Buyer will own all of the outstanding shares of capital stock of
Validity free and clear of any lien or other Encumbrances (as defined in Section
4.29). All outstanding shares of capital stock of Validity have been issued in
compliance with applicable securities laws and other applicable Legal
Requirements (as defined in Section 4.29) and in compliance with all
requirements of applicable Contracts (as defined in Section 4.29).
4.5 No Breach, Etc. The execution and delivery of this Agreement and
all documents and certificates to be delivered hereunder by Validity and the
Shareholders in connection with the transactions contemplated hereby do not, and
the performance and consummation by Validity and the Shareholders of their
obligations hereunder will not, with or without the passage of time or
otherwise, result in any conflict with, breach or violation of or default,
termination, forfeiture or Encumbrance under any terms or provisions of
Validity's Articles of Incorporation or Bylaws, any statute, rule, regulation,
judicial or governmental decree, order or judgment or any material agreement,
lease or other instrument or other obligation, to which Validity or the
Shareholders are a party or to which Validity's assets or any Shareholders'
assets are subject and do not require any consent, approval, authorization or
permit of or filing with or notification to any Governmental Body (as defined in
Section 4.29), including without limitation, any filing under the Hart-Scott
Rodino Antitrust Improvements Act of 1976, as amended, or, except as disclosed
in Schedule 4.5, require any consent or approval of any third party, including
any party to a Material Contract (as defined in Section 4.16(a)).
4.6 Capitalization. The authorized capital stock of Validity
consists of Five Hundred Thousand (500,000) shares of Common Stock, $1.00 par
value, of which Sixty-Thousand Six Hundred Fifty (60,650) shares of Common Stock
are and will be, immediately prior to the Closing, issued and outstanding. All
of such shares of outstanding Common Stock are owned by the Shareholders in the
amounts indicated on the Schedule of Shareholders and are being sold to Buyer
hereunder. No other shares of capital stock or securities of Validity are
outstanding. All of the issued and outstanding shares of Common Stock of
Validity are duly authorized, validly issued, fully paid and nonassessable, were
not issued in violation or breach of any preemptive or similar rights, and have
been issued in compliance with all applicable federal and state securities laws.
There are no outstanding options, warrants, convertible securities or other
rights under which Validity is or may become obligated to issue, assign or
transfer any shares of its capital stock, and none of the foregoing will arise
as a result of the execution or performance of the Agreement or the transactions
contemplated herein. Validity has never repurchased, redeemed or otherwise
reacquired any shares of its capital stock or other securities and none of the
shares of capital stock or securities of Validity is subject to a right of
repurchase in favor of Validity.
4.
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4.7 Taxes.
(a) All tax returns required to be filed by or on behalf of
Validity with any Governmental Body on or before the Closing Date or for periods
occurring on or before the Closing Date (i) have been or will be filed when due,
and (ii) have been, or will be when filed, accurately prepared in all material
respects. Validity has, within the time (including any extensions of applicable
due dates) and in the manner prescribed by law, paid all Taxes that are due and
payable. Validity's Financial Statements (as defined in Section 4.8) 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. "Tax or Taxes" shall mean all federal, state, county,
city, municipality, assessment districts, local and foreign taxes and other
assessments and governmental charges of a similar nature including, but not
limited to, income, sales, use, excise, personal and real property (tangible and
intangible) taxes imposed by any Government Body (as defined in Section 4.29)
(whether imposed directly or through withholding), including interest, penalties
and additions to Tax applicable thereto.
(b) No claim or legal proceeding is pending or has been
threatened against or with respect to Validity 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 Validity. There are no
liens for Taxes upon any of the assets of Validity, except liens for current
Taxes not yet due and payable. No extension or waiver of any limitation period
applicable to any Validity Tax returns has been granted by Validity (or any
other person) and no such extension or waiver has been requested. No Validity
return relating to Taxes has been examined or audited by any Governmental Body
except as disclosed on Schedule 4.7(b).
(c) At all times from October 1, 1990, through the Closing
Date, Validity has been an S corporation within the meaning of Section
1361(a)(1) of the Code and has used September 30 as its taxable year. Validity
and the Shareholders have not taken any action that has or shall result in the
termination of Validity's status as an S corporation within the meaning of
Section 1361(a)(1) of the Code or imposition of a tax on Validity under the
provisions of Section 1374 of the Code. Validity has not conducted any business
in any state or political subdivision in which the disposition of any of its
assets including goodwill in a transaction in which gain or income would be
realized would result in the imposition by that state or political subdivision
of a corporate level tax. Validity does not conduct any business which is a
historic business of, a continuation of, or successor to any business which was
previously conducted by another corporation or any other entity which was
subject to a United States corporate level tax on its gain or income including a
tax imposed by reason of the provisions of Section 1374 and 1375 of the Code, or
any predecessor provisions thereto. Validity has never acquired any asset,
including goodwill, the basis of which was determined in whole or in part by
reference to the basis of the asset in the hands of a C corporation within the
meaning of Section 1361(a)(2) of the Code or S corporation subject to the
provisions of Section 1374 of the Code or predecessor provisions thereto.
Validity has no accumulated earnings and profits. Validity's status as an S
corporation will continue to be in effect at the time of the consummation of the
transactions contemplated hereby so as to permit the effectiveness of the
Election (as defined in Section 11.2) and the Shareholders shall not take, and
shall not cause or permit Validity to take any action inconsistent with the
foregoing.
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(d) Except for potential Tax on built-in gain under Section
1374 of the Code as disclosed on Schedule 4.7(c), which shall not exceed the
Excluded Liability (as defined in Section 11.1), Validity will not be liable for
any Tax under Section 1374 of the Code in connection with the deemed sale of
assets caused by the Election.
4.8 Financial Statements.
(a) Validity has delivered to Buyer the following financial
statements and notes (collectively, the "Financial Statements"):
(i) the unaudited balance sheets of Validity as of
September 30, 1997 and 1996, and the related unaudited income statements,
statements of shareholders' equity and statements of cash flows of Validity for
the years then ended, together with the notes thereto reviewed by Jassoy Graff &
Douglas LLP; and
(ii) the unaudited balance sheet of Validity as of
December 31, 1997 (the "Unaudited Interim Balance Sheet"), and the related
unaudited income statement of Validity for the three- month period then ended.
The Financial Statements are accurate and complete in all
material respects and present fairly the financial position of Validity as of
the respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 4.8(a)(i)) cash flows of
Validity for the periods covered thereby. The 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 4.8(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) Validity's invoices (and its accounts receivables) on
Government Contracts as defined in Section 4.29 that permit Validity to bill
based upon estimates of its subcontractors' work-in-progress plus Validity's
permitted fee ("Gold P.O.s") are reasonable estimates of the actual
subcontractors' charges for the work done as of the date of the invoices on such
Government Contracts. The aggregate of all of Validity's outstanding accounts
receivable for all Gold P.O.s on Validity's books equals Validity's liability to
all subcontractors on such Government Contracts, except for Validity's permitted
fees on such subcontractor work, fees for Validity work, and except for
immaterial discrepancies resulting from Validity billing for estimated work
prior to the receipt from its subcontractors of invoices for actually completed
work. Upon receipt of all bills from subcontractors, Validity reconciles the
actual bill to Validity's estimates used to bill on Gold P.O.s and adjusts the
bills in accordance with applicable accounting procedures to account for any
such discrepancies within three (3) billing cycles. Subject to the exceptions
noted above, if the difference for all outstanding Gold P.O.s contracts as of
Closing has a net payable of $25,000 in aggregate of accrued liabilities
compared to recievables for which Gold P.O.s apply , then the discrepancy will
result in an offset against the Notes payable. This offset will not be subject
to the $1,000,000 threshold amount as described in the Agreement. Prior to
payment under the Notes, the parties will have a reconciliation of the Gold
P.O.s in accordance with the criteria set forth in Schedule 4.8 ("Final
Reconciliation"). If either party disputes the Final Reconciliation, the Final
Reconcilition will be submitted to Arthur
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Andersen, LLP or another Big Six accounting firm who shall determine the matter.
The findings of such accounting firm shall be binding and nonappealable.
4.9 No Undisclosed Liabilities. Except as set forth in this
Agreement and except for liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet and accrued payables or accrued
salaries that have been incurred by Validity since January 1, 1998, in the
ordinary course of business and consistent with past practices; (i) Validity has
no liabilities, commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect, matured or unmatured or
otherwise) and (ii) no facts exist that could reasonably be expected to give
rise to any basis for the assertion against Validity of any liability except
liabilities and obligations incurred in the ordinary course of Validity's
business and consistent with past practice.
4.10 Absence of Certain Changes. Since December 31, 1997, there has
not been any:
(a) material adverse change in the financial condition,
assets, liabilities, business or operations of Validity;
(b) material loss, damage or destruction, whether covered by
insurance or not, affecting Validity's business or properties or any material
interruption in the use of any of Validity's properties;
(c) material increase in the salaries, wages or other
remuneration or compensation to any employee or agent of Validity, or in any
benefits payable or to become payable to any employee or agent of Validity
(including, without limitation, any increase or change pursuant to any bonus,
pension, profit sharing, retirement or other plan or commitment or the
establishment or adoption of any new employee benefit plan), or any material
bonus or other employee benefit granted, made or accrued to any such person
except as set forth on Schedule 4.10(c);
(d) hiring of any new employee with an annual base
compensation rate (including projected commissions) in excess of $40,000 other
than employees who are chargeable as direct labor on Validity's existing
Government Contracts;
(e) labor dispute or disturbance;
(f) declaration, setting aside, or payment of any dividend or
any other distribution to any of the Shareholders; any redemption, purchase or
other acquisition by Validity of any shares or other interest in Validity, or
any security relating thereto; or any other payment to any shareholder or
shareholders of Validity;
(g) sale, lease or other transfer or disposition of any
material properties or assets of Validity, except for the sale of inventory
items in the ordinary course of business;
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(h) indebtedness for borrowed money incurred, assumed or
guaranteed by Validity except for routine borrowings in the ordinary course of
Validity's business under its $1.25 million line of credit from Union Bank of
California ("Line of Credit");
(i) mortgage, pledge, lien or Encumbrance made on any of the
properties or assets of Validity;
(j) capital expenditures in excess of $25,000 in the aggregate
or $10,000 as to any individual capital expenditure;
(k) waiver of material rights under any material contract to
which Validity is a party;
(l) sale, issuance or authorization of any capital stock or
other security, or any option or right to acquire any capital stock, or any
instrument convertible into or exchangeable for any capital stock or other
security;
(m) amendment to Validity's Articles of Incorporation or
Bylaws, and Validity has not effected or been a party to any acquisition
transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(n) formation of a subsidiary or acquisition of any other
entity;
(o) write-off as uncollectible, or establishment of any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(p) change in Validity's method of accounting or accounting
practices;
(q) commencement or settlement of legal proceedings;
(r) loan or advance (other than advances to employees in the
ordinary course of business for travel in accordance with past practice) to any
person including, but not limited to, any officer, director or employee of
Validity;
(s) entering into of any type of license agreement or other
agreement regarding intellectual property rights;
(t) making of any Tax election;
(u) other material action, commitment or transaction by
Validity (including, without limitation, any borrowing or capital expenditure)
other than in the ordinary course of business consistent with past practice; or
(v) agreement or commitment to take any of the actions
referred to in clauses "(c)" through "(u)" above.
4.11 Title to Assets. Validity owns, and has good, valid and
marketable title to, all assets purported to be owned by it, including: (i) all
assets owned and reflected on the
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Unaudited Interim Balance Sheet; (ii) all of its rights under the Contracts
identified in Schedule 4.16; and (iii) all other assets reflected in its books
and records as being owned by Validity. Except as set forth in Schedule 4.11,
all of said assets are owned by Validity free and clear of any liens or other
Encumbrances, except for any lien for current taxes not yet due and payable.
Schedule 4.11 identifies all assets that are material to the business of
Validity and that are being leased or licensed to Validity and the lease or
license agreement relating to each such asset.
4.12 Bank Accounts; Receivables.
(a) Schedule 4.12(a) provides accurate information with
respect to each account maintained by or for the benefit of Validity at any bank
or other financial institution.
(b) Schedule 4.12(b) provides an accurate and complete
breakdown and aging of all accounts receivable, notes receivable and other
receivables of Validity as of December 31, 1997. Except as set forth in Schedule
4.12(b), all existing accounts receivable of Validity (i) represent valid
obligations of customers of Validity arising from bona fide transactions entered
into in the ordinary course of business and (ii) are current and will be
collected in full when due, without any counterclaim or set off (net of an
allowance for doubtful accounts not to exceed $85,000 in the aggregate).
4.13 Equipment. All material items of equipment and other tangible
assets owned by or leased to Validity 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 Validity's business, in the manner
in which such business is currently being conducted.
4.14 Litigation, Etc. No action, suit, proceeding, or investigation
of any nature is pending or, to the best of Validity's knowledge, threatened
against Validity, nor, to the best of Validity's knowledge, is there any basis
therefor. The foregoing includes: any action, suit, proceeding or investigation,
pending or threatened, which questions the validity of the Agreement or the
right of Validity or the Shareholders to enter into the Agreement or to sell and
transfer the Shares being sold and transferred hereunder, or which might result,
either individually or in the aggregate, in any material adverse change in the
condition or affairs of Validity, financial or otherwise; or any litigation
pending or threatened by or against Validity or any Shareholder by reason of the
past or current employment relationships of any employee, officer or consultant
of Validity or the activities of any Shareholder, including but not limited to
negotiations by any Shareholder with possible purchasers of, or investors in,
Validity or its business. There is no judgment, decree, injunction, rule or
order of any court, governmental department, commission agency, instrumentality
or arbitrator or other similar ruling outstanding against Validity or any
Shareholder with respect to Validity. No action, suit, proceeding or
investigation is pending or threatened by Validity or any Shareholder with
respect to Validity.
4.15 Intellectual Property. The term "Validity Intellectual
Property" shall include all (i) registered and unregistered trademarks, service
marks and applications therefor (collectively "Marks"), (ii) patents (including
any extension, continuation, registration, confirmation, reissue, renewal or
re-examination thereof) and patent applications (collectively "Patents"), (iii)
copyrights in both published works and unpublished works ("Copyrights"), and
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(iv) know-how, trade secrets and other confidential information ("Trade
Secrets"), in each case owned, used or licensed by Validity as licensee or
licensor. All material Validity Intellectual Property owned or licensed by
Validity is listed on Schedule 4.15. The Validity Intellectual Property includes
all intellectual property rights necessary for the operation of the business of
Validity as it is currently conducted. The operation of the business of Validity
as it is currently conducted does not and will not infringe, violate or
misappropriate any intellectual property rights of any third party. Validity is
the owner or licensee of all right, title and interest in and to all of the
Validity Intellectual Property free and clear of all liens and Encumbrances, and
has the right to use without further payment to a third party all of the
Validity Intellectual Property. To Validity's knowledge, there are no actual or
claimed infringements, violations or misappropriations existing by or against
any third party with respect to the Validity Intellectual Property. To
Validity's knowledge, all of the Validity Intellectual Property is valid and
enforceable, and neither Validity nor any Shareholder has, by act or failure to
act, including without limitation, by failure to attach any required notice or
failure to pay fees, transferred any rights to the Validity Intellectual
Property into the public domain. Validity is not making use of any Validity
Intellectual Property in connection with the business of Validity in which any
present or past employee, partner, shareholder, licensor, licensee or agent of
Validity has or has claimed an interest, and to Validity's knowledge, there are
no facts that could reasonably be expected to give rise to such a claim.
4.16 Contracts.
(a) Schedule 4.16 identifies each Contract of Validity:
(i) relating to the employment of, or the performance of
services by, any employee, consultant or independent contractor which involves a
potential commitment in excess of $40,000 per year other than employees who are
chargeable as direct labor on Validity's existing Government Contracts;
(ii) relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Validity Intellectual
Property;
(iii) imposing any restriction on Validity's right or
ability (A) to compete with any other person or entity, (B) to acquire any
product or other asset or any services from any other person or entity, to sell
any product or other asset to or perform any services for any other person or
entity or to transact business or deal in any other manner with any other person
or entity, or (C) to develop or distribute any technology;
(iv) creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) relating to the acquisition, issuance or transfer of
any securities;
(vi) relating to the creation of any Encumbrance with
respect to any asset of Validity;
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(vii) involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity or any surety
arrangement;
(viii) creating or relating to any partnership or joint
venture or any sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Related
Party (as defined in Section 4.21);
(x) constituting or relating to a Government Contract
(as defined in Section 4.29) or Government Bid (as defined in Section 4.29);
(xi) that was entered into outside the ordinary course
of business or was inconsistent with Validity's past practices;
(xii) that has a term of more than 60 days and that may
not be terminated by Validity (without penalty) within 60 days after the
delivery of a termination notice by Validity; and
(xiii) that contemplates or involves (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $40,000 in the aggregate, or (B) the performance of services having a value
in excess of $40,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) Validity has made available to Buyer accurate and complete
copies of all written Material Contracts identified in Schedule 4.16, including
all amendments thereto. Schedule 4.16(b) provides an accurate description of the
terms of each Material Contract that is not in written form. Each Material
Contract is valid and in full force and effect, and, to the best of the
knowledge of Validity, is enforceable by Validity 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 Schedule 4.16 and 4.16(b):
(i) Validity has not violated or breached, or committed
any default under, any Material Contract, and, to the best of the knowledge of
Validity, no other person or entity has violated or breached, or committed any
default under, any Material Contract;
(ii) to the best of the knowledge of Validity, no event
has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or could reasonably be expected to, (A) result in
a violation or breach of any of the provisions of any Material Contract, (B)
give any person or entity the right to declare a default or exercise any remedy
under any Material Contract, (C) give any person or entity the right to
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accelerate the maturity or performance of any Material Contract, or (D) give any
person the right to cancel, terminate or modify any Material Contract;
(iii) since January 1, 1997, Validity has not received
any notice or other communication regarding any actual or possible violation or
breach of, or default under, any Material Contract; and
(iv) Validity has not waived any of its material rights
under any Material Contract.
(d) No person or entity is renegotiating, or has a right
pursuant to the terms of any Material Contract to renegotiate, any amount paid
or payable to Validity under any Material Contract or any other material term or
provision of any Material Contract.
(e) The Contracts identified in Schedule 4.16 and Schedule
4.16(b) collectively constitute all of the contracts necessary to enable
Validity to conduct its business in the manner in which its business is
currently being conducted.
(f) Schedule 4.16 and Schedule 4.16(b) identify and provide a
brief description of each proposed contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by Validity since July 1, 1997.
(g) Schedule 4.16 and Schedule 4.16(b) provide an accurate
description and breakdown of Validity's backlog as of December 31, 1997, under
the Material Contracts.
(h) Except as set forth in Schedule 4.16 and Schedule 4.16(b):
(i) Validity has not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) Validity has complied in all material respects with
all Legal Requirements with respect to all Government Contracts and Government
Bids;
(iii) Validity has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the
Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations, or (I)
any other applicable procurement law or regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by Validity
in any certification, representation or disclosure statement submitted by
Validity with respect to any Government Contract or Government Bid were current,
accurate and complete as of the date of submission;
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(v) neither Validity nor any of its employees has been
debarred or suspended from doing business with any Governmental Body, and, to
the best of the knowledge of Validity, no circumstances exist that would warrant
the institution of debarment or suspension proceedings against Validity or any
employee of Validity;
(vi) no negative determinations of responsibility have
been issued against Validity in connection with any Government Contract or
Government Bid;
(vii) no direct or indirect costs incurred by Validity
have been questioned or disallowed as a result of a finding or determination of
any kind by any Governmental Body;
(viii) no Governmental Body, and no prime contractor or
higher-tier subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to Validity under any
Government Contract other than routine retentions that are not in dispute;
(ix) there are not and have not been any irregularities,
misstatements or omissions relating to any Government Contract or Government Bid
that have led to or could reasonably be expected to lead to (A) any
administrative, civil, criminal or other investigation, legal proceeding or
indictment involving Validity or any of its employees, (B) the questioning or
disallowance of any costs submitted for payment by Validity, (C) the recoupment
of any payments previously made to Validity, (D) a finding or claim of fraud,
defective pricing or improper payments on the part of Validity, or (E) the
assessment of any penalties or damages of any kind against Validity;
(x) there is not and has not been any (A) outstanding
claim against Validity by, or dispute involving Validity with, any prime
contractor, subcontractor, vendor or other person arising under or relating to
the award or performance of any Government Contract, (B) fact known by Validity
upon which any such claim could reasonably be expected to be based or which may
give rise to any such dispute, or (C) final decision of any Governmental Body
against Validity;
(xi) Validity is not undergoing and has not undergone
any audit, and Validity has no knowledge of any basis for any impending audit,
arising under or relating to any Government Contract (other than normal routine
audits conducted in the ordinary course of business);
(xii) Validity has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xiii) no payment has been made by Validity or by any
person acting on Validity's behalf to any person (other than to any bona fide
employee or agent (as defined in subpart 3.4 of the FAR) of Validity) 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;
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(xiv) Validity's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any Legal
Requirement;
(xv) Validity 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;
(xvi) in each case in which Validity has delivered or
otherwise provided any technical data, computer software or Validity
Intellectual Property to any Governmental Body in connection with any Government
Contract, Validity has marked such technical data, computer software or Validity
Intellectual Property with all markings and legends (including any "restricted
rights" legend and any "government purpose license rights" legend) necessary
(under the FAR or other applicable Legal Requirements) to ensure that no
Governmental Body or other person or entity is able to acquire any unlimited
rights with respect to such technical data, computer software or Validity
Intellectual Property;
(xvii) Validity has not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xviii) Validity has reached agreement with the
cognizant government representatives approving and "closing" all indirect costs
charged to Government Contracts for all years from inception through 1993, and
those years are closed;
(xix) the responsible government representatives have
agreed with Validity as to the "forward pricing rates" that Validity is charging
on cost-type Government Contracts and including in Government Bids;
(xx) Validity is not and will not be required to make
any filing with or give any notice to, or to obtain any consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of the execution, delivery of
performance of this Agreement or any of the other agreements referred to in this
Agreement; and
(xxi) Neither Validity nor any director, officer, agent,
employee or other person acting on behalf of Validity has used any corporate or
other funds for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds. Neither Validity nor any director, officer, agent, employee or other
person acting on behalf of Validity has accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.17 Security Matters. Validity is in compliance with all security
and related requirements on its Government Contracts.
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4.18 Employee and Labor Matters; Benefit Plans.
(a) Schedule 4.18(a) identifies each salary, bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance
pay, termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (collectively, the "Plans") sponsored, maintained,
contributed to or required to be contributed to by Validity for the benefit of
any employee of Validity ("Employee").
(b) Except as set forth in Schedule 4.18(a), Validity does not
maintain, sponsor or contribute to, and, has 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) Validity 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 Schedule
4.18(a) (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, Validity has delivered to
Buyer:
(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 of 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).
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(e) Validity is not and has never 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. Validity has never been a member of
an "affiliated service group" within the meaning of Section 414(m) of the Code.
Validity has 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 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) Validity does 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) 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 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 Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and neither Validity nor any of the Shareholders is aware of
any reason why any such determination letter should be revoked.
(k) Except as set forth in Schedule 4.18(k), neither the
execution, delivery or performance of this Agreement, nor the consummation of
the sale of Shares 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 Validity
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Schedule 4.18(l) contains a list of all salaried Employees
of Validity as of the date of this Agreement, and correctly reflects, 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.
Schedule 4.18(l) also contains a list of all Employees of Validity with security
clearances and the level of such security clearance. Validity is not a party to
any collective
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bargaining contract or other Contract with a labor union involving any of its
Employees. All of Validity's employees are "at will" employees.
(m) Schedule 4.18(m) 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) Validity 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 including without limitation Legal
Requirements respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, and occupational
safety and health requirements, and has not and are not engaged in any unfair
labor practice.
(o) Validity has good labor relations with its Employees and
has no reason to believe that (i) the sale of Shares or any of the other
transactions contemplated by this Agreement will have a material adverse effect
on Validity's labor relations, or (ii) that any Validity Employees intend(s) to
terminate his or her employment with Validity following the Closing.
(p) All persons classified by Validity as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and Validity has fully and accurately reported their compensation on
IRS Forms 1099 when required to do so, except to the extent that any
misclassification of any such person will not have a material adverse effect on
Validity.
(q) There is no charge or compliance proceeding actually
pending or, to Validity's knowledge threatened against Validity before the Equal
Employment Opportunity Commission or any state, local, or foreign agency
responsible for the prevention of unlawful employment practices.
4.19 Compliance with Laws. Validity is, and at all times during the
period prior to the date hereof Validity has been, in material compliance with
all applicable Legal Requirements. Validity has not received any notice or
communication from any Governmental Body regarding any violation of, or failure
to comply with, any Legal Requirements.
4.20 Governmental Authorizations. Validity has all Governmental
Authorizations necessary to enable Validity to conduct its business in the
manner in which 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 Validity. Validity is, and at all times since January
1, 1993, has been, in compliance with the material terms and requirements of
such Governmental Authorizations. Since January 1, 1993, Validity 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. "Governmental
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Authorization" shall mean any (a) permit, license, consent, certificate,
franchise, permission, clearance, registration, qualification, or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement; or (b) right under
any Government Contract.
4.21 Related Persons. (a) No shareholder, director, officer, former
director or officer, or employee of Validity, or any member of the immediate
family of such person or any entity owned or controlled in whole or in part by
any such person ("Related Party") has, and no Related Party has at any time
since January 1, 1993, had, any direct or indirect interest in any material
asset used in or otherwise relating to the businesses of Validity; (b) no
Related Party is, or has at any time since January 1, 1993, been, indebted to
Validity; (c) since January 1, 1993, no Related Party has entered into, or has
had any direct or indirect financial interest in, any material Contract,
transaction or business dealing with or involving Validity; (d) no Related Party
is competing, or has at any time since January 1, 1993, competed, directly or
indirectly, with Validity; and (e) no Related Party has any claim or right
against Validity (other than rights to receive compensation for services
performed as an employee of Validity).
4.22 Insurance. Schedule 4.22 sets forth (a) an accurate summary
description of each insurance policy providing coverage for liability exposure
(including policies providing property, casualty, liability and workers'
compensation coverage and bond and surety arrangements) to which Validity is
currently, or has been during the past three years, a party, a named insured or
otherwise the beneficiary of coverage and (b) all insurance loss runs or
worker's compensation claims received for the past three policy years. With
respect to each such insurance policy: to Validity's knowledge, (a) the policy
is legal, valid, binding, enforceable and in full force and effect; (b) there
will be no breach or other violation of the policy resulting from this
transaction; and (c) Validity is not in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
policy.
4.23 Real Property; Owned or Leased. Schedule 4.23 sets forth a
complete and accurate description of each parcel of real property owned by or
leased to Validity. Schedule 4.23 contains a description of all buildings,
fixtures, and other improvements located on these real properties and a list of
the policies of title insurance, if any, issued to Validity for these
properties. All the leases listed on Schedule 4.23 are valid and in full force
and effect, and there does not exist any default or event that with notice or
lapse of time, or both, would constitute a default under any of these leases and
no person (except Validity) has any right of possession to such leased property
or any part thereof. Validity owns clear and marketable title, free of any liens
or Encumbrances, to all improvements and fixtures located on these real
properties. There is presently no pending or, to Validity's knowledge,
contemplated condemnation of any of the property listed on Schedule 4.23 or any
part thereof, and Validity has made no commitment to any governmental or
quasi-governmental entity or to any other person or entity which relates to such
property or imposes upon Validity or Validity's successors or assigns any
obligation to pay or contribute property or money or to construct, install or
maintain any improvements on or off such property. There are no violations by
Validity of any law, including any building, planning or zoning law relating to
any owned or leased real properties
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that would have a material adverse effect on Validity or its financial
condition, assets, liabilities, business, or operations.
4.24 Environmental Matters. Validity is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by Validity of all permits and other Government
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. Validity has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that Validity is not in
compliance with any Environmental Law, and there are no circumstances that may
prevent or interfere with Validity's compliance with any Environmental Law in
the future. No current or prior owner of any property leased or controlled by
Valdity has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that such current or prior owner is not in compliance
with any Environmental Law. All Government Authorizations currently held by
Validity pursuant to Environmental Laws are identified in Schedule 4.24. None of
the real properties owned or leased by Validity (including, without limitation,
soils, surface water and groundwater located at such properties) is contaminated
with any Materials of Environmental Concern. "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. "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroluem 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.
4.25 Corporate Records Validity has delivered, or made available for
inspection, to Buyer accurate and complete copies of (1) Validity's articles of
incorporation and bylaws, including all amendments thereto; (2) the stock
records of Validity; and (3) the minutes and other records of the formal meeting
and proceedings (including any actions taken by written consent or otherwise
without a meeting) of the Shareholders, the board of directors of Validity and
all committees of the board of directors of Validity. There have been no formal
meetings or other proceedings of the Shareholders, the board of directors of
Validity or any committee of the board of directors of Validity that are not
fully reflected in such minutes or other records. The stock records and minutes
books are accurate, up to date and complete in all material respects.
4.26 Full Disclosure. No statement by the Shareholders or Validity
contained in this Agreement, or the Exhibits, Schedules or other attachments
hereto, or any written certificate furnished or to be furnished to Buyer
pursuant hereto (when read together) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
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4.27 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement based on any arrangement or agreement made by or on behalf of Validity
or the Shareholders.
4.28 Disallowable Director Expense Items. All costs related to
Related Persons (as defined in Section 4.21), including, but not limited, to
compensation, consultation fees, life insurance premiums, auto allowances,
business meals related party facility cost and any facility purchase options
have been properly classified as unallowable costs for Government Contract
accounting purposes as described below. Any costs related to the Related Persons
that have not been properly self disallowed for Government accounting purposes
but were not self disallowed and which result in liability to Buyer will be used
to offset the Note and shall not be subject to the $1,000,000 exclusion.
4.29 Certain Definitions. For purposes of this Agreement:
(a) "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.
(b) "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
(excluding restrictions under applicable federal and state securities laws) or
other asset, any restriction on any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
(c) "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.
(d) "Governmental Body" shall mean any (i) nation, state,
commonwealth, province, territory, county, city, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of any
nature (including governmental division, department, agency, commission, board,
instrumentality, official, organization, unit, or body).
(e) "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor otherwise has or may acquire any right or interest other than
any contract, subcontract, letter contract, purchase order or delivery order
that was fully performed by Validity before 1990 and has been closed.
(f) "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,
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promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder,
severally and not jointly, represents and warrants to Buyer, as of the Closing
Date, as follows:
5.1 Title to Stock; Encumbrances. Such Shareholder is the true,
lawful record and beneficial owner of the Shares set forth beside such
Shareholder's name on the Schedule of Shareholders and such Shares are being
transferred and sold to Buyer hereunder, with no restrictions on the voting
rights or rights of disposition pertaining to such Shares (excluding
restrictions under applicable federal and state securities laws). The Shares set
forth beside such Shareholder's name on the Schedule of Shareholders constitute
all of the shares of capital stock of Validity owned beneficially or of record
by each such Shareholder. As of the Closing such Shareholder will convey to
Buyer good and valid title to such Shares free and clear of any and all liens or
other Encumbrances. None of the Shares is subject to any voting trust or other
agreement or arrangement with respect to the voting thereof.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Validity and the Shareholders as follows:
6.1 Organization and Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority and is entitled to
carry on its respective business as now being conducted by it and to own, lease
or operate its respective properties as and in the places where such business is
now conducted and properties are now owned, leased or operated.
6.2 Corporate Power; Authorization. Buyer has all requisite legal
and corporate power and authority to enter into the Agreement and to execute and
deliver the Notes and Pledge Agreement (the "Transaction Documents") and to
carry out and perform all of its obligations under the terms of the Agreement
and the Transaction Documents. All corporate action on the part of Buyer and all
action on the part of its officers and directors necessary for the
authorization, execution and delivery of this Agreement and the Transaction
Documents by Buyer and for the performance of Buyer's obligations hereunder and
thereunder has been taken, and the Agreement and the Transaction Documents, when
duly executed and delivered, shall constitute the valid and binding obligation
of Buyer enforceable against Buyer in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditor's rights and by rules of law governing specific performance, injunctive
relief or other equitable remedies.
6.3 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement based on any arrangement or agreement made by or on behalf of Buyer.
6.4 Consents. The execution, delivery and performance by Buyer of
this Agreement, and the consummation of the transactions contemplated herein
does not require the
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consent, approval or action of, or any filing with or notice to, any
Governmental Body or other person or entity.
6.5 Litigation, Etc. No action, suit, proceeding, or investigation
of any nature is pending or, to the best of Buyer's knowledge, is threatened
against Buyer which questions the validity of the Agreement or the right of
Buyer to enter into the Agreement.
6.6 Investment Purpose. Buyer is acquiring the Shares solely for the
purpose of investment, and not with a view to, or for offer or sale in
connection with, any distribution thereof.
7. CERTAIN COVENANTS OF VALIDITY AND THE SHAREHOLDERS.
7.1 Access and Investigation. During the period from the date of
this Agreement through the Closing Date (the "Pre-Closing Period"), Validity
shall, and shall cause its representatives to: (a) provide Titan, Buyer and
their representatives with reasonable access to Validity personnel and assets
and to all existing books, records, tax returns, work papers and other documents
and information relating to Validity; and (b) provide Titan, Buyer and their
representatives with copies of such existing books, records, tax returns, work
papers and other documents and information relating to Validity, and with such
additional financial, operating and other data and information regarding
Validity, as Titan or Buyer may reasonably request.
7.2 Operation of Validity's Business. During the Pre-Closing Period,
except pursuant to prior written consent of Buyer, Validity shall:
(a) conduct its business and operations in the ordinary course
and in substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and maintain its relations and good will with all suppliers,
customers, landlords, creditors, employees and other persons having business
relationships with it;
(c) keep in full force all insurance policies identified in
Schedule 4.22;
(d) not declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(e) not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option 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;
(f) not amend or waive any of its rights under, or permit the
acceleration of vesting under, any outstanding stock option or warrant to
acquire Validity Common Stock;
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(g) not amend or permit the adoption of any amendment to
Validity's Articles of Incorporation or bylaws, or effect or permit Validity to
become a party to any acquisition transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(h) not form any subsidiary or acquire any equity interest or
other interest in any other entity;
(i) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of Validity during the Pre-Closing Period, do not exceed $10,000 per month;
(j) subject to requirements contained in the Line of Credit
referred to below, 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
Contract, or (ii) amend or prematurely terminate, or waive any material right or
remedy under, any such Contract;
(k) 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 Validity
pursuant to Contracts that are not Material Contracts;
(l) not (i) lend money to any person or (ii) incur or
guarantee any indebtedness for borrowed money (except that Validity may make
routine borrowings in the ordinary course of business under its Line of Credit;
provided that Validity shall use its best efforts to use collections from
accounts receivable and other cash receipts to pay down the Line of Credit prior
to Closing);
(m) not (i) establish, adopt or amend any 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 (other than the $600,000 set aside from the Purchase Price
to be awarded by Validity prior to Closing), or (iii) hire any new employee
whose aggregate annual compensation is expected to exceed $40,000 other than
employees who are chargeable as direct labor on existing or newly awarded
Validity Government Contracts;
(n) not change any of its methods of accounting or accounting
practices in any material respect;
(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.
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7.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Validity shall promptly
notify Buyer in writing of:
(i) the discovery by Validity 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 Validity or any of the Shareholders in this
Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute an inaccuracy in or breach of any representation or warranty made
by Validity or any of the Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
Validity or any of the Shareholders; and
(iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set forth in Section
9 or Section 10 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 7.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then Validity shall promptly deliver to Buyer an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by Validity or
any of the Shareholders in this Agreement, or (ii) determining whether any of
the conditions set forth in Section 9 has been satisfied.
7.4 No Negotiation. During the Pre-Closing Period, neither Validity
nor any of the Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any person (other than Titan or Buyer) relating to a
possible Acquisition Transaction (as defined below);
(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 Validity to any person (other than Titan
or Buyer) relating to or in connection with a possible Acquisition Transaction;
or
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(c) consider, entertain or accept any proposal or offer from
any person (other than Titan or Buyer) relating to a possible Acquisition
Transaction.
The parties acknowledge that any breach of the foregoing provisions by any
representative of Validity shall be deemed a breach by Validity. Validity shall
promptly notify Buyer in writing of any material inquiry, proposal or offer
relating to a possible Acquisition Transaction that is received by Validity or
any of the Shareholders or any of their representatives during the Pre-Closing
Period. For purposes of this Agreement, "Acquisition Transaction" means any
transaction involving: (i) the sale, license, disposition or acquisition of all
or a material portion of Validity's business or assets; (ii) the issuance,
disposition or acquisition of (1) any capital stock or other equity security of
Validity (other than common stock issued to employees of Validity in routine
transactions in accordance with the Validity's past practices), (2) any option,
call, warrant or right (whether or not immediately exercisable) to acquire any
capital stock or other equity security of Validity (other than stock options
granted to employees of Validity in routine transactions in accordance with
Validity's past practices), or (3) any security, instrument or obligation that
is or may become convertible into or exchangeable for any capital stock or other
equity security of Validity; or (iii) any merger, consolidation, business
combination, reorganization or similar transaction involving Validity.
8. ADDITIONAL COVENANTS OF THE PARTIES.
8.1 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 sale of the Shares 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 sale of the Shares and the other transactions contemplated
by this Agreement. Validity shall (upon request) promptly deliver to Buyer a
copy of each such filing made, each such notice given and each such consent
obtained by Validity during the Pre-Closing Period.
8.2 Public Announcements. During the Pre-Closing Period, (a) neither
Validity nor any of its Shareholders shall (and Validity shall not permit any of
its representatives to) issue any press release or make any public statement
regarding this Agreement, or regarding any of the other transactions
contemplated by this Agreement, without Titan's or Buyer's prior written
consent, and (b) Buyer will use reasonable efforts to consult with Validity
prior to issuing any press release or making any public statement regarding the
Agreement.
8.3 Best Efforts. During the Pre-Closing Period, (a) Validity and
the Shareholders shall use their best efforts to cause the conditions set forth
in Section 9 to be satisfied on a timely basis, and (b) Buyer shall use its best
efforts to cause the conditions set forth in Section 10 to be satisfied on a
timely basis.
8.4 Noncompetition Agreements. At or prior to the Closing, each of
LeRoy L. Lang, W.F. Pittman, Jr., John E. Raftery, George E. Thomas and Glenwood
E. Bradley shall execute and deliver to Validity and Buyer a Noncompetition
Agreement as reasonably requested by Buyer.
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8.5 Employee Retention Program. If and as reasonably requested by
Buyer, Validity shall enter into employee retention agreements with employees
identified by Buyer and Validity.
8.6 Release. At the Closing, each of the Shareholders shall execute
and deliver to Validity a Release in the form of Exhibit D.
8.7 Stock Options. Following the Closing, Buyer shall grant to the
key managerial employees of Validity (the "Key Employees") listed on Exhibit G
hereto, either nonqualified options to acquire shares of Buyer's Common Stock
and/or shares of Titan's Common Stock (the "Options") in Buyer's sole
discretion. The Options will be granted to the Key Employees subject to
substantially similar terms and conditions as options granted to similarly
situated employees of Titan and Buyer. The exercise price for such options shall
be set at the fair market value of Buyer's or Titan's (as the case may be)
Common Stock on the date of grant and shall vest from the date of grant equally
over four years, on an annual basis.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
9.1 Accuracy of Representations. Each of the representations and
warranties made by Validity and the Shareholders in this Agreement and in each
of the other agreements and instruments delivered to Buyer 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 effect to any
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 Closing Date as if made on
the Closing Date (without giving effect to any update to the Disclosure Schedule
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).
9.2 Performance of Covenants. All of the covenants and obligations
that Validity and the Shareholders 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 Consents. All Consents required to be obtained in connection
with the sale of Shares and the other transactions contemplated by this
Agreement (including the consents identified in Schedule 4.5) shall have been
obtained and shall be in full force and effect.
9.4 Agreements and Documents. Buyer and Validity, as provided
herein, shall have received the agreements, documents and deliveries set forth
in Section 3.2, each of which shall be in full force and effect.
9.5 Lease Amendment. Validity shall have entered into with its
landlord for its facility located at 374 North Coast Highway 101, Suite F,
Encinitas, California, an amendment to the facility lease modifying the term of
the lease to be a month-to-month lease terminable by either Validity or the
landlord on 90 days' prior written notice, but otherwise subject to the same
terms and conditions as the existing facility lease, and Validity shall have
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provided to Buyer a consent and estoppel certificate from such landlord in form
and content acceptable to Buyer.
9.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the sale of
the Shares contemplated by this Agreement 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 sale of the Shares that makes
consummation of the transactions contemplated hereby illegal.
9.7 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 transactions contemplated
hereby or seeking to prohibit or limit the exercise by Buyer of any material
right pertaining to its ownership of securities of Validity.
9.8 Legends. Validity shall have provided Buyer with evidence,
reasonably satisfactory to Buyer, that all technical data, computer software and
Validity Intellectual Property delivered or otherwise provided or made available
by or on behalf of Validity to any Governmental Body in connection with
Government Contracts have been marked with all markings and legends (including
any "restricted rights" legend and any "government purpose license rights"
legend) appropriate (under the FAR, under other applicable Legal Requirements or
otherwise) to ensure that no Governmental Body or other Person is able to
acquire any unlimited rights with respect to any of such technical data,
computer software or Validity Intellectual Property Assets and to ensure that
Validity has not lost or relinquished and will not lose or relinquish any
material rights with respect thereto.
9.9 Invention Assignments. Buyer shall have received from Validity
confidential invention and assignment agreements, reasonably satisfactory in
form and content to Buyer, executed by all employees and former employees of
Validity and by all consultants and independent contractors and former
consultants and former independent contractors to Validity who have not already
signed such agreements.
9.10 No Material Adverse Effect. There shall not have occurred from
and after December 31, 1997, any event, condition or state of facts that has
resulted, or that is reasonably likely to result, in a material adverse effect
on the assets, liabilities, business, financial condition or prospects of
Validity or in the ability of Buyer to consummate the purchase of the Shares.
9.11 Termination of Executive Employment Agreements. The Executive
Employment Agreements between Validity and each of LeRoy L. Lang, W.F. Pittman,
Jr., John E. Raftery and George E. Thomas (collectively, the "Principal
Shareholders"), the Stock Redemption Agreement for Principal Shareholders dated
February 25, 1993, as amended, and the Validity Corporation Stock Redemption
Agreement between Validity and Carl J. Bubela and Sharon A. Donahoo dated
February 25, 1993, as amended, shall each have been terminated without any
liability or additional obligations on the part of Validity and without the
payment of any additional compensation to any of the Principal Shareholders,
Carl J. Bubela or Sharon A. Donahoo or any other person, including any amounts
accrued as of December 31, 1997 or
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thereafter for any obligations other than accruals for salaries and employment
benefits accrued and paid in the ordinary course of business.
9.12 Termination of Right of First Refusal. All rights of first
refusal, including without limitation any provision in Validity's Bylaws,
restricting the transfer of shares of Validity shall have been terminated or
irrevocably waived to the satisfaction of Buyer.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS. The
obligations of the Shareholders to effect the sale of Shares and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
10.1 Accuracy of Representations. Each of the representations and
warranties made by Buyer in this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
materiality or similar qualifications contained in such representations and
warranties), and shall be accurate in all material respects as of the Closing as
if made at the Closing Date (without giving effect to any materiality or similar
qualifications contained in such representations and warranties).
10.2 Performance of Covenants. All of the covenants and obligations
that Buyer is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
10.3 Documents. The Shareholders shall have received the documents,
agreements and deliveries required by Section 3.2.
10.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the sale of
the Shares contemplated by this Agreement 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 sale of the Shares that makes
consummation of the transactions contemplated hereby illegal.
10.5 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 transactions contemplated
hereby or seeking to prohibit or limit the exercise by Buyer of any material
right pertaining to its ownership of securities of Validity.
10.6 Guaranty. The Line of Credit shall have been amended so that
the Principal Shareholders shall have been released as guarantors of the Line of
Credit or Buyer shall have indemnified the Principal Shareholders from and
against any liability on the guaranties of the Line of Credit (other than for
any liability arising from any breach of the Line of Credit or guaranties
occurring prior to the Closing and not disclosed to Buyer in the Disclosure
Schedules). Any person who has provided a guaranty or whose signature or
cooperation is necessary will fully cooperate with Buyer and Buyer's Agents
provided they incur no costs or liability to remove any encumbrances under the
Line of Credit.
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11. ADDITIONAL AGREEMENTS.
11.1 Payment of Taxes. The Shareholders have paid, or (to the extent
not yet due and payable) will pay, in a timely fashion, all Taxes required to be
paid attributable to their ownership of Shares in respect of all periods on or
prior to the Closing Date, including without limitation, Taxes for which they
are liable due to the status of Validity as an S corporation for federal income
tax purposes (and any analogous provisions of state or local law) and, in
particular, such Taxes arising as a result of the Election (as defined in
Section 11.2) The Shareholders shall reimburse Buyer or Validity within ten (10)
days of any payment by Buyer or Validity for the payment of, any and all such
Taxes of Validity attributable to any taxable period ending on or prior to the
Closing Date, other than up to $100,000 attributable to any built-in gain
incurred under Section 1374 of the Code in connection with the deemed sale of
assets caused by the Election ("Excluded Liability"). With respect to the
reimbursement for Tax on any built-in gain incurred under Section 1374 of the
Code, the amount required to be paid by the Shareholders shall be reduced for
the present value tax savings excluding the amount of savings otherwise
attributable to the first $100,000 of such tax (i.e., total available deductions
multiplied by the applicable federal corporate income tax rate) that Validity
will realize as a result of being able to amortize or depreciate the amount of
such Tax as a part of the deemed purchase price of Validity's assets. Present
value shall be calculated using the then applicable Federal rate for a debt of
the same maturity as the amortization period.
11.2 Tax Election. Buyer and each Shareholder shall jointly make the
elections provided for by Sections 338(a) and 338(h)(10) of the Code and Treas.
Reg. ss. 1.338(h)(10)-1 (and any comparable election under state or local law)
with respect to the purchase of the Shares by Buyer (each, an "Election"). At
the Closing, Buyer shall deliver a signed and completed Form 8023 to the
Shareholders and the Shareholders shall execute and deliver the form to Buyer at
the Closing. Also, Buyer and Shareholders shall cooperate with each other to
take all actions necessary and appropriate (including filing such additional
forms, returns, elections, schedules, and other documents as may be required) to
effect and preserve a timely Election in accordance with the provisions of
Treas. Reg. ss. 1.338(h)(10)-1 (or any comparable provisions of state or local
tax law) or any successor provisions. Buyer and Seller shall report the purchase
by Buyer of the Shares pursuant to the Agreement consistent with the Elections
(and any comparable election under state or local tax laws) and shall take no
position inconsistent therewith in any tax return, or any proceeding before any
taxing authority or otherwise.
11.3 Tax Allocations. In connection with the Elections, not later
than the Closing, Buyer and Shareholders shall act together in good faith to (i)
determine and agree upon a "Modified Aggregate Deemed Sales Price" of Validity
(within the meaning of, and in accordance with, Treas. Reg. ss.
1.338(h)(10)-1(f)) and (ii) determine and agree upon the proper allocations (the
"Allocations") of the "Modified Aggregate Deemed Sales Price" among the
respective assets of Validity (in accordance with Section 338(b)(5) of the Code
and Treasury regulations promulgated thereunder). Buyer and the Shareholders
agree that the amount of the Purchase Price allocated to tangible personal
property will not exceed the value of such assets on the books of Validity as of
the Closing Date. Buyer and the Shareholders shall (i) be bound by such
determinations and such Allocations for purposes of determining any taxes, (ii)
prepare and file their tax returns on a basis consistent with such
determinations and such Allocations and (iii)
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take no position inconsistent with such determinations and Allocations on any
applicable tax return, in any proceeding before any taxing authority or
otherwise. In the event that any such Allocation is disputed by any taxing
authority, the party receiving notice of the dispute shall promptly notify the
other party hereto concerning resolution of the dispute. Any liability for taxes
arising from the Elections (other than the Excluded Liability which shall be
payable by Validity) shall be borne by the Shareholders, jointly and severally.
12. TERMINATION.
12.1 Termination Events. This Agreement may be terminated prior to
the Closing without either party incurring any termination fee:
(a) by Buyer if Buyer 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 Buyer to comply with or
perform any covenant or obligation of Buyer set forth in this Agreement);
(b) by Validity if Validity reasonably determines that the
timely satisfaction of any condition set forth in Section 10 has become
impossible (other than as a result of any failure on the part of Validity or any
of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument delivered to
Buyer);
(c) by Buyer if the Closing has not taken place on or before
Closing (other than as a result of any failure on the part of Buyer to comply
with or perform any covenant or obligation of Buyer set forth in this
Agreement);
(d) by Validity if the Closing has not taken place on or
before Closing (other than as a result of the failure on the part of Validity or
any of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement or in any other agreement or instrument delivered to
Buyer); or
(e) by the mutual consent of Buyer and Validity.
12.2 Termination Procedures. If Buyer wishes to terminate this
Agreement pursuant to Section 12.1(a) or Section 12.1(c), Buyer shall deliver to
Validity prompt written notice stating that Buyer is terminating this Agreement
and setting forth a brief description of the basis on which Buyer is terminating
this Agreement. If Validity wishes to terminate this Agreement pursuant to
Section 12.1(b) or Section 12.1(d), Validity shall deliver to Buyer prompt
written notice stating that Validity is terminating this Agreement and setting
forth a brief description of the basis on which Validity is terminating this
Agreement.
12.3 Termination Fees.
(a) Validity shall pay Buyer a termination fee of $1,000,000
payable upon termination of this Agreement, if the Agreement is terminated due
to Validity's or any of its Shareholders' material breach of this Agreement.
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(b) Buyer shall pay to Validity a termination fee of
$1,000,000, payable upon termination of this Agreement, if this Agreement is
terminated due to Buyer's material breach of this Agreement.
(c) Validity, the Shareholders and Buyer agree that in the
event this Agreement is terminated due to breach, the non-breaching party's sole
and exclusive remedy shall be to collect the termination fees pursuant to this
Section 12.3. Each of the parties acknowledges that it is impractical or
extremely difficult to estimate damages that a party would suffer due to
termination for breach and that the termination fee represents the parties' best
estimate of the sums which would be fair compensation for such damages.
12.4 Effect of Termination. If this Agreement is terminated pursuant
to Section 12.1, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) neither Validity nor Buyer shall
be relieved of any obligation to pay a termination fee as set forth in Section
12.3 and (b) the parties shall, in all events, remain bound by and continue to
be subject to the Confidentiality and Standstill Agreement dated January 20,
1998.
13. INDEMNIFICATION.
13.1 Survival of Representations, Etc.
(a) The representations and warranties made by Validity
(including the representations and warranties set forth in Section 4 shall
survive the Closing and shall expire on the first anniversary of the Closing
Date; provided, however, that if, at any time prior to the first anniversary of
the Closing Date, any Titan Indemnitee (defined below) (acting in good faith)
delivers to any of the Shareholders a written notice alleging the existence of
an inaccuracy in or a breach of any of the representations and warranties made
by Validity (and setting forth in reasonable detail the basis for such Titan
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under this Section 13 based on such alleged inaccuracy or
breach, 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, provided the Titan Indemnitee pursues such resolution in good faith
and with due diligence.
(b) The representations, warranties, covenants and obligations
of Validity and the Shareholders, and the rights and remedies that may be
exercised by the Titan Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to (other than the Disclosure
Schedule), or any investigation made by or knowledge of, any of the Titan
Indemnitees or any of their representatives.
13.2 Indemnification by Shareholders.
(a) From and after the Closing, the Shareholders, jointly and
severally, shall hold harmless and indemnify each of the Titan Indemnitees from
and against, and shall compensate and reimburse each of the Titan Indemnitees
for, any Damages which are directly or indirectly suffered or incurred by any of
the Titan Indemnitees or to which any of the Titan 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
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connected with: (i) any inaccuracy in or breach by Validity of any
representation or warranty set forth in Section 4; (ii) any breach of any
covenant or obligation set forth in this Agreement of Validity or any of the
Shareholders; (iii) any claim by any former or present employee or consultant to
Validity arising from any alleged promise to pay any special bonus in connection
with the change of control of Validity or arising from a reassignment of the
responsibilities of and/or changes in the compensation levels of executives of
Validity following the change in control and (iv) any Legal Proceeding relating
to any inaccuracy or breach of the type referred to in clause "(i)","(ii)" or
"(iii)" above (including any Legal Proceeding commenced by any Titan Indemnitee
for the purpose of enforcing any of its rights under this Section 13).
(b) The Shareholders acknowledge and agree that, if Validity
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, then (without limiting any of the rights of Validity as
an Titan Indemnitee) Buyer shall also be deemed, by virtue of its ownership of
the stock of Validity, to have incurred Damages as a result of and in connection
with such inaccuracy or breach.
13.3 Threshold; Ceiling.
(a) The Shareholders shall not be required to make any
indemnification payment pursuant to Section 13.2 for any inaccuracy in or breach
of any of their representations, covenants or obligations set forth herein until
such time as the total amount of all Damages (including the Damages arising from
such inaccuracy or breach and all other Damages arising from any other
inaccuracies in or breaches of any representations or warranties) that have been
directly or indirectly suffered or incurred by any one or more of the Titan
Indemnities, or to which any one or more of the Titan Indemnities has or have
otherwise become subject, exceeds $1,000,000 in the aggregate (excluding (i) any
liability for Taxes payable pursuant to Section 11 or for breach of the
representation and warranty in Section 4.7 or any Legal Proceeding relating
thereto, other than the Excluded Liability, (ii) any breach of the
representation and warranty in Section 4.8(b) or any Legal Proceeding relating
thereto, (iii) any liability under clause (ii) of Section 13.2(a) or any Legal
Proceeding relating thereto, and (iv) any liability under Section 4.28 or any
Legal Proceeding relating thereto, each of which shall be payable without any
deductible and shall not be counted in determining the $1,000,000 threshold). If
the total amount of such Damages exceeds $1,000,000, then the Titan Indemnities
shall be entitled to be indemnified against and compensated and reimbursed only
for the portion of such Damages exceeding $1,000,000.
(b) Except as provided below, the indemnification liability of
Shareholders under this Section shall be $2,000,000 and shall be payable solely
through offsets against the Notes. The $2,000,000 cap on indemnification
liability and the limitation on collection exclusively to offset against the
Notes set forth in the preceding sentence does not apply to liabilities for
Taxes payable under Section 11 or for breach of warranty under Section 4.7 as
modified by the Disclosure Schedule.
13.4 No Contribution. Each Shareholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against Validity in connection
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with any indemnification obligation or any other liability to which he may
become subject under or in connection with this Agreement.
13.5 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Validity, Buyer, Titan or against any other Person) with respect to which any of
the Shareholders may become obligated to hold harmless, indemnify, compensate or
reimburse any Titan Indemnitee pursuant to this Section 13, Buyer shall have the
right, at its election, to proceed with the defense of such claim or Legal
Proceeding on its own with counsel selected by Buyer. Buyer shall have the right
to settle, adjust or compromise such claim or Legal Proceeding with the consent
of the Shareholders' Agent (as defined in Section 13.8); provided, however, that
such consent shall not be unreasonably withheld. Consent may not be withheld if
each Titan Indemnitee against whom the claim has been made receives, as part of
the settlement or compromise, an unconditional release relating to such claim.
Buyer shall give the Shareholders' Agent prompt written notice of the
commencement of any such Legal Proceeding against Buyer or Validity; provided,
however, that any failure on the part of Buyer to so notify the Shareholders'
Agent shall not limit any of the obligations of the Shareholders under this
Section 13 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).
13.6 Definitions. For the purposes of this Section 13, the following
definitions shall apply:
(a) "Damages" shall include any loss, damage, injury,
liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee
(including reasonable attorneys' fees), charge, cost (including costs of
investigation) or expense of any nature, regardless of whether in the case of a
third party claim, the claim has any merit so long as Titan is pursuing such
third party claim in good faith.
(b) "Titan Indemnitees" shall mean the following: (a) Buyer;
(b) Buyer's current and future affiliates (including Titan and Validity); (c)
the respective Representatives of the persons or entities referred to in clauses
"(a)" and "(b)" above; and (d) the respective successors and assigns of the
persons or entities referred to in clauses "(a)," "(b)" and "(c)" above;
provided, however, that the Shareholders shall not be deemed to be "Titan
Indemnitees."
(c) "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.
(d) "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
13.7 Recovery of Damages from Notes. Any Titan Indemnitee that has
directly or indirectly suffered, incurred or otherwise become subject to any
Damages shall be entitled to offset the aggregate amount of such Damages plus
interest thereon (computed at the
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Prime Rate of Imperial Bank, subject to maximum rate permitted by law through an
offset first pro rata against principal payable on all of the Notes and second
pro rata against any interest accrued on the Notes; provided that the Titan
Indemnitees comply with the following procedure:
(a) Prior to any offset, the Titan Indemnitee shall deliver to
the Shareholders' Agent a Claim Notice that shall: (i) state that Titan
Indemnitees has suffered or incurred Damages or reasonably believes in good
faith it will prospectively incur Damages, (ii) specify the amount of such
Damages and the date on which such Damages were suffered or incurred or are
expected to be incurred and (iii) specify in reasonable detail the facts alleged
as the basis for such Damages and the section or sections of this Agreement or
other document the violation or breach of which is alleged to have resulted in
or given rise to such Damages.
(b) If the Titan Indemnitee delivers a Claim Notice to the
Shareholders' Agent and the Shareholders' Agent agrees with the Claim or fails
to respond within 20 calendar days commencing on the delivery of the Claim
Notice, then Buyer may offset the claim against the Notes.
(c) If, during the 20 day period commencing on the date of
delivery of a Claim Notice, Buyer shall have received a written notice from or
on behalf of the Shareholders' Agent stating that the Shareholders in good faith
dispute the claim asserted in such Claim Notice, then Buyer shall not make any
offset against the Notes until: (i) Buyer and the Shareholders' Agent agree in
writing on the amount of Damages to be offset, or (ii) the disputed claim is
resolved through a final arbitration in accordance with this Agreement.
13.8 Shareholders' Agent. The Shareholders hereby irrevocably
appoint LeRoy L. Lang as their agent for purposes of this Section 13 (the
"Shareholders' Agent"), and LeRoy L. Lang hereby accepts his appointment as the
Shareholders' Agent. Buyer shall be entitled to deal exclusively with the
Shareholders' Agent on all matters relating to Section 13, and shall be entitled
to rely conclusively (without further evidence of any kind whatsoever) on any
document executed or purported to be executed on behalf of any Shareholder by
the Shareholders' Agent, and on any other action taken or purported to be taken
on behalf of any Shareholder by the Shareholders' Agent, as fully binding upon
such Shareholder. If the Shareholders' Agent shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the
Shareholders, then the Shareholders shall, within ten business days after such
death or disability, appoint a successor agent and, promptly thereafter, shall
notify Buyer of the identity of such successor. Any such successor shall become
the "Shareholders' Agent" for purposes of this Section 13. If for any reason
there is no Shareholders' Agent at any time, all references herein to the
Shareholders' Agent shall be deemed to refer to the Shareholders. The
Shareholders' Agent shall be entitled to make such decisions as may be necessary
under this Agreement without consulting with any other Shareholder and shall
incur no liability and shall be indemnified, protected and held harmless by all
such Shareholders (but not by Validity or Buyer) from any and all liability,
loss, cost, claim, expense or liability (other than such liability as he may
have as a Shareholder under this Agreement) for any action taken by the
Shareholders' Agent in good faith in the exercise of his business judgment. If
the Shareholders' Agent, in his sole discretion, does consult with the other
Shareholders as to any matter, the vote of those persons holding more than 50%
of the
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outstanding principal amount of the Notes shall be controlling on any issue so
submitted to the Shareholders for decision under this Section 13.8.
14. MISCELLANEOUS.
14.1 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.
14.2 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 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 Buyer and its Representatives with respect
to the Validity's business (and the furnishing of information to Buyer and its
Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement (including the 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 transactions contemplated herein. Validity shall not accrue
or pay any fees, costs or expenses incurred by Validity until after the Closing.
Any Shareholder who retains counsel or advisors (other than counsel to Validity)
to advise or represent such Shareholder in connection with such transaction
shall be responsible for paying such fees and shall not seek reimbursement from
Validity or Buyer.
14.3 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).
14.4 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):
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if to Buyer:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
Attention: Ira Frazer, Esq., General Counsel
Telephone: (619) 552-9500
Facsimile: (619) 597-9055
with a copy to:
Barbara L. Borden, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
if to Validity:
Validity Corporation
364 North Coast Highway 101, Suite F
Encinitas, CA 92024-2594
Attention: Carl J. Bubela
Telephone: (760) 942-8540
Facsimile: (760) 942-4451
if to any of the Shareholders:
To the addresses listed on Exhibit A
with a copy to:
P. Garth Gartrell, Esq.
Pillsbury Madison & Sutro LLP
101 West Broadway, Suite 1800
San Diego, CA 92101-8219
Telephone: (619) 234-5000
Facsimile: (619) 236-1995
14.5 Time of the Essence. Time is of the essence of this Agreement.
14.6 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.
14.7 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.
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14.8 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).
14.9 Successors and Assigns. This Agreement shall be binding upon:
Validity and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any) and Buyer and its successors and assigns (if
any).
14.10 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.
14.11 Waiver.
(a) No failure on the part of any person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
14.12 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.
14.13 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.
14.14 Parties in Interest. 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).
37.
<PAGE>
14.15 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.
14.16 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."
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.
14.17 Negotiation of Disputes. If a dispute arises between the
parties relating to the interpretation or performance of this Agreement or the
grounds for the termination thereof, and the parties cannot resolve the dispute
within thirty days of a written request by either party to the other, such
dispute shall be referred to the Chief Executive Officer of Buyer and the
Shareholders' Agent for resolution. Such persons shall hold a meeting to attempt
in good faith to negotiate a resolution of the dispute prior to pursuing other
available remedies. If within 10 business days after such meeting, the Chief
Executive Officer of Buyer and the Shareholders' Agent have not succeeded in
negotiating a resolution of the dispute, such dispute shall be submitted to
arbitration as set forth in Section 14.18 below.
14.18 Arbitration. Disputes that have not been successfully resolved
pursuant to Section 14.17 above shall be submitted to final and binding
arbitration under the then current commercial rules and regulations of JAMS
Endispute ("JAMS") relating to voluntary arbitration in San Diego, California.
The arbitration shall be conducted by three arbitrators, one selected by each
party to the arbitration and one selected by arbitrators appointed by the
parties. If the arbitrators cannot agree on a third arbitrator, the third
arbitrator shall be selected in accordance with the JAMS rules. If a party fails
to designate an arbitrator within the time limits set by the JAMS rules, the
arbitrator selected by the other party shall be the sole arbitrator. All
arbitrators must be knowledgeable in the subject matter at issue in the dispute.
Each party shall initially bear its own costs and legal fees associated with
such arbitration and the parties shall split the cost of the arbitrators. The
prevailing party in any such arbitration shall be entitled to recover from the
other party the reasonable attorneys' fees, costs and expenses incurred by such
prevailing party in connection with such arbitration. The decision of the
arbitrator(s) shall be final and may be sued on or enforced by the party in
whose favor it runs in any court of competent jurisdiction at
38.
<PAGE>
the option of the successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement or the grounds for the termination thereof, shall survive the
expiration or termination of this Agreement for any reason. The arbitrator(s)
shall be empowered to award specific performance, injunctive relief and other
equitable remedies as well as damages, but shall not be empowered to award
punitive or exemplary damages or award any damages in excess of any limitations
set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have fully executed this Agreement,
including Exhibits A through G and the Schedules attached hereto and
incorporated herein and made a part hereof, as of the date first written above.
TITAN TECHNOLOGIES AND INFORMATION
SYSTEMS CORPORATION
By:____________________________________
Print Name:____________________________
Title:_________________________________
VALIDITY CORPORATION
By:____________________________________
Print Name:____________________________
Title:_________________________________
SHAREHOLDERS OF VALIDITY:
_______________________________________
LEROY L. LANG
_______________________________________
W.F. PITTMAN, JR.
_______________________________________
JOHN E. RAFTERY
_______________________________________
GEORGE E. THOMAS
39.
<PAGE>
_______________________________________
GLENWOOD E. BRADLEY
_______________________________________
CARL J. BUBELA
_______________________________________
SHARON A. DONAHOO
_______________________________________
GEORGE T. GOFORTH
_______________________________________
PHILLIP W. BOWER
_______________________________________
DAVE M. GARRETT
_______________________________________
RALPH H. YATES, III
_______________________________________
JERRY D. CRAVEN
_______________________________________
JOE B. BROCK, JR.
_______________________________________
FRANK T. ZIFFER
_______________________________________
ROBERT O. ABNEY
_______________________________________
JEFFREY S. SILVA
40.
<PAGE>
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
Number
of Shares
Owned by Shareholder
Shareholder Name Shareholder(1) Net Cash Note Address
---------------- -------------- -------- ---- -------
LeRoy L. Lang 10,000 $1,879,637.26 $494,641.39 __________________
__________________
W.F. Pittman, Jr. 10,000 1,879,637.26 494,641.39 __________________
__________________
John E. Raftery 10,000 1,879,637.26 494,641.39 __________________
__________________
George E. Thomas 10,000 1,879,637.26 494,641.39 __________________
__________________
Glenwood E. Bradley 4,000 751,854.90 197,856.55 __________________
__________________
Carl J. Bubela 3,200 601,483.92 158,285.24 __________________
__________________
Sharon A. Donahoo 2,700 507,502.06 133,553.17 __________________
__________________
George T. Goforth 2,500 469,909.31 123,660.35 __________________
__________________
A-1
<PAGE>
Number
of Shares
Owned by Shareholder
Shareholder Name Shareholder(1) Net Cash Note Address
---------------- -------------- -------- ---- -------
Phillip W. Bower 1,750 328,936.52 86,562.24 __________________
__________________
Dave M. Garrett 1,750 328,936.52 86,562.24 __________________
__________________
Ralph H. Yates III 1,500 281,945.59 74,196.21 __________________
__________________
Jerry D. Craven 750 140,972.80 37,098.10 __________________
__________________
Joe B. Brock, Jr. 750 140,972.80 37,098.10 __________________
__________________
Frank T. Ziffer 750 140,972.80 37,098.10 __________________
__________________
Robert O. Abney 500 93,981.87 24,732.07 __________________
__________________
Jeffrey S. Silva 500 93,981.87 24,732.07 __________________
========= ============== =============
Totals: 60,650 $11,400,000.00 $3,000,000.00
(1) As of the Closing Date.
A-2
<PAGE>
EXHIBIT B
FORM OF SECURED PROMISSORY NOTE
B-1
<PAGE>
EXHIBIT C
FORM OF PLEDGE AGREEMENT
C-1
<PAGE>
EXHIBIT D
FORM OF RELEASE
D-1
<PAGE>
EXHIBIT E
OPINION OF SHAREHOLDERS' COUNSEL
E-1
<PAGE>
EXHIBIT F
OPINION OF BUYER'S COUNSEL
F-1
<PAGE>
EXHIBIT G
SCHEDULE OF KEY EMPLOYEES
G-1
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
THE TITAN CORPORATION,
a Delaware corporation;
MERGER SUB ACQUISITION CORP.,
a California corporation;
VISICOM LABORATORIES, INC.
a California corporation;
and
CERTAIN SHAREHOLDERS OF VISICOM LABORATORIES, INC
---------------------------
Dated as of August 7, 1998
---------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
1. DESCRIPTION OF TRANSACTION..............................................1
1.1 Merger of Merger Sub into the Company.............................1
1.3 Effect of the Merger..............................................2
1.4 Closing; Effective Time...........................................2
1.5 Articles of Incorporation and Bylaws; Directors and Officers......2
1.6 Conversion of Shares..............................................2
1.7 Employee Stock Options............................................3
1.8 Closing of the Company's Transfer Books...........................4
1.9 Exchange of Certificates..........................................4
1.10 Dissenting Shares.................................................5
1.11 Tax Consequences..................................................6
1.12 Accounting Treatment..............................................6
1.13 Further Action....................................................6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................6
2.1 Due Organization; No Subsidiaries; Etc............................7
2.2 Articles of Incorporation and Bylaws; Records.....................7
2.3 Capitalization, Etc...............................................8
2.4 Financial Statements..............................................9
2.5 Absence of Changes................................................9
2.6 Title to Assets..................................................11
2.7 Bank Accounts; Receivables.......................................11
2.8 Equipment; Leasehold.............................................12
2.9 Proprietary Assets...............................................12
2.10 Contracts........................................................14
2.11 Liabilities......................................................18
2.12 Compliance with Legal Requirements...............................18
2.13 Governmental Authorizations......................................19
2.14 Tax Matters......................................................19
2.15 Employee and Labor Matters; Benefit Plans........................20
2.16 Environmental Matters............................................23
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
2.17 Insurance........................................................23
2.18 Related Party Transactions.......................................23
2.19 Legal Proceedings; Orders........................................24
2.20 Authority; Binding Nature of Agreement...........................24
2.21 Non-Contravention; Consents......................................25
2.22 Full Disclosure..................................................25
2.23 Accounting Matters...............................................26
2.24 Brokers..........................................................26
2.25 Forecast.........................................................26
2.26 Discontinued Business............................................26
2.27 SAIC Covenant....................................................27
2.28 Definitions......................................................27
3. REPRESENTATIONS AND WARRANTIES OF THE INSIDER SHAREHOLDERS.............27
3.1 Company Representations..........................................27
3.2 No Contrary Knowledge............................................27
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................27
4.1 Due Organization; Etc............................................27
4.2 Certificate of Incorporation and Bylaws..........................28
4.3 Capitalization, Etc..............................................28
4.4 SEC Filings; Financial Statements................................29
4.5 Absence of Certain Changes or Events.............................29
4.6 Liabilities......................................................29
4.7 Compliance with Legal Requirements...............................30
4.8 Governmental Authorizations......................................30
4.9 Legal Proceedings; Orders........................................30
4.10 Authority; Binding Nature of Agreement...........................31
4.11 Valid Issuance...................................................31
4.12 Non-Contravention; Consents......................................31
4.13 Full Disclosure..................................................32
4.14 Government Contracts; Government Bids............................32
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
4.15 Accounting Matters...............................................32
4.16 Brokers..........................................................32
5. CERTAIN COVENANTS OF THE COMPANY AND THE INSIDER SHAREHOLDERS..........33
5.1 Access and Investigation.........................................33
5.2 Operation of the Company's Business..............................33
5.3 Notification; Updates to Disclosure Schedule.....................35
5.4 No Negotiation...................................................35
6. ADDITIONAL COVENANTS OF THE PARTIES....................................36
6.1 Filings and Consents.............................................36
6.2 Company Shareholders' Meeting....................................36
6.3 Public Announcements.............................................36
6.4 Confidentiality..................................................37
6.5 Pooling of Interests.............................................37
6.6 Best Efforts.....................................................37
6.7 Registration Statement on Form S-3...............................37
6.8 Listing on NYSE..................................................38
6.9 Reporting of Combined Results....................................38
6.10 Regulatory Approvals.............................................38
6.11 Tax Matters......................................................39
6.12 Noncompetition Agreements........................................39
6.14 FIRPTA Matters...................................................39
6.15 Release..........................................................39
6.16 Exempt Transaction...............................................39
6.17 S-8 Registration Statement.......................................39
6.18 Tax-Free Reorganization..........................................39
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB...........40
7.1 Accuracy of Representations......................................40
7.2 Performance of Covenants.........................................40
7.3 Shareholder Approval.............................................40
7.4 Consents.........................................................40
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.5 Agreements and Documents.........................................40
7.6 FIRPTA Compliance................................................42
7.7 No Restraints....................................................42
7.8 No Legal Proceedings.............................................42
7.9 HSR Act..........................................................42
7.10 Employees........................................................42
7.11 Legends..........................................................42
7.12 Number of Shareholders...........................................42
7.13 Phase One Environmental Site Assessment..........................42
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.....................43
8.1 Accuracy of Representations......................................43
8.2 Performance of Covenants.........................................43
8.3 Documents........................................................43
8.4 No Restraints....................................................43
8.5 No Legal Proceedings.............................................43
9. TERMINATION............................................................43
9.1 Termination Events...............................................43
9.2 Termination Procedures...........................................44
9.3 Effect of Termination............................................44
10. INDEMNIFICATION, ETC...................................................44
10.1 Survival of Representations, Etc.................................44
10.2 Indemnification by Shareholders..................................45
10.3 Indirect Damages.................................................46
10.4 No Contribution..................................................46
10.5 Interest.........................................................46
10.6 Defense of Third Party Claims....................................46
10.7 Exercise of Remedies by Indemnitees Other Than Parent............47
11. MISCELLANEOUS PROVISIONS...............................................47
11.1 Shareholders' Agent..............................................47
11.2 Further Assurances...............................................47
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.3 Fees and Expenses................................................47
11.4 Attorneys' Fees..................................................48
11.5 Notices..........................................................48
11.6 Confidentiality..................................................49
11.7 Time of the Essence..............................................49
11.8 Headings.........................................................49
11.9 Counterparts.....................................................49
11.10 Governing Law....................................................49
11.11 Successors and Assigns...........................................49
11.12 Remedies Cumulative; Specific Performance........................49
11.13 Waiver...........................................................50
11.14 Amendments.......................................................50
11.15 Severability.....................................................50
11.16 Entire Agreement.................................................50
11.17 Construction.....................................................50
v.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Form of Amended and Restated Articles of Incorporation
of Surviving Corporation
Exhibit C - Directors and officers of Surviving Corporation
Exhibit D - [Reserved for Permitted Bonuses]
Exhibit E - Forms of tax representation letters
Exhibit F - Form of Noncompetition Agreement
Exhibit G - Form of Release
Exhibit H - Form of Escrow Agreement
Exhibit I - Form of legal opinion of Sheppard, Mullin, Richter &
Hampton LLP
Exhibit J - Form of legal opinion of Cooley Godward LLP
vi.
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of August 7, 1998, by and among THE TITAN CORPORATION, a
Delaware corporation ("Parent"); MERGER SUB ACQUISITION CORP., a California
corporation and a wholly owned subsidiary of Parent ("Merger Sub"); VISICOM
LABORATORIES, INC. CORPORATION, a California corporation (the "Company"); and
the Insider Shareholders (as defined in Section 2.28). Certain capitalized terms
used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the California
Corporations Code (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 directors and officers of the Company, including those Shareholders
with representatives on the Board of Directors of the Company and The VisiCom
Savings Plan and Trust created December 31, 1988 (the "Designated Shareholders")
own a total of 7,551,626 shares of the Common Stock (no par value) of the
Company ("Company Common Stock"). The Designated Shareholders are identified by
name in Exhibit A. Contemporaneously with the execution and delivery of this
Agreement, each Designated Shareholder is executing and delivering to Parent a
Voting Agreement of even date herewith.
AGREEMENT
The parties to this Agreement agree as follows:
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 1.4), 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 [Intentionally Left Blank]
1.
<PAGE>
1.3 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California Corporations
Code.
1.4 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Parent at 10:00 a.m. on August 24, 1998, or at such other time and date as
Parent may designate upon not less than five days' prior notice to the Company
(the "Scheduled Closing Time"). (The date on which the Closing actually takes
place is referred to in this Agreement as the "Closing Date.") Contemporaneously
with or as promptly as practicable after the Closing, a properly executed
agreement of merger (or Certificate of Merger) conforming to the requirements of
the California Corporations Code shall be filed with the Secretary of State of
the State of California. The Merger shall become effective at the time such
agreement of merger, with officers' certificates, is filed with and accepted by
the Secretary of State of the State of California (the "Effective Time").
1.5 Articles of Incorporation and Bylaws; Directors and Officers. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to 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.
1.6 Conversion of Shares.
(a) Subject to Sections 1.9(c) and 1.10, 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 shareholder 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" (as defined in Section 1.6(b)(i)) of a share of the common
stock (par value $.01 per share) of Parent ("Parent Common Stock"); and
(ii) each share of the common stock (no par value) 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" will equal Total Parent Shares
divided by Total Outstanding Company Shares. For this purpose, Total Parent
Shares means the Total Purchase Price as defined above divided by the Designated
Parent Share Price.
2.
<PAGE>
(ii) "Debt" means any debt to third parties, including without
limitation, bank indebtedness, accrued and unpaid tax liabilities, and
obligations to reimburse any Governmental Body under a Government Contract for
disallowed payments, but excluding trade payables and accruals incurred or made
in the ordinary course of business and consistent with past practices (e.g.
payroll and commissions). Debt shall not include any actual or contingent
current or future liabilities for income Taxes accrued by the Company as of the
Closing to the extent that the Company's book net operating loss carryforwards
at Closing as determined under generally accepted accounting principles equal or
exceed such accrued Tax liability.
(iii) The "Designated Parent Share Price" shall be $7.00;
provided that if the average of the closing prices of Parent Common Stock on the
NYSE for the ten (10) trading days ending on trading day immediately prior to
the Closing is less than $6 per share, then the Parent Stock Price will be $6.00
per share and if the average of the closing prices for such ten (10) day period
is greater than $8 per share, then the Parent Stock Price will be $8.00.
(iv) "Net Debt" means Debt as of the Closing Date minus
$4,550,000.
(v) The "Total Outstanding Company Shares" shall be 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).
(vi) The "Total Purchase Price" shall be $25,200,000 subject
to reduction for each dollar of Net Debt in excess of $4,600,000 on the Closing
Date and subject to adjustment for all Excess Expenses.
(c) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Parent Common Stock may accordingly be marked with appropriate legends.
1.7 Employee Stock Options. At the Effective Time, each stock option that
is then outstanding under the Company's 1990 Stock Option Plan and 1997 Stock
Incentive Stock Plan (collectively, the "Stock Plans"), whether vested or
unvested (a "Company Option"), shall be assumed by Parent in accordance with the
terms (as in effect as of the date of this Agreement) of the Company's Stock
Plans and the stock option agreement by which such Company Option is evidenced.
All rights with respect to Company Common Stock under outstanding Company
Options shall thereupon be converted into rights with respect to Parent Common
Stock. Accordingly, from and after the Effective Time, (a) each Company Option
assumed 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 shall be equal to the number of shares of Company Common Stock that were
subject to such Company Option immediately prior to the Effective Time
multiplied by the Applicable Fraction, rounded down to the nearest whole
3.
<PAGE>
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 shall be determined by dividing the exercise price per share of Company
Common Stock subject to such Company Option, 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 shall continue in full force and
effect, and the term, exercisability and vesting schedule (subject to the
acceleration of any vesting that automatically occurs at the Effective Time by
the terms of the assumed Company Option as set forth in those certain Executive
Compensation Agreements that provide for such acceleration) and other provisions
of such Company Option shall otherwise remain unchanged; provided, however, that
each such assumed Company Option 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 effected by
Parent after the Effective Time. The Company and Parent shall take all action
that may be necessary (under the Company's 1990 Stock Option Plan and 1997 Stock
Incentive Plan and otherwise) to effectuate the provisions of this Section 1.7.
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.
1.8 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 Shareholders 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 1.6.
1.9 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 (less any shares of Parent
Common Stock to be deposited on behalf of the Shareholders of the Company in the
Escrow Account), and the Company Stock Certificate so surrendered shall be
canceled. Until surrendered as contemplated by this Section 1.9, each Company
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive upon such
4.
<PAGE>
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 1.9. 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 this
Section 1.9 (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 so no withholding is necessary). To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
(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.
1.10 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 the Delaware
General Corporation Law or Section 1300(b) of the California Corporations Code
shall not be converted into or represent the right to
5.
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receive Parent Common Stock in accordance with Section 1.6 (or cash in lieu of
fractional shares in accordance with Section 1.9(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 in the Delaware General Corporation Law or Chapter 13 of the
California General Corporation 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 1.6 (and cash in lieu of fractional shares in accordance with Section
1.9(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 the
Delaware General Corporation Law or Chapter 13 of the California General
Corporation Law and of any other demand, notice or instrument delivered to the
Company prior to the Effective Time pursuant to the Delaware or California
General Corporation Law, and (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.
1.11 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.
1.12 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
1.13 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.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of the
Indemnitees, except as set forth in the Disclosure Schedule prepared by the
Company and delivered by the Company to Parent as of the date of this Agreement
as follows. All references to the Company in this Section 2 refer to the Company
and each of its subsidiaries both individually and taken as a whole unless from
context, the representation and warranty relates specifically to the Company or
to one of its subsidiaries.
6.
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2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (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.
(b) Except as set forth in Part 2.1 of the 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, trade name or other
name, other than the name "VisiCom Laboratories, Inc."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company. The Company is in good standing as a foreign corporation in each
of the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company has no direct or indirect subsidiaries and does not
own any controlling interest in any Entity and, except for the equity interests
identified in Part 2.1 of the Disclosure Schedule, the Company has not, since
January 1, 1996, owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.
2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's Articles
of Incorporation and bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) except as set forth in Part 2.2 of the
Disclosure Schedule, the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the Shareholders of the Company, the board of directors of the
Company and all committees of the board of directors of the Company. There have
been no formal meetings or other proceedings of the Shareholders of the Company,
the board of directors of the Company or any committee of the board of directors
of the Company that are not fully reflected in such minutes or other records.
There has not been any violation of any of the provisions of the Company's
Articles of Incorporation or bylaws, and the Company has not taken any action
that is inconsistent in any material respect with any resolution adopted by the
Company's Shareholders, the Company's board of directors or any committee of the
Company's board of directors. The books of account, stock records, minute books
and other records of the Company
7.
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are accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of:
20,000,000 shares of Common Stock (no par value), of which 9,214,113 shares have
been issued and are outstanding as of the date of this Agreement. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and non-assessable. Part 2.3 of the Disclosure
Schedule provides 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.
(b) The Company has reserved 1,500,000 shares of Company Common
Stock for issuance under its 1990 Stock Option Plan and 1997 Stock Incentive
Plan, of which options to purchase 1,327,006 shares are outstanding as of the
date of this Agreement. Part 2.3 of the Disclosure Schedule accurately sets
forth, with respect to each Company Option that is outstanding as of the date of
this Agreement: (i) the name of the holder of such Company Option; (ii) the
total number of shares of Company Common Stock that are subject to such Company
Option and the number of shares of Company Common Stock with respect to which
such Company Option is immediately exercisable; (iii) the date on which such
Company Option was granted and the term of such Company Option; (iv) the vesting
schedule for such Company Option; (v) the exercise price per share of Company
Common Stock purchasable under such Company Option; 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 in Part 2.3 of the Disclosure
Schedule, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of 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 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.
(c) All outstanding shares of Company Common Stock and all
outstanding Company Options, 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 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 California Corporations Code and all other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
restricted stock purchase agreements and other applicable Contracts.
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(e) 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 to Parent the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of March 28,
1997 and March 29, 1996, and the related audited income statements, statements
of Shareholders' 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 McGladrey & Pullen, LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of March
27, 1998, and the unaudited balance sheet of the Company as of May 22, 1998
(collectively, the "Interim Balance Sheet"), and the related unaudited income
statement of the Company for the twelve months ended March 27 1998, and the
unaudited income statement of the Company for the two-months ended May 22, 1998.
(b) The Company Financial Statements are accurate and complete in
all material respects except as adjusted per written agreement with Parent and
present fairly the financial position of the Company 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 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 ("GAAP") (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). Notwithstanding the
foregoing, the reserves established for the discontinuance of certain operations
may be subject to adjustment after the Effective Time, also in accordance with
GAAP.
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, since March 28, 1997:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the best of the knowledge of the Company, no event has
occurred that will, or could reasonably be expected to, have a Material Adverse
Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
9.
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(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security (except for Company Common Stock issued
upon the exercise of outstanding Company Options), (ii) any option or right to
acquire any capital stock or any other security (except for Company Options
described in Part 2.3 of the Disclosure Schedule), or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under, (i) any provision of its 1990
Stock Option Plan and 1997 Stock Incentive Plan, (ii) any provision of any
agreement evidencing any outstanding Company Option, or (iii) any restricted
stock purchase agreement;
(f) there has been no amendment to the Company's Certificate of
Incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
March 31, 1997, exceeds $25,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible any account
receivable other than in the ordinary course of business and has not written off
as uncollectible any individual account receivable of $100,000 or more or
written off aggregate accounts receivable of $250,000 or more, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
10.
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(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money
except payroll advances aggregating less than $25,000, all of which were made to
non-officer employees;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees in excess of $20,000 individually in fiscal year 1997 or in fiscal
year 1998 and $200,000 in the aggregate in either such fiscal year, or (iii)
hired any new employees since April 1, 1997;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
2.6 Title to Assets
(a) The Company 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 as the
Company's in Parts 2.1, 2.7(b) and 2.9 of the Disclosure Schedule and all of the
Company's rights under the Contracts identified in Part 2.10 of the Disclosure
Schedule; and (iii) all other assets reflected in the Company's books and
records as being owned by the Company. Except as set forth in Part 2.6 of the
Disclosure Schedule, all of said assets are owned by the Company free and clear
of any liens or other Encumbrances, except for (x) any lien for current taxes
not yet due and payable, and (y) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
11.
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(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of May 22, 1998. Except as set forth in Part
2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (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 May 22, 1998 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, (ii) are current
and will be collected in full when due, without any counterclaim or set off (net
of a reasonable allowance for doubtful accounts that is adequate in accordance
with GAAP).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company 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 Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(i) of the 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 Disclosure Schedule identifies and provides a brief
description of all other material Company Proprietary Assets owned by the
Company. Part 2.9(a)(iii) of the Disclosure Schedule identifies and provides a
brief description of each Proprietary Asset licensed to the Company by any
Person (except for any Proprietary Asset that is licensed to the Company 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. Except as set forth in Part
2.9(a)(iv) of the Disclosure Schedule, the Company 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 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 Disclosure
Schedule. Except as set forth in Part 2.9(a)(v) of the Disclosure Schedule, the
Company is not obligated to make any payment to any Person for the use of any
Company Proprietary Asset. Except as set forth in Part 2.9(a)(vi) of the
Disclosure Schedule, the Company has not developed jointly with any other Person
any Company Proprietary Asset with respect to which such other Person has any
rights.
(b) The Company has taken all commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Company Proprietary Assets (except Company Proprietary Assets whose value would
be unimpaired by public
12.
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disclosure) and otherwise to maintain and protect the value of all Company
Proprietary Assets. Except as set forth in Part 2.9(b) of the Disclosure
Schedule, the Company has not (other than pursuant to license agreements
identified in Part 2.10 of the Disclosure Schedule) disclosed or delivered to
any Person, or permitted the disclosure or delivery to any Person of, (i) the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset, or (ii) the object code, or any portion or aspect of the
object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person except for any
inadvertent infringement of which the Company is unaware that does not impose
any material liability on Company or cause Company to spend any material amount
to replace any Proprietary Assets. The Company is not infringing,
misappropriating or making any unlawful use of, and the Company has not at any
time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other Person. To the 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 Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of the Company; and (ii)
there has not been any material claim by any customer or other Person alleging
that any Company Proprietary Asset (including each version thereof that has ever
been licensed or otherwise made available by the Company to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, 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 Company 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 necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in Part
2.9(e) of the Disclosure Schedule, (i) the Company has not licensed any of the
Company Proprietary Assets to any Person on an exclusive basis, and (ii) the
Company has not entered into any ` to compete or Contract limiting its ability
to exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule:
(i) all current employees of the Company and all former employees who were hired
on or after April 1, 1992, have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage except for prior inventions that do not conflict with the operations of
the Company's business or the use of Company assets) that is substantially
identical to the standard form of Confidential Information and Invention
Assignment Agreement previously delivered to Parent, and (ii) all current
consultants and independent contractors of the
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Company and all former consultants and independent contractors of the Company
engaged on or after April 1, 1996 (excluding bankers, accountants, lawyers and
other non-technical consultants and independent contractors) have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage as it relates to the specific project for which
the consultant or independent contractor was hired) that is substantially
identical to the form of Consultant Confidential Information and Invention
Assignment Agreement previously delivered to Parent.
2.10 Contracts.
(a) Part 2.10 of the Disclosure Schedule identifies each Contract of
the Company material to the Company, 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 technology or any
Proprietary Asset;
(iii) each Company Contract imposing any material restriction
on the Company's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) 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 acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) 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 2.18);
(x) each Company Contract constituting or relating to a
Government Contract or Government Bid;
14.
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(xi) any other Company Contract that was entered into outside
the ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that has a term of more than
60 days and that may not be terminated by the Company (without penalty) within
60 days after the delivery of a termination notice by the Company; and
(xiii) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an amount
or having a value in excess of $50,000 individually, or (B) the performance of
services having a value in excess of $50,000 individually.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Company
Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10 of the Disclosure Schedule,
including all amendments thereto. Part 2.10 of the Disclosure Schedule provides
an accurate description of the terms of each Company Contract that is not in
written form. Each Contract identified in Part 2.10 of the Disclosure Schedule
is valid and in full force and effect, and, to the best of the knowledge of the
Company, is enforceable by 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.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not materially violated or breached, or
committed any 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 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 could 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 1, 1997, the Company has not received any
notice or other communication regarding any actual or possible material
violation or breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material rights
under any Material Company Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Material Company Contract to renegotiate, any amount paid or payable to
the Company under
15.
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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 Disclosure Schedule
collectively constitute all of the Contracts reasonably necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) Part 2.10 of the Disclosure Schedule identifies and provides a
brief description of each open proposed Government Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by the Company since January 1, 1997.
(g) The Company has made available to Parent all material
documentation regarding the Company's current backlog under Company Contracts.
(h) Except as set forth in Part 2.10(h) of the Disclosure Schedule:
(i) the Company has not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Company has complied in all material respects with
all Legal Requirements with respect to all Government Contracts and Government
Bids;
(iii) the Company has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the
Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations, or (I)
any other applicable procurement law or regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by the Company in
any certification, representation or disclosure statement submitted by the
Company with respect to any Government Contract or Government Bid were current,
accurate and complete as of the date of submission;
(v) neither the Company nor any of its current employees 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
warrant the institution of debarment or suspension proceedings against the
Company or any employee of the Company;
(vi) no negative determinations of responsibility have been
issued against the Company in connection with any Government Contract or
Government Bid;
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(vii) no material direct or indirect costs incurred by the
Company are currently being questioned or have been 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 the
Company under any Government Contract;
(ix) to the best of the knowledge of the Company, there are
not and have not been any irregularities, misstatements or omissions relating to
any Government Contract or Government Bid that have led to or could reasonably
be expected to lead to (A) any administrative, civil, criminal or other
investigation, Legal Proceeding or indictment involving the Company or any of
its employees, (B) the questioning or disallowance of any costs submitted for
payment by the Company, except for any question that was finally resolved in the
Company's favor or any disallowance of costs for years prior to 1993, (C) the
recoupment of any payments previously made to the Company, (D) a finding or
claim of fraud, defective pricing, mischarging or improper payments on the part
of the Company, or (E) the assessment of any penalties or damages of any kind
against the Company;
(x) there is not and has not been any (A) outstanding claim
against the Company by, or dispute involving the Company with, any prime
contractor, subcontractor, vendor or other Person arising under or relating to
the award or performance of any Government Contract, (B) fact known by the
Company upon which any such claim could reasonably be expected to be based or
which may give rise to any such dispute, (C) receipt of notice by the Company of
any final decision of any Governmental Body against the Company;
(xi) the Company is not undergoing and has not undergone any
audit, and the Company has no knowledge of any basis for any impending audit,
arising under or relating to any Government Contract (other than normal routine
audits conducted in the ordinary course of business);
(xii) the Company has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xiii) no payment has been made by the Company or, to the best
knowledge of the Company, by any Person acting on the Company's behalf 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;
(xiv) the Company's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and the
Company has not received notice that it has been determined by any Governmental
Body not to be in compliance with any Legal Requirement;
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(xv) the Company 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 could not reasonably be expected to have a Material Adverse
Effect on the Company;
(xvi) in each case in which the Company has delivered or
otherwise provided any technical data, computer software or Company Proprietary
Asset to any Governmental Body in connection with any Government Contract, the
Company 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;
(xvii) the Company has not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xviii) the Company has reached agreement with the cognizant
government representatives approving and "closing" all indirect costs charged to
Government Contracts for 1991 and 1992, and those years are closed;
(xix) the responsible government representatives have agreed
with the Company on the "forward pricing rates" that the Company is charging on
cost-type Government Contracts and including in Government Bids; and
(xx) the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any
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 or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (B) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.11 Liabilities. The Company 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 specifically disclosed in the
Company Disclosure Schedule. None of the Legal Proceedings disclosed in any Part
of the Disclosure Schedule, either individually or in the aggregate, will result
in any material liability to the Company or its subsidiaries and the total
costs, damages and expenses incurred on the dispute with Chentel Corporation
disclosed in Part 2.19(a) including costs of defense, shall not exceed $100,000.
2.12 Compliance with Legal Requirements. The Company 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
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Material Adverse Effect on the Company. Except as set forth in Part 2.12 of the
Disclosure Schedule, since December 31, 1993, the Company 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 Requirement, except
where the failure to comply with such notice, communication or Legal Requirement
has not had and will not have a Material Adverse Effect on the Company.
2.13 Governmental Authorizations. The Company has all material Government
Authorizations collectively necessary to the Company 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. All Government Authorizations of the
Company are valid and in full force and effect, except where the failure to be
valid has not had and will not have a Material Adverse Effect on the Company.
The Company is, and at all times since December 31, 1993 has been, in
substantial compliance with the terms and requirements of its material
Governmental Authorizations. 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 such Governmental Authorization.
2.14 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the
Company 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) accurately reflect in all material respects all liability of the
Company for taxes for the periods covered thereby 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 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. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
December 31, 1990 through the Closing Date, and the Company will disclose the
dollar amount of such reserves to Parent on or prior to the Closing Date.
(c) Except as disclosed on Part 2.14 of the Disclosure Schedule, the
Company has not received any oral or written notice or other information from
any Governmental Body that any Company Return relating to any Taxes has ever
been examined or audited by any Governmental Body. The Company has delivered to
Parent accurate and complete copies of all audit reports and similar documents
(to which the Company has access) relating to the Company Returns. Except as set
forth in Part 2.14 of the Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of the Company Returns has been granted (by
the
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Company or any other Person), and no such extension or waiver has been requested
from the Company.
(d) Except as set forth in Part 2.14 of the Disclosure Schedule, no
claim or Proceeding is pending or has been threatened against or with respect to
the Company 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 the Company 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 the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company 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 the Company 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. The Company 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 Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, employee welfare (as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")(a "Welfare Plan")
or employee pension benefit plan (as defined in Section 3(2) of ERISA)((a
"Pension Plan"), program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company 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 Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the best of the
knowledge of the Company, has not at any time in the past maintained, sponsored
or contributed to, any Pension Plans (whether or not excluded from coverage
under specific Titles or Merger Subtitles of ERISA) for the benefit of Employees
or former Employees .
(c) The Company maintains, sponsors or contributes only to those
employee Welfare Plans, whether or not excluded from coverage under specific
Titles or Merger Subtitles
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of ERISA) for the benefit of Employees or former Employees which are described
in Part 2.15(c) of the Disclosure Schedule, 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) The Company is not required to be, and, to the best of the
knowledge of the Company, has never 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. The Company has never 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 Company has 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 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 Company does 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 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)
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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 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 Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination from the Internal Revenue
Service, and the Company is not aware of any reason why any such determination
letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the 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 the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) The Company has provided to Parent written documentation showing
a list of all salaried employees of the Company as of the date of this
Agreement, 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 Company is 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.
(m) Part 2.15(m) of the 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) The Company 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 Disclosure Schedule,
the Company has good labor relations, and the Company does not have any 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 the Company's labor relations, or (ii) any of the Company's employees intends
to terminate his or her employment with the Company.
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2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company 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
Company's 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 the Company 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 the Company is
not in compliance with any Environmental Law. The Company has All Governmental
Authorizations required to comply with applicable Environmental Laws. (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 Insurance. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder since January 1,
1993, and the Company has delivered to Parent or made available to Parent
accurate and complete copies of the insurance policies identified on Part 2.17
of the Disclosure Schedule. Each of the insurance policies identified in Part
2.17 of the Disclosure Schedule is in full force and effect. Since January 31
1993, the Company 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.
2.18 Related Party Transactions. Except by virtue of being a Shareholder
of the Company or as set forth in Part 2.18 of the 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 business of the Company; (b) no Related Party is, or has at any
time since January 31, 1995 been, indebted to the Company; (c) since January 31,
1995, no Related Party has entered into, or has had any direct or indirect
financial interest in, any material Contract, transaction or business dealing
involving the Company; (d) no Related Party is competing, or has at any time
since January 31, 1995 competed, directly or indirectly, with the Company; and
(e) no Related Party has any claim or right against the Company (other than
rights under Company Options and rights to receive compensation for services
performed as an employee of the Company). (For purposes of this Section 2.18
each of the following shall be
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deemed to be a "Related Party": (i) each of the Designated Shareholders; (ii)
each individual who is, or who has at any time since January 31, 1995 been, an
officer of the Company; (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 Company) 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 2.18 (except
that nothing shall negate the indemnification obligations of any Shareholder who
is also a Related Person).
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.19 of the 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 the Company or any of the assets owned or used by the Company or, to
the best knowledge of the Company, any Person whose liability the Company 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 2.19 of the 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 2.19 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company since January 1, 1997.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the best knowledge of the Company, none of the Insider Shareholders is subject
to any order, writ, injunction, judgment or decree that relates to the Company's
business or to any of the assets owned or used by the Company. To the best of
the knowledge of the Company, no officer or other employee of the Company 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 the Company's business.
2.20 Authority; Binding Nature of Agreement. Subject to the approval of
the shareholders of the Company, the Company has the absolute and unrestricted
right, power and authority to enter into and to perform its obligations under
this Agreement; and the execution, delivery and performance by 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.
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2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
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 Articles of Incorporation or bylaws, or (ii) any
resolution adopted by the Company's Shareholders, the Company's board of
directors or any committee 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 Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, 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 the Company or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company;
(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 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 the Company
(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 the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (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.
2.22 Full Disclosure.
(a) This Agreement (including the Disclosure Schedule) does not, and
the Insider Shareholders' Closing Certificate will 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 (iii) omit to
state any fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the
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circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
(b) The information in the Information Statement (as defined in
Section 6.17), other than any information supplied by Parent for inclusion in
the Information Statement, will not, as of the date of the Information Statement
or as of the date of the Company Shareholders' Meeting (as defined in Section
6.3), (i) contain any statement that is inaccurate or misleading with respect to
any material fact, (ii) omit to state any material fact; or (iii) omit to state
any fact necessary in order to make such information (in the light of the
circumstances under which it is provided) not false or misleading.
(c) The offer given by the Company to selected shareholders of the
Company in connection with the repurchase of Company Common Stock did not and
does not (i) contain any statement that is inaccurate or misleading with respect
to any material fact, (ii) omit to state any material fact or (iii) omit to
state any fact necessary in order to make such information (in the light of the
circumstances under which it is provided) not false or misleading.
2.23 Accounting Matters To the knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to, or plans to, take any
action that would prevent Parent from accounting for the business combination to
be effected by the Merger as a "pooling of interests."
2.24 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 Houlihan Lokey Howard & Zukin to give fairness
opinions and valuations in connection with the Merger for a fee not to exceed
$70,000.
2.25 Forecast. The Company has forecast that its annual revenues from
operations, as determined under generally accepted accounting principles,
consistently applied, will be $40,600,000 for its fiscal year ending March 31,
1999 and that its earnings before interest and income taxes will be at least
$4,600,000 (excluding $250,000 in general and administrative expenses which
cannot be allocated to MicroLithics under GAAP due to its discontinued status)
during the fiscal year ending March 31, 1999. To the best knowledge of the
Company, the assumptions applied in preparing the forecast appear reasonable as
of the date on which the forecast was prepared and as of date of this Agreement
and the Company had no reason to believe that the forecast cannot be achieved.
2.26 Discontinued Business. During the fiscal year ending March 31, 1999,
before any Parent corporate allocations, cash flow generated by the operations
of the MicroLithics subsidiary shall be at least equal to the cash used in
operations, financing activities or otherwise by MicroLithics during the period
(excluding any gain on the sale of all of the stock or substantially all of the
assets of MicroLithics during the period); provided that the MicroLithics
business continues to be operated as currently operated (and, that it will be
deemed to be so operated so long as Clifton Cooke continues to serve as the
chief executive of that business unit).
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2.27 SAIC Covenant. Company has not violated and is not currently
violating the Covenant Not to Compete or the provisions related to additional
Restricted Conduct as set forth in Sections 7.08 and 7.09, respectively, of the
Asset Purchase Agreement by and between Science Applications International
Corporation, a Delaware corporation, and Seller dated October 19, 1996 (the SAIC
Agreement") as such terms are defined in the SAIC Agreement. So long as after
the Effective Time Company remains a wholly-owned subsidiary of Parent and
substantially all of the assets of the Company are not transferred to Parent or
another Subsidiary of Parent, then Parent and each of its Subsidiaries (other
than Company or subsidiaries of the Company following the Merger) will not be
subject to or bound by the Covenant Not to Compete or the provisions related to
additional Restricted Conduct as set forth in Sections 7.08 and 7.09,
respectively, of the SAIC Agreement. This representation and warranty shall not
be deemed breached if after the consummation of the transactions contemplated by
this Agreement, Parent shall cause Company to transfer all or a portion of
Company's Business (as defined in the SAIC Agreement) to Parent or cause Company
to assign the SAIC Agreement to Parent. Notwithstanding anything to the contrary
contained herein, this representation and warranty shall expire on midnight
October 18, 1999.
2.28 Definitions. For purposes of this Sections 2 and 3, Insider
Shareholders means Clifton L. Cooke,, Jr., Scott R. Laidig, Michael M. Mollin
and Robert A. Babbush.
3. REPRESENTATIONS AND WARRANTIES OF THE INSIDER SHAREHOLDERS
The Insider Shareholders each represents and warrants, to and for the
benefit of the Indemnitees that to the best of his or her actual knowledge, and
based upon a review of relevant information and the records of the Company as
deemed appropriate by such Insider Shareholder, as follows:
3.1 Company Representations The representations and warranties of the
Company contained herein (as qualified by the Company Disclosure Schedule) are
true and correct, and do not set forth facts that are false or misleading in any
material respect or omit to set forth facts that absence of which would make
such representations and warranties materially false or misleading.
3.2 No Contrary Knowledge. Such Insider Shareholder does not know of any
facts that would, if the knowledge were attributed to the Company, make any
representation or warranty qualified as to the best knowledge of Company or
requiring disclosure of information known to Company not true and correct or
make any such representation or warranty materially false or materially
misleading.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company and the Insider Shareholders, 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") as follows:
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4.1 Due Organization; Etc.
(a) Parent 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 Parent Contracts by which it is bound. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and has all necessary power and authority:
(i) to conduct its business in the manner in which its business is currently
being conducted; (ii) to own and use its assets in the manner in which its
assets are currently owned and used.
(b) Parent 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 Parent. Parent is in good standing as a foreign corporation in each of such
jurisdictions.
4.2 Certificate of Incorporation and Bylaws. True, correct and complete
copies of the Certificates of Incorporation/Articles of Incorporation and
Bylaws, each as amended to date, of Parent and Merger Sub have been made
available to the Company. The Certificates of Incorporation and Articles of
Incorporation, as the case may be, and Bylaws of Parent and Merger Sub are in
full force and effect. Neither Parent nor Merger Sub is in violation of any
provision of its Certificate of Incorporation/Articles of Incorporation or
Bylaws.
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, of which
24,976,427 shares were issued and are outstanding as of June 29, 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, of which
694,872 shares were issued and are outstanding as of May 31, 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 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
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purchase 3,019,522 shares of common stock as of June 30, 1998, 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. Parent
has entered into Agreement and Plan of Reorganization dated as of June 30, 1998
with Delsys Merger Corp. and Delfin Systems, Inc pursuant to which Parent
estimates that it will issue approximately 3,129,400 shares of Parent Common
Stock and assume options to acquire approximately 728,500 of Parent Common
Stock. 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) in the pre- or post-effective
amendment declared effective by the SEC (excluding copies of all registration
statements or amendments filed by Parent that were amended or superseded before
being declared effective) 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.
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4.6 Liabilities. Parent is not aware of any 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), including,
without limitation, liabilities under environmental laws, liabilities for taxes
or liabilities for infringement of Proprietary Assets of other Persons, not
otherwise reflected in Parent SEC Documents or specifically disclosed in the
Parent Disclosure Schedule other than obligations under contracts entered into
in the ordinary course of business that are not expected to have a Material
Adverse Effect on Parent.
4.7 Compliance with Legal Requirements. Parent and Merger Sub 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 4.7 of the Parent Disclosure Schedule, since
December 31, 1993, each of Parent and Merger Sub 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.
4.8 Governmental Authorizations. The Governmental Authorizations held by
Parent 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. Parent is in substantial compliance with the terms and requirements of
such Governmental Authorizations.
4.9 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 Parent and Merger Sub) 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 Parent or Merger Sub or any
of the assets owned or used by any of Parent or Merger Sub or (to the best
knowledge of Parent or Merger Sub) any Person whose liability Parent 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
Parent, except as set forth in Part 4.9 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 4.9 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 Parent or Merger Sub, or any of the assets owned or used by any of
Parent or Merger Sub, is
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subject. To the best of the knowledge of Parent, no officer or other employee of
any of Parent or Merger Sub 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 Parent's business.
4.10 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; 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 Shareholders 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.
4.11 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.
4.12 Non-Contravention; Consents. Except as set forth in 4.12 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 Parent's Certificates of Incorporation, Merger Sub's Articles
of Incorporation or either company's Bylaws, or (ii) any resolution adopted by
either Parent or Merger Sub's 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
Parent or Merger Sub, 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 Parent or that otherwise relates to Parent's
business or to any of the assets owned or used by Parent;
(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 Parent,
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
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(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by Parent (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 Parent);
Except as set forth in Part 4.12 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, Parent is not and will not be required to make any filing with or
give any notice to, or to obtain any Consent from, any Person in connection with
(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.
4.13 Full Disclosure. 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, (ii) omit to state any
material fact or (iii) omit to state any fact 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.
4.14 Government Contracts; Government Bids. Except as set forth in Part
4.14 of the Parent Disclosure Schedule:
(a) Parent has not had any determination of noncompliance or entered
into any consent order;
(b) Parent has complied in all material respects with all Legal
Requirements with respect to all Government Contracts and Government Bids;
(c) Parent has not, in obtaining or performing any Government
Contract, violated (A) the Truth in Negotiations Act of 1962, as amended, (B)
the Service Contract Act of 1963, as amended, (C) the Contract Disputes Act of
1978, as amended, (D) the Office of Federal Procurement Policy Act, as amended,
(E) the 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; and
(d) neither Parent nor any of its current employees has 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.
4.15 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."
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4.16 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 except that Parent has retained Wheat First Butcher Singer, Inc.
to give a fairness opinion in connection with the Merger.
5. CERTAIN COVENANTS OF THE COMPANY AND THE INSIDER SHAREHOLDERS
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:
(a) the Company shall 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) the Company shall 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 the Company;
(c) the Company shall keep in full force all insurance policies
identified in Part -- 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Parent concerning the status of the
Company's business;
(e) the Company shall 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 and except that the Company may repurchase
up to four percent (4%) of the Company Common Stock;
(f) the Company shall 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 past practices, and (y) to issue Company Common Stock to employees upon the
exercise of outstanding Company Options ;
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(g) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of its 1990 Stock
Option Plan and 1997 Stock Incentive Plan except to the extent that automatic
acceleration of vesting is required pursuant to those certain Executive
Compensation Agreements which were entered into before the negotiations with
Parent commenced, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any provision of any restricted stock purchase
agreement;
(h) neither the Company nor any of the Insider Shareholders shall
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 (except that the Company may
issue shares of Company Common Stock upon the conversion of shares of Series A
Preferred Stock);
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed $25,000 per
month;
(k) the Company shall 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 Contract, or (ii) amend or prematurely terminate, or waive
any material right or remedy under, any such Contract;
(l) the Company shall 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 Company pursuant to Contracts that are not Material Contracts;
(m) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary course
of business and may, consistent with its past practices, allow employees to
acquire Company Common Stock in exchange for promissory notes upon exercise of
Company Options), 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 Finova);
(n) except as set forth in Exhibit D, the Company shall 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, or (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $40,000 other than employees who are chargeable as direct
labor on existing or newly awarded (and funded) Company Government Contracts;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
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(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
5.3 Notification; Updates to 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 Insider
Shareholders in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company or any of the Insider Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the Company
or any of the Insider Shareholders; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 5.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company or
any of the Insider Shareholders in this Agreement, or (ii) determining whether
any of the conditions set forth in Section 6 has been satisfied.
5.4 No Negotiation. During the Pre-Closing Period, neither the Company nor
any of the Insider Shareholders or Representatives 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;
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(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
Parent) relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company acknowledges that any breach of this covenant by any representative
of the Company or any Insider Shareholder shall be deemed a breach by the
Company. 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 Insider Shareholders during the
Pre-Closing Period.
6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 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.
6.2 Company Shareholders' Meeting. The Company shall, in accordance with
its certificate of incorporation and bylaws and the applicable requirements of
the California General Corporation Law, call and hold a special meeting of its
Shareholders as promptly as practicable for the purpose of permitting them to
consider and to vote upon and approve the principal terms and conditions of
Merger and the adoption and approval of this Agreement (the "Company
Shareholders' Meeting"). As soon as permissible under the rules of the
California General Corporation Law, the Company shall solicit the vote of its
Shareholders with respect to the Merger and the transactions contemplated
hereby. Without limiting the generality or the effect of anything contained in
the Voting Agreement being executed and delivered by the Insider Shareholders to
Parent contemporaneously with the execution and delivery of this Agreement, each
Insider Shareholder shall cause all shares of the capital stock of the Company
that are owned, beneficially or of record, by such Insider Shareholder on the
record date for the Company Shareholders' Meeting to be voted in favor of the
principal terms and conditions of the Merger and in favor of the adoption and
approval of this Agreement at such meeting.
6.3 Public Announcements. During the Pre-Closing Period, (a) neither the
Company nor any of the Insider Shareholders 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, 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.
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6.4 Confidentiality. The confidentiality and standstill agreement
("Confidentiality and Standstill Agreement") included as Exhibit A in the Basis
Of Negotiation Of Agreement and Plan Of Reorganization signed by the parties on
June __, 1998, shall continue in full force and effect during the Pre-Closing
Period.
6.5 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."
6.6 Best Efforts. During the Pre-Closing Period, (a) the Company and the
Insider Shareholders shall use their best efforts to cause the conditions set
forth in Section 7 to be satisfied on a timely basis, and (b) Parent and Merger
Sub shall use their best efforts to cause the conditions set forth in Section 8
to be satisfied on a timely basis.
6.7 Registration Statement on Form S-3.
(a) Within sixty (60) days following the Closing Date, Parent will
prepare and file with the SEC a registration statement on Form S-3 ("S-3
Registration Statement") registering the Parent Common Stock issued in the
Merger for resale by the former Company Shareholders and shall use best efforts
to have the S-3 Registration Statement declared effective as soon as practical
thereafter. Parent will keep the S-3 Registration Statement effective for up to
one year following the Closing Date, or, if earlier, until the former Company
Shareholders have completed the distribution related thereto. Parent shall
prepare and file with the SEC such amendments and supplements to the S-3
Registration Statement and the prospectus used in connection with such S-3
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
S-3 Registration Statement. Parent shall furnish to the former Company
Shareholders such number of copies of a prospectus in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Parent Common
Stock owned by them. Parent shall notify each former Company Shareholder by
written notice to the address to which the letter of transmittal was sent
pursuant to Section 1.9 (unless Parent is notified in writing of a different
address for a shareholder) at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in the S-3 Registration Statement
as then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. Parent shall not be required to effect the S-3 Registration Statement
or any required amendment thereto or any request for acceleration of the
Effective Date thereof if Parent shall furnish to the Insider Shareholders a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of Parent, it would be seriously detrimental
to Parent for such S-3 Registration Statement to be effected at such time, in
which event Parent shall have the right to defer filing or causing the
registration statement to be declared effective for a period of not more than 90
days in the aggregate from the date of the certification.
(b) It shall be a condition precedent to the obligations of Parent
to take any action under this Section 6.7 that the selling former Company
Shareholders shall furnish to
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Parent such information regarding themselves, the Parent Common Stock held by
them and the intended method of disposition of such securities as shall be
required to effect the registration of their shares.
(c) Parent shall pay all expenses incurred by Parent in complying
with this Section 6.7, including, without limitation, all registration and
filing fees, printing expenses, fee and disbursements of counsel for Parent,
accounting fees and any blue sky filing fees. Parent shall not pay for any
underwriting discounts or selling commissions applicable to any resales of
Parent Common Stock made by the former Company Shareholders
6.8 Listing on NYSE. Parent shall use its good faith reasonable efforts to
obtain, prior to the effective date of the S-3 Registration Statement, approval
for the listing on the NYSE of the shares of Parent Common Stock issued pursuant
to this Agreement.
6.9 Reporting of Combined Results. Parent agrees that it will report
within 75 days following the Closing Date the combined results of Parent and the
Company for a minimum of a 30 day period following the Closing.
6.10 Regulatory Approvals. The Company and Parent shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. Without limiting the generality of the foregoing, the
Company and Parent shall, promptly after the date of this Agreement, prepare and
file the notifications, if any, required under the HSR Act in connection with
the Merger. The Company and Parent shall respond as promptly as practicable to
(i) any inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation and (ii) any
inquiries or requests received from any state attorney general or other
Governmental Body in connection with antitrust or related matters. Each of the
Company and Parent shall (1) give the other party prompt notice of the
commencement of any Legal Proceeding by or before any Governmental Body with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (2) keep the other party informed as to the status of any Legal
Proceeding, and (3) promptly inform the other party of any communication to or
from the Federal Trade Commission, the Department of Justice or any other
Governmental Body regarding the Merger. The Company and Parent will consult and
cooperate with one another, and will consider in good faith the views of one
another, in connection with any analysis, appearance, presentation, memorandum,
brief, argument, opinion or proposal made or submitted in connection with any
Legal Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by any
Governmental Body or by any Legal Requirement, in connection with any Legal
Proceeding under or relating to the HSR Act or any other federal or state
antitrust or fair trade law or any other similar Legal Proceeding, each of the
Company and Parent agrees to permit authorized Representatives of the other
party to be present at each meeting or conference relating to any such Legal
Proceeding and to have access to and be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Body in
connection with any such Legal Proceeding. The Parties will split the filing
fees under the HSR Act if filing is necessary.
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6.11 Tax Matters. Prior to the Closing, (a) Parent and the Company shall
execute and deliver, to Sheppard, Mullin, Richter & Hampton LLP and Cooley
Godward LLP tax representation letters in substantially the form of Exhibit E
(which will be used in connection with the legal opinions contemplated by
Sections 7.5(l) and 8.3(b)).
6.12 Noncompetition Agreements. At or prior to the Closing, Clifton Cooke
and Scott Laidig shall execute and deliver to the Company and Parent a
Noncompetition Agreement in the form of Exhibit F.
6.13 Intentionally Left Blank
6.14 FIRPTA Matters. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
6.15 Release. At the Closing, each of the Insider Shareholders shall
execute and deliver to the Company a Release in the form of Exhibit G.
6.16 Exempt Transaction. The Company shall take all actions necessary or
advisable for the issuance of shares of Parent Common Stock in connection with
the Merger to qualify as a transaction exempt from the registration provisions
of Section 5 of the Securities Act pursuant to Rule 506 of Regulation D
promulgated thereunder ("Regulation D"). The Company shall prepare an
information statement for the Company Shareholders for purposes of soliciting
the approval of the Merger in accordance with this Agreement ("Information
Statement"). The Information Statement will contain the type of information
generally included in a proxy statement for a merger as required under the
Exchange Act. The Company shall submit a draft of the Information Statement to
Parent for its prior written approval. In connection with the distribution of
the Information Statement, the Company agrees to use its best efforts to cause
each Company Shareholder to complete an investment representation letter in a
form provided by Parent. To the extent that Parent or its counsel reasonably
determines that a Company Shareholder is not sophisticated for purposes of Rule
506 of Regulation D, the Company agrees that it shall retain, at its expense, a
"Purchaser Representative" (as defined in Rule 501 of Regulation D) to assist
such Shareholder(s) in evaluating the Information Statement and the investment
decision represented by this Agreement and the transactions contemplated hereby,
including, without limitation, the Merger.
6.17 S-8 Registration Statement. Within sixty (60) days following the
Closing Date, Parent will prepare and file with the SEC a registration statement
on Form S-8 registering the Parent Common Stock issuable upon the exercise of
the assumed Company Options and shall use best efforts to have such Parent
Common Stock approved for listing on the NYSE by the effective date of the Form
S-8.
6.18 Tax-Free Reorganization. Parent, Merger Sub and Company each
acknowledges and agrees that (i) it intends that the Merger constitute a
tax-free "reorganization" within the meaning of Sections 368(a) of the Code, and
corresponding provisions of state and local income
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tax law, and (ii) it will report the Merger as such a "reorganization" in any
and all federal, state and local income Tax Returns filed by it. No party shall
take any action either prior to or after the Effective Time that could
reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by the Company and the Insider Shareholders 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
Disclosure Schedule, 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).
7.2 Performance of Covenants. All of the covenants and obligations that
the Company and the Insider Shareholders are required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all respects.
7.3 Shareholder Approval. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least (a) 95% of the shares of
Company Common Stock entitled to vote with respect thereto and no more than 5%
of the shares shall have become or shall be eligible to become "dissenting
shares".
7.4 Consents. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.21 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
7.5 Agreements and Documents. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Noncompetition Agreements in the form of Exhibit F, executed by
Clifton Cooke and Scott Laidig;
(b) a Release in the form of Exhibit G, executed by each of the
Designated Shareholders;
(c) an Escrow Agreement in the form of Exhibit H, executed by at
least 90% of the holders of the shares of the Company;
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(d) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees and former
employees of the Company and by all consultants and independent contractors and
former consultants and former independent contractors to the Company who have
not already signed such agreements (including the individuals identified in Part
2.9(f) of the Disclosure Schedule);
(e) the statement referred to in Section 6.14(a), executed by the
Company;
(f) an estoppel certificate, dated as of a date not more than five
days prior to the Closing Date and satisfactory in form and content to Parent,
executed by USAMEX Real Estate Services, Inc.;
(g) a legal opinion of Sheppard, Mullin, Richter & Hampton LLP,
dated as of the Closing Date, in the form of Exhibit I;
(h) good standing certificates and tax clearance certificates for
each of the Company subsidiaries incorporated in a jurisdiction other than
California and good standing certificates for the Company and each subsidiary of
the Company in each jurisdiction where such entity maintains an office and is
obligated to qualify as a foreign corporation, including, without limitation
Virginia, Massachusetts, Colorado, Florida and the United Kingdom (to the extent
good standing certificates or equivalent government certificates are available);
(i) 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 6.11;
(j) a letter from Arthur Andersen LLP, dated as of the Closing Date,
confirming that Parent may account for the Merger as a "pooling of interests" in
accordance with generally accepted accounting principles, Accounting Principles
Board Opinion No. 16 and all published rules, regulations and policies of the
SEC;
(k) a letter from McGladrey & Pullen 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;
(l) a certificate executed by the Chief Executive Officer and the
Chief Financial Officer of Company certifying 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 7.1, 7.2, 7.3 and 7.4 have been duly satisfied (the "Officers' Closing
Certificate"); and
(m) written resignations of all directors of the Company, effective
as of the Effective Time.
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7.6 FIRPTA Compliance. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 6.14.
7.7 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.
7.8 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.
7.9 HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.10 Employees. None of the Insider Shareholders shall have ceased to be
employed by, or expressed an intention to terminate their employment with, the
Company.
7.11 Legends. The Company shall have provided Parent with evidence,
reasonably satisfactory to Parent, that all technical data, computer software
and Company Proprietary Assets delivered or otherwise provided or made available
by or on behalf of the Company to Governmental Bodies in connection with
Government Contracts have been marked with all markings and legends (including
any "restricted rights" legend and any "government purpose license rights"
legend) appropriate (under the FAR, under other applicable Legal Requirements or
otherwise) to ensure that no Governmental Body or other Person is able to
acquire any unlimited rights with respect to any of such technical data,
computer software or Company Proprietary Assets and to ensure that the Company
has not lost or relinquished and will not lose or relinquish any material rights
with respect thereto.
7.12 Number of Shareholders. The Company will have no more than 35
unaccredited Shareholders as of the record date for the Company Shareholders'
Meeting and the issuance of Parent Common Stock in the Merger and the
transactions contemplated hereby, can be made pursuant to an exemption from
registration in Rule 506 of Regulation D, as determined by counsel for Parent.
7.13 Phase One Environmental Site Assessment. The Company shall, at its
expense, retain a reputable environmental consulting firm, reasonably acceptable
to Parent, to conduct a phase one environmental site assessment ("Phase 1") of
the Company's Colorado facility and shall deliver the final report on the Phase
1 and Parent shall be satisfied, in its reasonable discretion, with the results
of the Phase 1. If the Phase 1 recommends additional testing, then, upon the
request of Parent, the Company shall, at Parent's expense, arrange for
additional testing by a reputable and qualified provider, reasonably acceptable
to Parent, and Parent shall be satisfied, in its sole discretion, with the
results of the additional testing.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
8.1 Accuracy of Representations. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement and in each
of the other agreements and instruments delivered to Company in connection with
the transactions contemplated by this Agreement (without giving double effect to
any "Material Adverse Effect" or any other materiality or similar qualifications
contained 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 "Material Adverse Effect" or
other materiality or similar qualifications contained in such representations
and warranties).
8.2 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.
8.3 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 J; and
(b) a legal opinion of Sheppard, Mullin, Richter & Hampton 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 6.11).
8.4 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.
8.5 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding against the directors of the Company challenging
or seeking the recovery of a material amount of damages from such directors in
connection with the Merger.
9. TERMINATION
9.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 7 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);
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(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 8 has become
impossible (other than as a result of any failure on the part of the Company or
any of the Insider Shareholders to comply with or perform any covenant or
obligation set forth in this Agreement or in any other agreement or instrument
delivered to Parent or as a result of any failure on the part of any Designated
Shareholders to comply with the Voting Agreements);
(c) by Parent at or after the Scheduled Closing Time if any
condition set forth in Section 7 has not been satisfied by the Scheduled Closing
Time;
(d) by the Company at or after the Scheduled Closing Time if any
condition set forth in Section 8 has not been satisfied by the Scheduled Closing
Time;
(e) by Parent if the Closing has not taken place on or before
September 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);
(f) by the Company if the Closing has not taken place on or before
September 30, 1998 (other than as a result of the failure on the part of the
Company or any of the Designated Shareholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent); or
(g) by the mutual consent of Parent and the Company.
9.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 9.1(a), Section 9.1(c) or Section 9.1(e), Parent shall
deliver to the Company a 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 9.1(b), Section 9.1(d) or Section 9.1(f), the Company shall
deliver to Parent a 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.
9.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, 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; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section __; and (c) the Company shall, in all events, remain bound by and
continue to be subject to Section 6.4.
10. INDEMNIFICATION, ETC.
10.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company and the
Insider Shareholders (including the representations and warranties set forth in
Sections 2 and 3 and the representations and warranties set forth in the
Officers' Closing Certificate) shall survive the
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Closing and shall expire on the first anniversary of the Closing Date; provided,
however, that if, at any time prior to the first anniversary of the Closing
Date, any Indemnitee (acting in good faith) delivers to the Shareholders' Agent
(as defined in Section 11.1) a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company or the Insider Shareholders (and setting forth in reasonable detail
the basis for such Indemnitee's belief that such an inaccuracy or breach may
exist) and asserting a claim for recovery under Section 9.2 based on such
alleged inaccuracy or breach, 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.
(b) The representations, warranties, covenants and obligations of
the Company and the Insider Shareholders, and the rights and remedies that may
be exercised by the Indemnitees, shall not be limited or otherwise affected by
or as a result of any information furnished to, or any investigation made by or
knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the 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. For purposes of this Agreement, each
statement or other item of information set forth in the Parent Disclosure
Schedule or in any update to the Parent Disclosure Schedule shall be deemed to
be a representation and warranty made by the Parent in this Agreement.
10.2 Indemnification by Shareholders.
(a) At the Effective Time, Parent will deposit 10% of the shares of
Parent Common Stock issuable pursuant to Section 1.6 into an escrow account in
accordance with the Escrow Agreement in the form of Exhibit H to be executed
prior to the Closing by Parent and by holders of at least 90% of the shares of
Company ("Escrow Fund"); provided, however, that notwithstanding any other
provision of this Section 10, before distribution of any shares of Parent Common
Stock held in the Escrow Fund with respect to any Shareholder, for purposes of
satisfying indemnification obligations hereunder, such Shareholder shall have
been provided at least 45 days' prior written notice and the opportunity to
substitute cash to be used to pay such Shareholder's portion of the amount to
which any Person is entitled to indemnification and to receive from the Escrow
Fund a distribution of that number of shares of Parent Common Stock held in the
Escrow Fund with respect to such Shareholder that would have been distributed to
the Indemnitees but for such substitution of cash. The Escrow Agreement shall
contain (among others) such terms and conditions sufficient to satisfy the
requirements of Revenue Procedure 84-42, 1984-1 C.B.521.
(b) From and after the Effective Time (but subject to Section
10.1(a)), the Shareholders, jointly and severally, shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (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 set forth in
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Sections 2 or 3 or in the Officers' Closing Certificate; (ii) any breach of any
covenant or obligation of the Company or any of the Insider Shareholders
(including the covenants set forth in Sections 5 and 6); or (iii) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section
10); provided that the Indemnitees' sole recourse under this Agreement shall be
to the Escrow Fund.
10.3 Indirect Damages. 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, then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages as
a result of and in connection with such inaccuracy or breach.
10.4 No Contribution. Each Shareholder waives, and acknowledges and agrees
that he shall not have and shall not exercise or assert (or attempt to exercise
or assert), any right of contribution, right of indemnity or other right or
remedy against the Surviving Corporation in connection with any indemnification
obligation or any other liability to which he may become subject under or in
connection with this Agreement or the Insider Shareholders' Closing Certificate.
10.5 Interest. Any Shareholder who is required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 10
with respect to any Damages shall also be liable to such Indemnitee for interest
on the amount of such Damages (for the period commencing as of the date on which
such Shareholders' Agent first received notice of a claim for recovery by such
Indemnitee and ending on the date on which the liability of such Shareholder to
such Indemnitee is fully satisfied by such Shareholder) 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; provided that the
Indemnitees' sole recourse for the recovery of interest shall be the Escrow
Fund.
10.6 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 of the Shareholders may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 10,
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 by the Shareholders through
the Escrow Fund;
(b) each Shareholder, including the Insider Shareholders, shall make
available to Parent any documents and materials in his possession or control
that may be necessary to the defense of such claim or Legal Proceeding; and
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(c) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Shareholders' Agent (as
defined in Section 10.1); provided, however, that such consent shall not be
unreasonably withheld.
Parent shall give the Shareholders' Agent prompt notice of the commencement of
any such Legal Proceeding against Parent or the Surviving Corporation; provided,
however, that any failure on the part of Parent to so notify the Shareholders'
Agent shall not limit any of the obligations of the Shareholders under this
Section 10 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).
10.7 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.
11. MISCELLANEOUS PROVISIONS
11.1 Shareholders' Agent. The Company on behalf of all Shareholders and
the Insiders Shareholders hereby irrevocably appoint Clifton Cooke as the agent
of the Shareholders for purposes of Section 10 and for purposes of the Escrow
Agreement (the "Shareholders' Agent"), and Clifton Cooke hereby accepts his
appointment as the Shareholders' Agent. Parent shall be entitled to deal
exclusively with the Shareholders' Agent on all matters relating to Section 10,
and shall be entitled to rely conclusively (without further evidence of any kind
whatsoever) on any document executed or purported to be executed on behalf of
any Shareholder by the Shareholders' Agent, and on any other action taken or
purported to be taken on behalf of any Shareholder by the Shareholders' Agent,
as fully binding upon such Shareholder. If the Shareholders' Agent shall die,
become disabled or otherwise be unable to fulfill his responsibilities as agent
of the Shareholders, then the Shareholders, by a vote of the majority of the
Shareholders (based upon the percent of outstanding shares of the Company Common
Stock that each owned on the record date for the Shareholders' Meeting), shall,
within ten days after such death or disability, appoint a successor agent and,
promptly thereafter, shall notify Parent of the identity of such successor. Any
such successor shall become the "Shareholders' Agent" for purposes of Section 10
and this Section 11.1. If for any reason there is no Shareholders' Agent at any
time, all references herein to the Shareholders' Agent shall be deemed to refer
to the Shareholders. By voting in favor of the principal terms and conditions of
this Agreement and the Merger, the Shareholders are agreeing to be bound by the
provisions of Sections 10 and 11 of this Agreement.
11.2 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.
11.3 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 incurred by such party in connection with the
transactions contemplated by this Agreement,
47.
<PAGE>
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 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. To the extent that
all fees, costs and expenses incurred by and for the benefit of the Company
(including its one-half of the HSR Act filing fees and including all such fees,
costs and expenses incurred prior to the date of this Agreement but including
the amount of all special bonuses and other amounts that may become payable to
any officers of the Company or other Persons in connection with the consummation
of the transactions contemplated by this Agreement but excluding the value of
the acceleration of vesting of options pursuant to those certain Executive
Compensation Agreements) exceed $475,000 in the aggregate ("Excess Expenses"),
such Excess Expenses shall be deducted from the Total Purchase Price.
11.4 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).
11.5 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
3033 Science Park Road
San Diego, CA 92121
Attn: General Counsel
Tel: (619) 552-9500
Fax: (619) 552-9477
With a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attn: Barbara L. Borden, Esq.
Tel: (619) 550-6000
Fax: (619) 453-3555
48.
<PAGE>
If to Company:
VisiCom Laboratories, Inc.
10052 Mesa Ridge Court
San Diego, CA 92121
Attn: Chief Executive Officer
Tel: (619) 457-2111
Fax: (619) 457-0888
With a copy to:
Sheppard, Mullin, Richter & Hampton, LLP
650 Town Center Drive, 4th Floor
Costa Mesa, CA 92626
Attn: John J. Giovannone, Esq.
Tel: (619) 513-5100
Fax: (619) 513-5130
11.6 Confidentiality. Without limiting the generality of anything
contained in Section 6.4, on and at all times after the Closing Date, each
Insider Shareholder 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 Shareholder's possession that relates to the business of the
Company or Parent except to representatives who need to know the information in
connection with the transactions contemplated by this Agreement and except in
the ordinary course of Company's business, subject to commercially reasonable
confidentiality agreements.
11.7 Time of the Essence. Time is of the essence of this Agreement.
11.8 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.
11.9 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.
11.10 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).
11.11 Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Insider Shareholders 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).
11.12 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
49.
<PAGE>
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.
11.13 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
11.14 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.
11.15 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 under 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.
11.16 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 the Confidentiality and
Standstill Agreement shall not be superseded by this Agreement and shall remain
in effect in accordance with its terms until the earlier of (a) the Effective
Time, or (b) the date on which such Mutual Non-Disclosure Agreement is
terminated in accordance with its terms.
11.17 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.
50.
<PAGE>
(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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
51.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of August7, 1998.
THE TITAN CORPORATION,
a Delaware corporation
By: __________________________________
Its: __________________________________
MERGER SUB ACQUISITION CORP.,
a California corporation
By: __________________________________
Its: __________________________________
VISICOM LABORATORIES, INC.,
a California corporation
By: __________________________________
Its: __________________________________
_______________________________________
CLIFTON L. COOKE, JR.
<PAGE>
_______________________________________
SCOTT R. LAIDIG
_______________________________________
MICHAEL A. MOLLIN
_______________________________________
ROBERT A. BABBUSH
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, 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 A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
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
A-1.
<PAGE>
(including reasonable attorneys' fees), charge, cost (including costs of
investigation) or expense of any nature.
Designated Shareholder. The "Designated Shareholder" shall mean Clifton L.
Cooke, Jr., Scott R. Laidig, Charles C. Schooler, Eli Warsawski, Antares Group,
Inc., Robb Babbush, Michael Mollin, ACX Technologies, Inc and The VisiCom
Savings Plan & Trust.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Company
and the Designated Shareholders.
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.
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.
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,
A-2.
<PAGE>
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 the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the Designated Shareholders shall not be deemed to be
"Indemnitees."
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 Officers' 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
Company's business, condition, assets, liabilities, operations, financial
performance or prospects.
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, 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.
A-3.
<PAGE>
EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
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.
A-4.
<PAGE>
EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT C
DIRECTORS AND OFFICERS
Directors
Officers
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
TITAN TECHNOLOGIES AND INFORMATION SYSTEMS CORPORATION
a Delaware corporation;
TTIS MERGERCO, INC.,
a Delaware corporation;
ATLANTIC AEROSPACE ELECTRONICS CORPORATION,
a Delaware corporation;
and
CERTAIN STOCKHOLDERS OF ATLANTIC AEROSPACE ELECTRONICS CORPORATION
---------------------------
Dated as of July 1, 1999
---------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DESCRIPTION OF TRANSACTION..............................................1
1.1 Merger of Merger Sub into the Company.............................1
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 Conversion of Shares..............................................2
1.6 Employee Stock Options............................................5
1.7 Closing of the Company's Transfer Books...........................5
1.8 Exchange of Certificates..........................................6
1.9 Dissenting Shares.................................................7
1.10 Further Action....................................................7
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE DESIGNATED
STOCKHOLDERS ...........................................................7
2.1 Due Organization; No Subsidiaries; Etc............................8
2.2 Certificate of Incorporation and Bylaws; Records..................8
2.3 Capitalization, Etc...............................................9
2.4 Financial Statements.............................................10
2.5 Absence of Changes...............................................10
2.6 Title to Assets..................................................12
2.7 Bank Accounts; Receivables.......................................13
2.8 Equipment; Leasehold.............................................13
2.9 Proprietary Assets...............................................13
2.10 Contracts........................................................15
2.11 Liabilities......................................................19
2.12 Compliance with Legal Requirements...............................19
2.13 Governmental Authorizations......................................20
2.14 Tax Matters......................................................20
2.15 Employee and Labor Matters; Benefit Plans........................21
2.16 Environmental Matters............................................24
2.17 Insurance........................................................24
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
2.18 Related Party Transactions.......................................24
2.19 Legal Proceedings; Orders........................................25
2.20 Authority; Binding Nature of Agreement...........................25
2.21 Non-Contravention; Consents......................................26
2.22 Year 2000 Compliance.............................................27
2.23 Brokers..........................................................27
2.24 Full Disclosure..................................................27
3. REPRESENTATIONS AND WARRANTIES OF TTIS AND MERGER SUB..................27
3.1 Organization and Standing........................................27
3.2 Corporate Power; Authorization...................................27
3.3 Consents.........................................................28
3.4 Brokers..........................................................28
4. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS.......28
4.1 Access and Investigation.........................................28
4.2 Operation of the Company's Business..............................28
4.3 Notification; Updates to Disclosure Schedule.....................30
4.4 No Negotiation...................................................31
5. ADDITIONAL COVENANTS OF THE PARTIES....................................31
5.1 Contingent Payment Obligations...................................31
5.2 Filings and Consents.............................................32
5.3 Company Stockholders' Action.....................................32
5.4 Public Announcements.............................................33
5.5 Stock Options....................................................33
5.6 Reasonable Best Efforts..........................................33
5.7 Regulatory Approvals.............................................33
5.8 FIRPTA Matters...................................................34
5.9 Release..........................................................34
5.10 Information Statement............................................34
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TTIS AND MERGER SUB.............34
6.1 Accuracy of Representations......................................34
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
6.2 Performance of Covenants.........................................34
6.3 Stockholder Approval.............................................35
6.4 Consents.........................................................35
6.5 Agreements and Documents.........................................35
6.6 FIRPTA Compliance................................................35
6.7 No Restraints....................................................35
6.8 No Legal Proceedings.............................................35
6.9 HSR Act..........................................................36
6.10 Employees........................................................36
6.11 No Material Adverse Change.......................................36
6.12 Bring-down of Fairness Opinion...................................36
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.....................36
7.1 Accuracy of Representations......................................36
7.2 Performance of Covenants.........................................36
7.3 No Restraints....................................................36
7.4 Agreements and Documents.........................................36
7.5 HSR Act..........................................................37
7.6 Consents.........................................................37
7.7 No Legal Proceedings.............................................37
8. TERMINATION............................................................37
8.1 Termination Events...............................................37
8.2 Termination Procedures...........................................37
8.3 Effect of Termination............................................38
9. INDEMNIFICATION, ETC...................................................38
9.1 Survival of Representations, Etc.................................38
9.2 Indemnification by Stockholders..................................38
9.3 Threshold; Ceiling...............................................39
9.4 No Contribution..................................................39
9.5 Interest.........................................................39
9.6 Defense of Third Party Claims....................................40
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
9.7 Exercise of Remedies by Indemnitees Other Than TTIS..............40
9.8 Recovery of Damages from First Payment or Second Payment.........40
10. MISCELLANEOUS PROVISIONS...............................................41
10.1 Stockholders' Agent..............................................41
10.2 Further Assurances...............................................44
10.3 Fees and Expenses................................................44
10.4 Attorneys' Fees..................................................45
10.5 Notices..........................................................45
10.6 Confidentiality..................................................46
10.7 Time of the Essence..............................................46
10.8 Headings.........................................................46
10.9 Counterparts.....................................................46
10.10 Governing Law....................................................46
10.11 Successors and Assigns...........................................46
10.12 Remedies Cumulative; Specific Performance........................46
10.13 Waiver...........................................................47
10.14 Amendments.......................................................47
10.15 Severability.....................................................47
10.16 Parties in Interest..............................................47
10.17 Entire Agreement.................................................47
10.18 Construction.....................................................47
10.19 Negotiation of Disputes..........................................48
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
EXHIBITS
Exhibit A - Designated Stockholders
Exhibit B - Certain definitions
Exhibit C - Principal Stockholders
Exhibit D - Form of Amended and Restated Certificate of Incorporation of
Surviving Corporation
Exhibit E - Directors and officers of Surviving Corporation
Exhibit F - Form of Guaranty Agreement
Exhibit G - Key Employees
Exhibit H - Form of Release
Exhibit I - Form of Legal Opinion of Pillsbury Madison & Sutro LLP
Exhibit J - Certain Employees
Exhibit K - Form of Legal Opinion of Cooley Godward LLP
v.
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
1.
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of July 1, 1999, by and among: TITAN TECHNOLOGIES AND
INFORMATION SYSTEMS CORPORATION, a Delaware corporation ("TTIS"); TTIS MERGERCO,
INC., a Delaware corporation and a wholly owned subsidiary of TTIS ("Merger
Sub"); ATLANTIC AEROSPACE ELECTRONICS CORPORATION, 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. TTIS, 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 TTIS.
B. This Agreement has been approved by the respective boards of directors
of TTIS, Merger Sub and the Company.
C. The Company has authorized 4,000,000 shares of Common Stock, par value
$0.01 per share (the "Company Common Stock") and 200,000 shares of Convertible
Preferred Stock, par value $0.01 per share (the "Company Preferred Stock," and,
collectively with the Company Common Stock, the "Company Stock").
D. Contemporaneously with the execution and delivery of this Agreement,
each Designated Stockholder and each other stockholder identified on Exhibit C
(collectively, the "Principal Stockholders") is executing and delivering to TTIS
a Voting Agreement of even date herewith. The Principal Stockholders own a total
of 1,290,800 shares of Company Common Stock.
E. At the Closing, the Company will deliver to TTIS a schedule (the
"Schedule of Stockholders") setting forth, as of the Effective Time, the name of
each holder of shares of Company Stock (individually, a "Stockholder" and,
collectively, the "Stockholders") and the number of shares of Company Stock held
by each Stockholder.
AGREEMENT
The parties to this Agreement agree as follows:
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
1.
<PAGE>
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 TTIS, 3033 Science Park Road, San Diego, California 92121 at 10:00 a.m. on
July 16, 1999, or at such other time and date as TTIS and the Company shall
mutually agree (the "Scheduled Closing Time"). (The date on which the Closing
actually takes place is referred to in this Agreement as the "Closing Date.")
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed agreement of merger (or 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 agreement of merger (or 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 TTIS and the Company prior to the Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to Exhibit D;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to 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 E.
1.5 Conversion of Shares.
(a) Subject to Section 1.7, at the Effective Time, by virtue of the
Merger and without any further action on the part of TTIS, Merger Sub, the
Company or any stockholder of the Company, each share of Company Common Stock
outstanding immediately prior to the Effective Time and each share of Company
Preferred Stock outstanding immediately prior to the Effective Time shall be
converted into the right to receive the following (the "Per Share Merger
Consideration"):
(i) Initial Cash Payment. Cash equal to the product of the
Applicable Fraction multiplied by the difference between (i) $18,000,000 and
(ii) (A) any Company expenses (as described in Section 10.3) and (B) $50,000,
which amount shall be deposited into an account designated by the Stockholders'
Agent in writing to TTIS prior to the Effective Time.
(ii) Contingent Merger Consideration. Cash equal to the
product of the Applicable Fraction multiplied by an amount of up to $3,000,000
plus interest accruing from
2.
<PAGE>
the Closing Date to the date of payment, on the amount actually paid (net of any
offsets) calculated at the Applicable Federal Rate in effect at the Closing Date
for instruments of similar duration to the duration of the period from the
Closing Date through the date of payment, which may be earned as set forth below
and which will be payable on the First Payment Date, to the extent earned on or
before the First Payment Date or Second Payment Date to the extent earned prior
to the Second Payment Earn Date. The payment of all contingent amounts earned
shall be guaranteed by The Titan Corporation ("Parent") in accordance with the
Guaranty Agreement in the form of Exhibit F.
(1) $1,000,000 of the contingent payment amount will be
earned if, and when, (a) the Surviving Corporation shall have been awarded and
received contracts creating the Technical Demonstration and shall have been
authorized to perform work of a total funded value of $10,000,000 under such
contracts and (b) the total negotiated fee or profit of such contracts shall be
a minimum of 10% of the proposed total contract costs as specified in such
contracts, or if such contracts are award fee contracts, then the total
negotiated award fee potential for such contracts shall be a minimum of 10% of
the proposed total contract costs specified in the contract on a Weighted Basis
(with "Weighted Basis" defined as the sum of total negotiated award fee
potential for such contracts divided by the sum of the proposed total contract
costs for such contracts as specified in such contracts). The Surviving
Corporation must receive these contracts during the period commencing on the
Closing Date and ending the Second Payment Earn Date (the "Contingent Payment
Period").
(2) $1,000,000 of the contingent payment amount will be
earned if, and when, (a) the Surviving Corporation shall have been awarded and
received contracts to provide the Navy WSQ-9 Low Rate Production cabinets #1 and
#2 and been authorized to perform work of a total funded value of $6,000,000 in
such contracts and (b) (i) if such contracts are fixed price contracts, then the
total negotiated profit of such contracts shall be a minimum of 10% of the
proposed total contract costs as specified in such contracts, (ii) if such
contracts are cost plus fixed fee contracts then the negotiated fee of such
contracts shall be a minimum of 6.0% of the proposed total contract costs as
specified in such contracts, or (iii) if such contracts are award fee contracts,
then the negotiated fee of such contracts shall be a minimum of 10% of the
proposed total contract costs as specified in the contracts on a Weighted Basis.
The Surviving Corporation must receive these contracts during the Contingent
Payment Period.
(3) $300,000 of the contingent payment amount will be
earned if, and when, (a) the Surviving Corporation shall have been awarded and
received contracts to provide the Navy WSQ-9 Low Rate Production cabinets #3 and
#4 and been authorized to perform work of a total funded value of $6,000,000 in
such contracts and (b) (i) if such contracts are fixed price contracts, then the
total negotiated profit of such contracts is a minimum of 10% of the proposed
total contract costs, (ii) if such contracts are cost plus fixed fee contracts,
then the negotiated fee of such contracts shall be a minimum of 6.0% of the
proposed total contract costs as specified in the contract, or (iii) if such
contracts are award fee contracts, the negotiated fee of such contracts is a
minimum of 10% of the proposed total contract costs as specified in the
contracts on a Weighted Basis. The Surviving Corporation must receive these
contracts during the Contingent Payment Period.
3.
<PAGE>
(4) $400,000 of the contingent payment amount will be
earned if, and when, (a) the Surviving Corporation shall have been awarded and
received contracts to provide the Navy WSQ-9 Production cabinets #1 through #3
and shall have been authorized to perform work of a total funded value of
$6,000,000 in such contracts and (b) (i) if such contracts are fixed price
contracts, then the total negotiated profit of such contracts is a minimum of
10% of the proposed total contract costs as specified in the contracts, (ii) if
such contracts are cost plus fixed fee contracts, then the negotiated fee of
such contracts shall be a minimum of 6.0% of the proposed total contract costs
as specified in the contract, or (iii) if such contracts are award fee
contracts, the negotiated fee of such contracts is a minimum of 10% of the
proposed total contract costs as specified in the contracts on a Weighted Basis.
The Surviving Corporation must receive these contracts during the Contingent
Payment Period.
(5) $100,000 of the contingent payment amount will be
earned if, and when, (a) the Surviving Corporation shall have been awarded and
received contracts to research, design, develop, produce or provide antennas
using Artificial Magnetic Conductors (i.e., the Reconfigurable Antenna Program
(RECAP)) and shall have been authorized to perform work of a total funded value
of $2,500,000 in contracts and (b) (i) if such contracts are fixed price
contracts, then the total negotiated fee or profit of such contracts shall be a
minimum of 10% of the proposed total contract costs as specified in the
contracts, or (ii) if such contracts are award fee contracts, then the total
negotiated award fee potential for such contracts shall be a minimum of 10% of
the proposed total contract costs as specified in the contracts on a Weighted
Basis. The Surviving Corporation must receive these contracts during the
Contingent Payment Period.
(6) $200,000 of the Contingent Payment Amount will be
earned if, and when, the Surviving Corporation has earned and received aggregate
minimum royalties of $500,000 on its license agreement with QuesTec. Such
royalties must be received during the Contingent Payment Period.
(7) Subsequent to the Closing Date, Arthur Andersen LLP
shall conduct an audit of the Company's balance sheet dated as of Closing Date,
and no later than 60 days after the Closing Date, shall deliver to TTIS and the
Stockholders' Agent a report thereon. In the audit, Arthur Andersen LLP shall
recommend any adjustments that relate to periods ending on March 31, 1999 that
should have been reflected in the balance sheet of the Company as of March 31,
1999 in conformity to GAAP, consistently applied. Any net reduction in
stockholders' equity as of March 31, 1999, resulting from such adjustments shall
be reflected as a dollar for dollar reduction of the First Payment (if any) or
the Second Payment (if any and if the adjustment exceeds the amount of the First
Payment). Notwithstanding the foregoing, no reductions shall be made to the
First Payment or the Second Payment unless the aggregate audit adjustments
result in a net reduction in stockholders' equity of more than $100,000. Any
balance sheet adjustments proposed by Arthur Andersen LLP shall be subject to
review by the Company's current auditors, Keller Bruner which review shall be
completed no later than 30 days after the Stockholders' Agent receives the
report from Arthur Andersen LLP. If the opinions of Arthur Andersen LLP and
Keller Bruner differ as to the necessity of any adjustments, TTIS and the
Stockholders' Agent shall attempt in good faith to resolve such differences. If
TTIS and the Stockholders' Agent are unable to resolve such differences, a third
independent auditing firm mutually agreeable to TTIS and the Stockholders' Agent
shall be selected to review the disputed
4.
<PAGE>
adjustments. The decision of the third independent auditing firm regarding any
such adjustment shall be binding on the parties. The costs of Keller Bruner
shall be borne by the Stockholders through an offset against the First Payment,
if any, or the Second Payment if any and if the costs exceed the amount of the
First Payment, and the costs of a third auditing firm shall be split between the
Surviving Corporation and the Stockholders (with the Stockholders' share being
payable through a deduction from the First Payment, if any, or the Second
Payment if any and if the costs exceed the amount of the First Payment).
(iii) each share of the common stock (with par value $0.01) 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, the "Applicable Fraction" shall
be the fraction (i) having a numerator equal one and (ii) having a denominator
equal to the total number of shares of Company Stock held by all of the
Stockholders at the Effective Time as set forth on the Schedule of Stockholders.
(c) In connection with the Merger, each holder of a vested option,
warrant or other rights (a "Vested Option") to acquire common stock of the
Company under the Company's 1997 Stock Option Plan and 1989 Stock Options Plan
(collectively, the "Stock Option Plans") outstanding immediately prior to the
Effective Time may exercise such Vested Option effective immediately prior to
the Effective Time, by delivery to the Company of a duly executed notice of
exercise giving the Company the right to withhold from such Person's share of
the initial cash portion of the Per Share Merger Consideration, the exercise
price for such Vested Option plus any withholding taxes payable in connection
with the exercise of such Vested Option.
1.6 Employee Stock Options. At the Effective Time, each stock option that
is then outstanding under the Company's 1997 and 1989 Stock Option Plans,
whether a Vested Option that has not been exercised or an unvested option, shall
be terminated by the Company in accordance with the terms (as in effect as of
the date of this Agreement) of the Company's 1997 and 1989 Stock Option Plans
and the stock option agreement by which such Company Option is evidenced. The
Company and TTIS shall take all action that may be necessary (under the
Company's 1997 and 1989 Stock Option Plans and otherwise) to effectuate the
provisions of this Section 1.6. Notwithstanding any other provision of this
Agreement, prior to the Effective Time, the Company may offer to terminate any
unvested options in exchange for cash payments not exceeding $500,000 in the
aggregate so long as the aggregate exercise price received by the Company for
the exercise of options since March 31, 1999 exceeds the amount paid to holders
of terminated options by at least $400,000.
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
5.
<PAGE>
such shares of the Company's capital stock (a "Company Stock Certificate") is
presented to the Surviving Corporation or TTIS, 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, TTIS, or
a transfer agent designated by TTIS (the "Transfer Agent") will send to each
registered holder of shares of Company Stock on the Schedule of Stockholders (i)
a letter of transmittal in customary form and containing such provisions as TTIS
may reasonably specify, and (ii) instructions for use in effecting the surrender
of Company Stock Certificates in exchange for payment of the Per Share Merger
Consideration for each share of Company Common Stock or Preferred Stock then due
and payable. Upon surrender of a Company Stock Certificate to TTIS or the
Transfer Agent, as the case may be, together with a duly executed letter of
transmittal and such other documents as may be reasonably required by TTIS or
the Transfer Agent, the holder of the Company Common Stock or Preferred Stock
represented by such Company Stock Certificate shall be entitled to receive in
exchange therefor the cash portion of the Per Share Merger Consideration for
each share then due and payable 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 for each share held by
such Stockholder upon such surrender payment of the cash portion of the Per
Share Merger Consideration then due and payable and the right to receive on the
First Payment Date or Second Payment Date as applicable, cash in the amount of
the Per Share Merger Consideration payable in the First Payment or the Second
Payment, as applicable. If any Company Stock Certificate shall have been lost,
stolen or destroyed, TTIS may, in its discretion and as a condition precedent to
payment of the Per Share Merger Consideration then due and payable for any
shares represented by such lost, stolen or destroyed Company Stock Certificate,
require the holder of such lost, stolen or destroyed Company Stock Certificate
to provide an appropriate affidavit and to deliver a bond (in such sum as TTIS
may reasonably direct) as indemnity against any claim that may be made against
TTIS or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) TTIS 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 TTIS 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,
TTIS or the Transfer Agent, at TTIS's option may request tax information and
other documentation so no withholding is necessary). To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the Person to whom such amounts
would otherwise have been paid.
(c) Neither TTIS nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any of such
holder's share of the Merger Consideration lawfully and properly delivered to
any public official pursuant to any applicable abandoned property, escheat or
similar law.
6.
<PAGE>
(d) TTIS shall distribute the First Payment and the Second Payment
to the Stockholders who have previously surrendered their Company Stock
Certificates and letters of transmittal in accordance with each such
Stockholders' percentage ownership of the total number of shares of Company
Stock outstanding immediately prior to the Effective Time as shown on the
Schedule of Stockholders. All checks shall be sent to the name and address on
the letter of transmittal unless the Stockholder notifies TTIS in writing in
advance of the applicable payment date of a different address or if a change in
the name is requested, provides to TTIS such additional information as
reasonably required by TTIS.
1.9 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of Company Stock that, as of the Effective Time, are or
may become "dissenting shares" within the meaning of the Delaware General
Corporation Law shall not be converted into or represent the right to receive
the Per Share Merger Consideration for each dissenting share in accordance with
Section 1.5, and the holder or holders of such shares shall be entitled only to
such rights as may be granted to such holder or holders in the Delaware General
Corporation 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 Company Stock Certificate or
Certificates representing such shares) the Per Share Merger Consideration in
accordance with Section 1.5.
(b) The Company shall give TTIS (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 the
Delaware General Corporation Law and of any other demand, notice or instrument
delivered to the Company prior to the Effective Time pursuant to the Delaware
General Corporation Law, and (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 TTIS shall have
consented in writing to such payment or settlement offer.
1.10 Further Action. If, at any time after the Effective Time, any further
action is determined by TTIS to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or TTIS 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
TTIS shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS
The Company and the Designated Stockholders severally, but not jointly
represent and warrant, to and for the benefit of the Indemnitees, as follows:
7.
<PAGE>
2.1 Due Organization; No Subsidiaries; Etc.
(a) As of the Effective Date, the Company 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.
(b) Except as set forth in Part 2.1 of the 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, trade name or other
name, other than the name "Atlantic Aerospace Electronics Corporation."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company. The Company is in good standing as a foreign corporation in each
of the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company has no direct or indirect subsidiaries and does not
own any controlling interest in any Entity and, except for the equity interests
identified in Part 2.1 of the Disclosure Schedule, the Company has never owned,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect equity interest in, any Entity. The Company has not agreed and is not
obligated to make any future investment in or capital contribution to any
Entity. The Company has not guaranteed and is not responsible or liable for any
obligation of any of the Entities in which it owns or has owned any equity
interest.
(f) The Company has all requisite legal and corporate power and
authority to enter into the Agreement and to carry out and perform all of its
obligations under the terms of the Agreement. All corporate action on the part
of the Company and all action on the part of its officers and directors
necessary for the authorization, execution and delivery of this Agreement by the
Company and for the performance of the Company's obligations hereunder and
thereunder has been taken, and the Agreement, when duly executed and delivered,
shall constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditor's rights
and by rules of law governing specific performance, injunctive relief or other
equitable remedies.
2.2 Certificate of Incorporation and Bylaws; Records. The Company has
delivered to TTIS accurate and complete copies of: (1) the Company's Certificate
of
8.
<PAGE>
Incorporation and bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) substantially all of the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the stockholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company. To the best knowledge of the Company and the
Designated Stockholders, there have been no formal meetings or other proceedings
of the stockholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of the
provisions of the Company's Certificate of Incorporation or bylaws, and the
Company has not taken any action that is inconsistent in any material respect
with any resolution adopted by the Company's stockholders, the Company's board
of directors or any committee of the Company's board of directors. The books of
account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of:
4,000,000 shares of Common Stock (with par value $0.01) and 200,000 shares of
Preferred Stock (with par value $0.01) of which 2,278,726 shares of Common Stock
and 80,000 shares of Preferred Stock have been issued and are outstanding as of
the date of this Agreement. All of the outstanding shares of Company Common
Stock have been duly authorized and validly issued, and are fully paid and
non-assessable. Part 2.3 of the Disclosure Schedule provides 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.
(b) The Company has reserved 1,250,000 shares of Company Common
Stock for issuance under the Stock Option Plans, of which options to purchase
1,025,958 shares are outstanding as of the date of this Agreement. Part 2.3 of
the Disclosure Schedule accurately sets forth, with respect to each Company
Option that is outstanding as of the date of this Agreement: (i) the name of the
holder of such Company Option; (ii) the total number of shares of Company Common
Stock that are subject to such Company Option and the number of shares of
Company Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option; 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 in Part 2.3 of the Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or right (whether or not currently
exercisable) to acquire any shares of the capital stock or other securities of
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 other than shares of Company Preferred Stock;
(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 of the Company and the Designated Stockholders,
condition or circumstance that may give rise to
9.
<PAGE>
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.
(c) All outstanding shares of Company Common Stock and all
outstanding Company Options, 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 Disclosure Schedule, 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.
2.4 Financial Statements.
(a) The Company has delivered to TTIS the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of June 30,
1998, 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 Deloitte & Touche LLP, relating thereto;
(ii) the unaudited balance sheet of the Company as of March
31, 1999 (the "Unaudited Interim Balance Sheet"), and the related unaudited
income statement of the Company for the nine months then ended; and
(iii) the unaudited balance sheet of the Company as of May 31,
1999, 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 and present fairly the financial position of the Company
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 for the periods covered thereby. The Company Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered (except that the financial statements referred to
in Sections 2.4(a)(ii) and 2.4(a)(iii) 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).
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, since June 30, 1998:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the
10.
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best of the knowledge of the Company and the Designated Stockholders, no event
has occurred that will, or could reasonably be expected to, have a Material
Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security (except for Company Common Stock issued
upon the exercise of outstanding Company Options), (ii) any option or right to
acquire any capital stock or any other security (except for Company Options
described in Part 2.3 of the Disclosure Schedule), or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under, (i) any provision of its 1997 or
1989 Stock Option Plans, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any restricted stock purchase agreement;
(f) there has been no amendment to the Company's Certificate of
Incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made aggregate capital expenditure of more
than $500,000 or individual capital expenditures of more than $25,000;
(i) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(j) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness other than write-offs of uncollectible accounts in the ordinary
course of business not exceeding $10,000 as to any individual account or $30,000
in the aggregate;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for Encumbrances of immaterial assets made in the ordinary course of
business and consistent with the Company's
11.
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past practices, and except for the security interest in the assets granted to
Crestar Bank to secure the Company's credit facility;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(m) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees other than in the ordinary course of business consistent with past
practices and payment amounts, or (iii) hired any new employee with salaries in
excess of $100,000 per year;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
2.6 Title to Assets
(a) The Company 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 Disclosure Schedule and all of the Company's rights under
the Material Contracts identified in Part 2.10 of the Disclosure Schedule; and
(iii) all other assets reflected in the Company's books and records as being
owned by the Company except for immaterial assets. Except as set forth in Part
2.6 of the Disclosure Schedule, all of said assets are owned by the Company free
and clear of any liens or other Encumbrances, except for (x) any lien for
current taxes not yet due and payable, and (y) minor liens that have arisen in
the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of the Company and that are being leased or
licensed to the Company.
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2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of May 31, 1999. Except as set forth in Part
2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (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 March 31, 1999 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, (ii) are current
and will be collected in full when due, without any counterclaim or set off (net
of an allowance for doubtful accounts not to exceed $150,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company 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 Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leaseholds created under the real property leases
identified in Part 2.10 of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset owned by the Company and 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 Disclosure Schedule identifies and provides
a brief description of all other Company Proprietary Assets owned by the
Company. Part 2.9(a)(iii) of the Disclosure Schedule identifies and provides a
brief description of each Proprietary Asset licensed to the Company by any
Person (except for any Proprietary Asset that is licensed to the Company 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. Except as set forth in Part
2.9(a)(iv) of the Disclosure Schedule, the Company 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 Disclosure Schedule, free and clear of all liens
and other Encumbrances, and has a valid right to use all Proprietary Assets
identified in Part 2.9(a)(iii) of the Disclosure Schedule. Except as set forth
in Part 2.9(a)(v) of the Disclosure Schedule, the Company is not obligated to
make any payment to any Person for the use of any Company Proprietary Asset
identified in Parts 2.9(a)(i), 2.9(a)(ii) or 2.9(a)(iii) of
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the Disclosure Schedule. Except as set forth in Part 2.9(a)(vi) of the
Disclosure Schedule, the Company has not developed jointly with any other Person
any Company Proprietary Asset with respect to which such other Person has any
rights.
(b) The Company has 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. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
best of the knowledge of the Company and the Designated Stockholders, 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 Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of the Company; and (ii)
there has not been any claim by any customer or other Person alleging that any
Company Proprietary Asset (including each version thereof that has ever been
licensed or otherwise made available by the Company to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, and, to the best of the knowledge of the Company and the
Designated Stockholders, 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 Company 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 Company to conduct its business in the
manner in which such business has been and is being conducted. Except as set
forth in Part 2.9(e) of the Disclosure Schedule, (i) the Company has not
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis, and (ii) the Company has not entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule,
(i) all current and former employees of the Company have executed and delivered
to the Company an
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agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of Confidential
Information and Invention Assignment Agreement previously delivered to TTIS, and
(ii) all current and former consultants and independent contractors to the
Company have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Consultant Confidential Information and
Invention Assignment Agreement previously delivered to TTIS.
2.10 Contracts.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, and each Company Contract relating
to the employment of, or performance of services by, any consultant or
independent contractor that would require the Company to make payments or
provide benefits having a value in excess of $50,000 in the aggregate;
(ii) each Company Contract, other than for commercial
off-the-shelf software, relating to the acquisition, transfer, use, development,
sharing or license of any technology or any Proprietary Asset;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C)
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 acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any material asset of the Company;
(vii) each Company Contract that would require the Company to
make payments (whether contingent or otherwise) or provide services or other
benefits having a value in excess of $50,000 in the aggregate under any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) 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 2.18);
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(x) each Company Contract that would require the Company to
make payments or provide services or benefits having a value in excess of
$50,000 under a Government Contract or Government Bid as of April 30, 1999;
(xi) any other Company Contract that was entered into outside
the ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that would require the
Company to make payments or provide services or benefits having a value in
excess of $50,000, that has a term of more than 60 days and that may not be
terminated by the Company (without penalty) within 60 days after the delivery of
a termination notice by the Company; and
(xiii) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an amount
or having a value in excess of $50,000 in the aggregate, or (B) the performance
of services having a value in excess of $50,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to TTIS accurate and complete copies
of all written Contracts identified in Part 2.10 of the Disclosure Schedule,
including all amendments thereto. Part 2.10 of the Disclosure Schedule provides
an accurate description of the terms of each Company Contract that is not in
written form. Each Contract identified in Part 2.10 of the Disclosure Schedule
is valid and in full force and effect, and, to the best of the knowledge of the
Company and the Designated Stockholders, is enforceable by 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.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Material Contract, and, to the best of the knowledge of the
Company and the Designated Stockholders, no other Person has violated or
breached, or committed any default under, any Material Contract;
(ii) to the best of the knowledge of the Company and the
Designated Stockholders, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to accelerate the maturity or performance of any Material Contract, or (D) give
any Person the right to cancel, terminate or modify any Material Contract;
(iii) since June 30, 1997, the Company has not received any
notice or other communication regarding any actual or possible violation or
breach of, or default under, any Material Contract; and
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(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Material Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure Schedule
collectively constitute all of the Contracts necessary to enable the Company to
conduct its business in the manner in which its business is currently being
conducted.
(f) Part 2.10 of the Disclosure Schedule identifies each proposed
Contract as to which any bid, offer, award, written proposal, term sheet or
similar document has been submitted or received by the Company and that is still
pending as of April 30, 1999.
(g) Part 2.10 of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts as of
April 30, 1999.
(h) Except as set forth in Part 2.10(h) of the Disclosure Schedule:
(i) the Company has not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) the Company has complied in all material respects with
all Legal Requirements with respect to all Government Contracts and Government
Bids;
(iii) the Company has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the "FAR") or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G) the
Defense Industrial Security Manual (DOD 5220.22-M), (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations, or (I)
any other applicable procurement law or regulation or other Legal Requirement;
(iv) all facts set forth in or acknowledged by the Company in
any certification, representation or disclosure statement submitted by the
Company with respect to any Government Contract or Government Bid were current,
accurate and complete as of the date of submission;
(v) neither the Company nor any of its employees has been
debarred or suspended from doing business with any Governmental Body, and, to
the best of the knowledge of the Company and the Designated Stockholders, no
circumstances exist that would warrant the institution of debarment or
suspension proceedings against the Company or any employee of the Company;
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(vi) no negative determinations of responsibility have been
issued against the Company in connection with any Government Contract or
Government Bid;
(vii) no direct or indirect costs incurred by the Company have
been questioned or disallowed as a result of a finding or determination of any
kind by any Governmental Body since June 30, 1997;
(viii) 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 the Company under any
Government Contract;
(ix) there are not and have not been any irregularities,
misstatements or omissions relating to any Government Contract or Government Bid
that have led to or could reasonably be expected to lead to (A) any
administrative, civil, criminal or other investigation, Legal Proceeding (other
than routine audits) or indictment involving the Company or any of its
employees, (B) the questioning or disallowance of any costs submitted for
payment by the Company (other than routine audit adjustments), (C) the
recoupment of any material payments previously made to the Company, (D) a
finding or claim of fraud, defective pricing, mischarging or improper payments
on the part of the Company, or (E) the assessment of any material penalties or
damages of any kind against the Company;
(x) there is not and has not been any (A) outstanding claim
against the Company by, or dispute involving the Company with, any prime
contractor, subcontractor, vendor or other Person arising under or relating to
the award or performance of any Government Contract, (B) fact known by the
Company or any of the Designated Stockholders upon which any such claim could
reasonably be expected to be based or which may give rise to any such dispute,
(C) final decision of any Governmental Body against the Company;
(xi) the Company is not undergoing and has not undergone any
audit, and neither the Company nor any of the Designated Stockholders has any
knowledge of any basis for any impending audit, arising under or relating to any
Government Contract (other than normal routine audits conducted in the ordinary
course of business);
(xii) the Company has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xiii) no payment has been made by the Company or by any
Person acting on the Company's behalf 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;
(xiv) the Company's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any Legal
Requirement;
(xv) the Company has complied in all material respects with
all applicable regulations and other Legal Requirements and with all applicable
contractual
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requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other Proprietary Assets;
(xvi) in each case in which the Company has delivered or
otherwise provided any technical data, computer software or Company Proprietary
Asset to any Governmental Body in connection with any Government Contract, the
Company has marked 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;
(xvii) the Company has not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xviii) the Company has reached agreement with the cognizant
government representatives approving and "closing" all indirect costs charged to
Government Contracts for fiscal years ended June 30, 1986 through 1998 and those
years are closed;
(xix) the responsible government representatives have agreed
in writing with the Company on the "provisional billing rates" that the Company
is charging on cost-type Government Contracts and including in Government Bids;
and
(xx) the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any
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 to be executed,
delivered or performed in connection with this Agreement, or (B) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
2.11 Liabilities. The Company has no 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 GAAP, and whether due
or to become due), except for: (a) liabilities identified as such in the
"liabilities" column of the Unaudited Interim Balance Sheet; (b) accounts
payable or accrued salaries and benefits that have been incurred by the Company
since March 31, 1999 in the ordinary course of business and consistent with the
Company's past practices; (c) liabilities under the Company Contracts identified
in Part 2.10 of the Disclosure Schedule, to the extent the nature and magnitude
of such liabilities can be specifically ascertained by reference to the text of
such Company Contracts; (d) the liabilities identified in Part 2.11 of the
Disclosure Schedule; and (e) any other liabilities which individually or in the
aggregate cannot reasonably be expected to have a Material Adverse Effect on the
Company.
2.12 Compliance with Legal Requirements. The Company is, and has at all
times, has 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 Disclosure Schedule, the Company has
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not received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to, or in the case of security clearances made available
to, TTIS accurate and complete copies of all Governmental Authorizations
identified in Part 2.13 of the Disclosure Schedule. The Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule are valid and
in full force and effect, and collectively constitute all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times, has been, in substantial compliance with the terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Disclosure Schedule. 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) Except as set forth in Part 2.14 of the Disclosure Schedule, all
Tax Returns required to be filed by or on behalf of the Company 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, accurately and completely 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 to TTIS accurate and complete copies of all Company Returns filed
since June 30, 1995, which have been requested by TTIS.
(b) Except as set forth in Part 2.14 of the Disclosure Schedule, (i)
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 GAAP; and (ii) the Company has established or will establish, in
the ordinary course of business and consistent with its past practices, reserves
adequate for the payment of all Taxes for the period from July 1, 1998 through
the Closing Date, and the Company will disclose the dollar amount of such
reserves to TTIS on or prior to the Closing Date.
(c) Except as set forth in Part 2.14 of the Disclosure Schedule,
there have been no examinations or audits of any Company Return. The Company has
delivered to TTIS accurate and complete copies of all audit reports and similar
documents (to which the Company has access) relating to the Company Returns.
Except as set forth in Part 2.14 of the Disclosure Schedule, no extension or
waiver of the limitation period applicable to any of the Company Returns has
been granted (by the Company or any other Person), and no such extension or
waiver has been requested from the Company.
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(d) Except as set forth in Part 2.14 of the Disclosure Schedule, no
claim or Proceeding is pending or has been threatened against or with respect to
the Company 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 the Company 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 the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company 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 the Company 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. The Company 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 Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, employee welfare or employee benefit plan (as such terms are
defined under ERISA), program or agreement (collectively, the "Plans")
sponsored, maintained, contributed to or required to be contributed to by the
Company for the benefit of any employee of the Company ("Employee"), except for
Plans which would not require the Company 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 Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the best of the
knowledge of the Company and the Designated Stockholders, has 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) The Company 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
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former Employees which are described in Part 2.15(c) of the 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 TTIS:
(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) The Company is not required to be, and, to the best of the
knowledge of the Company and the Designated Stockholders, has never 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. The Company
has never 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 and the
Designated Stockholders, the Company has 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 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 Company does 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 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)
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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 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 Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination from the Internal Revenue
Service, and neither the Company nor any of the Designated Stockholders is aware
of any reason why any such determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the 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 the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, 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 Company is 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.
(m) Part 2.15(m) of the 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) The Company 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 Disclosure Schedule,
the Company has good labor relations, and none of the Designated Stockholders
has any 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 the Company's labor relations, or (ii) any of the Company's employees
intends to terminate his or her employment with the Company.
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2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the best of the knowledge of the
Company and Designated Stockholders, there are no circumstances that may prevent
or interfere with the Company's compliance with any Environmental Law in the
future. To the best of the knowledge of the Company and the Designated
Stockholders, no current or prior owner of any property leased or controlled by
the Company 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 the Company is not
in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified in
Part 2.16 of the 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 Insurance. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to TTIS accurate and complete copies of the insurance policies
identified on Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since January 1, 1996, the Company 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 other than premium changes
made in the ordinary course not resulting from the Company's claims history.
2.18 Related Party Transactions.
(a) Except as set forth in Part 2.18 of the Disclosure Schedule: (a)
no Related Party has, and no Related Party has at any time had, any direct or
indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Related Party is, or has at any time been,
indebted to the Company other than for travel or other similar advances; (c) no
Related Party has entered into, or has had any direct or indirect financial
interest in, any material Contract, transaction or business dealing involving
the Company; (d) to the best knowledge of Company and the Designated
Stockholders, no Related Party is competing, or has at any time
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competed, directly or indirectly, with the Company; and (e) no Related Party has
any claim or right against the Company (other than rights under company Options
and rights to receive compensation for services performed as an employee,
director or consultant of the Company). (For purposes of the Section 2.18 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 July 1, 1997 been, an officer of the Company; (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 Company) 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.)
(b) All costs related to any Related Party, including, but not
limited, to compensation, consultation fees, life insurance premiums, auto
allowances, business meals, related party facility cost and any facility
purchase options have been properly classified as unallowable costs for
Government Contract accounting purposes.
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.19 of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the best of the knowledge of the
Company and the Designated Stockholders) no Person has overtly threatened to
commence any Legal Proceeding: (i) that involves the Company or any of the
assets owned or used by the Company or any Person whose liability the Company
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 and the Designated Stockholders, except as set forth in Part 2.19
of the 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 (other than routine audits).
(b) Except as set forth in Part 2.19 of the Disclosure Schedule, no
Legal Proceeding (other than routine audits) has ever been commenced by or has
ever been pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. None
of the Designated Stockholders is subject to any order, writ, injunction,
judgment or decree that relates to the Company's business or to any of the
assets owned or used by the Company. To the best of the knowledge of the Company
and the Designated Stockholders, no officer or other employee of the Company 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 the Company's business.
2.20 Authority; Binding Nature of Agreement. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
the Company of this Agreement
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have been duly authorized by all necessary action on the part of the Company and
its board of directors. This Agreement when duly executed and delivered,
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.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements documents or certificates to be
executed, delivered or performed in connection with this Agreement by the
Company or the Designated Stockholders, nor (2) the consummation of the Merger
or any of the other transactions contemplated by this Agreement by the Company
or the Designated Stockholders, 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 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 Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, 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 Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(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 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 the Company
(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 the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the
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other agreements referred to in this Agreement, or (y) the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
2.22 Year 2000 Compliance. Except as set forth in Part 2.22 of the
Disclosure Schedule (and excluding any systems provided to the Company by a
third party for which the Company has received from such third party a
certification that such systems are Year 2000 Compliant), all of the Company's
products and internal systems are designed to be used prior to, during and after
the year 2000, and are Year 2000 Compliant. The Company has provided to TTIS the
results of the testing to date of all of the Company's products and systems to
determine whether they are or will become Year 2000 Compliant in accordance with
the Company's compliance plan.
2.23 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this Agreement
based on any arrangement or agreement made by or on behalf of the Company or any
Designated Stockholder.
2.24 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not, and the Designated Stockholders' Closing Certificate will 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.
3. REPRESENTATIONS AND WARRANTIES OF TTIS AND MERGER SUB
TTIS and Merger Sub jointly and severally represent and warrant to the
Company and the Designated Stockholders as follows:
3.1 Organization and Standing. Each of TTIS and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to conduct
its business in the manner in which its business is currently being conducted,
to own and use its assets in the manner in which its assets are currently owned
and used and to perform its respective obligations under this Agreement or any
Exhibit hereto. TTIS is qualified or licensed to do business as a foreign
corporation in all jurisdictions in which the nature of its business or
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, condition, assets,
liabilities or financial performance of TTIS.
3.2 Corporate Power; Authorization. Each of TTIS and Merger Sub has all
requisite legal and corporate power and authority to enter into the Agreement
and to carry out and perform all of its obligations under the terms of the
Agreement. All corporate action on the part of TTIS and Merger Sub and all
action on the part of its officers and directors necessary for the
authorization, execution and delivery of this Agreement by TTIS and Merger Sub
and for the performance of TTIS's and Merger Sub's obligations hereunder and
thereunder has been taken, and the Agreement, when duly executed and delivered,
shall constitute the valid and binding obligation of TTIS and Merger Sub
enforceable against TTIS and Merger Sub in accordance
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with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditor's rights and by rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 Consents. The execution and delivery of this Agreement and all
documents and certificates to be delivered hereunder by TTIS and Merger Sub in
connection with the transactions contemplated hereby do not, and the performance
and consummation by TTIS and Merger Sub of its obligations hereunder will not
result in any conflict with, breach or violation of or default, termination,
forfeiture or Encumbrance under any terms of provisions of TTIS's and Merger
Sub's respective Certificate of Incorporation or Bylaws, any statute, rule,
regulation, judicial or governmental decree, order or judgment or any material
agreement, lease or other instrument or other obligation, to which TTIS or
Merger Sub is a party or to which TTIS or Merger Sub's assets are subject and do
not require any consent, approval, authorization or permit of or filing with or
notification to any Governmental Body, other than a filing under the HSR Act, or
except as disclosed in Part 3.3 of the Disclosure Schedule, require any consent
or approval of any third party, including any party to a material contract of
TTIS or Merger Sub.
3.4 Brokers. Other than A.G. Edwards who will be providing a fairness
opinion to TTIS, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this Agreement
based on any arrangement or agreement made by or on behalf of TTIS.
4. CERTAIN COVENANTS OF THE COMPANY AND THE DESIGNATED STOCKHOLDERS
4.1 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 TTIS and TTIS'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 including
balance sheets as of April 30, 1999 and May 31, 1999, and statements of
operations for the periods then ended; and (b) provide TTIS and TTIS'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 TTIS may reasonably request.
4.2 Operation of the Company's Business. During the Pre-Closing Period:
(a) the Company shall 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) the Company shall use reasonable best 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 the Company;
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(c) the Company shall keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(d) the Company shall cause its executive officers to report
verbally on a regular basis to TTIS concerning the status of the Company's
business;
(e) the Company shall 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 terminate unvested
options with cash payments in accordance with Section 1.6 hereof;
(f) the Company shall 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 (A) to grant stock options to employees in accordance with
its past practices, (B) to issue Company Common Stock upon the exercise of
outstanding Company Options and (c) to issue Company Common Stock upon
conversion of Company Preferred Stock);
(g) except for the Company's acceleration of vesting of any unvested
options as provided for in the Stock Option Plans or agreements thereunder or
immediately prior to the Effective Time, the Company shall not amend or waive
any of its rights under, or permit the acceleration of vesting under, (i) any
provision of its Stock Option Plans, (ii) any provision of any agreement
evidencing any outstanding Company Option, or (iii) any provision of any
restricted stock purchase agreement;
(h) neither the Company nor any of the Designated Stockholders shall
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;
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed $30,000 per
month;
(k) the Company shall not (i) enter into any Contract that is or
would constitute a Material Contract, or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any Material Contract;
(l) the Company shall 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 requiring if the acquisition cost or the value of the
disposition exceeds $50,000;
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(m) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary course
of business and may allow employees to acquire Company Common Stock in exchange
for promissory notes upon exercise of Company options), 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 Crestar Bank);
(n) the Company shall 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, or (iii) hire any new
employee whose aggregate annual compensation is expected to exceed $75,000
except for commitments existing as of the date of this Agreement as disclosed on
the Disclosure Schedule;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
TTIS 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
or any of the Designated Stockholders; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 6
impossible or unlikely.
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(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to TTIS an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company or
any of the Designated Stockholders in this Agreement prior to the Effective
Time, or (ii) determining whether any of the conditions set forth in Section 6
has been satisfied. If TTIS elects to consummate the Merger after receipt of any
update to the Disclosure Schedule, then the update shall be deemed to amend the
Disclosure Schedule for the purpose of determining the accuracy of any of the
representations and warranties made by the Company or any of the Designated
Stockholders.
4.4 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 TTIS) 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 to, any Person (other than
TTIS) relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than TTIS) relating to a possible Acquisition Transaction.
The Company shall promptly notify TTIS 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. ADDITIONAL COVENANTS OF THE PARTIES
5.1 Contingent Payment Obligations.
(a) During the Contingent Payment Period, TTIS shall continue to
conduct the Company's business and operations in substantially the same manner
as such business and operations have been conducted prior to the date of this
Agreement, including operating it as a separate subsidiary or operating
division.
(b) During the Contingent Payment Period, the Company shall use
commercially reasonable and diligent efforts to prepare and submit competitive
bids for those Contracts set forth in Section 1.5(a)(ii)(1) through
1.5(a)(ii)(6) inclusive (the "Contingent Payment Contracts") on terms specified
in Section 1.5(a)(ii)(1) through 1.5(a)(ii)(6) inclusive and take other actions
reasonably necessary to be awarded each of the Contingent Payment Contracts in
satisfaction of each of the contingent payment provisions specified herein. In
addition, neither TTIS nor Parent shall take any action to prevent or materially
prejudice the Company's ability to bid for or be awarded any of the Contingent
Payment Contracts. As used
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herein, "commercially reasonable and diligent efforts" will mean, unless the
Stockholders' Agent and the Company otherwise agree in writing following the
Closing, those efforts consistent with the exercise of prudent business
judgment, as applied to the pursuit of other contract awards of similar
potential and size. Without limiting the generality of the foregoing,
"commercially reasonable and diligent efforts" shall include the dedication by
the Company from its operating budget of adequate business development resources
and personnel to prepare and submit competitive bid proposals for each of the
Contingent Payment Contracts consistent with the criteria for achieving each
contingent payment (provided, that neither TTIS nor Parent shall have any
obligation to provide any additional resources or working capital to the Company
in connection with the contingent payment). If subsequent to the Closing, the
Company or the Stockholders' Agent determines in good faith that TTIS or Parent
has taken or has proposed to take any action that is inconsistent with its
obligations under this Agreement, then the Company or the Stockholders' Agent
may deliver a written notice to TTIS or Parent, in accordance with Section 10.5
hereof, setting forth the proposed or actual action or actions of TTIS or Parent
that are deemed not to be commercially reasonable and diligent. TTIS or Parent
will be given a commercially reasonable period (which shall be not less than 10
days) from the date of such notice to take corrective action prior to the
institution of any remedial action by or on behalf of any Stockholder or the
Stockholders' Agent.
(c) If, after the Closing and during the Contingent Payment Period,
the Company sells all or substantially all of its assets or any Person or group
of Persons (other than Parent or its affiliates) acquires more than 50% of the
voting control of TTIS in one or more related transactions or there is a change
of control of Parent, then, to the extent that any of the Contingent Payment
Contracts have not yet been awarded by the contracting party as of the closing
date of such transaction, then the associated contingent payment for each of
such Contingent Payment Contracts shall be deemed earned and shall be payable on
the First Payment Date or Second Payment Date, as applicable, subject to any
offsets as provided under this Agreement.
5.2 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 best 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 TTIS a copy of each such filing made,
each such notice given and each such Consent obtained by the Company during the
Pre-Closing Period.
5.3 Company Stockholders' Action. The Company shall, in accordance with
its certificate of incorporation and bylaws and the applicable requirements of
the Delaware General Corporation Law, either (a) call and hold a special meeting
of its stockholders or (b) circulate an action by written consent, as promptly
as practicable after the execution of this Agreement for the purpose of
permitting them to consider and to vote upon and approve the Merger and this
Agreement (the "Company Stockholders' Action"). Without limiting the generality
or the effect of anything contained in the Voting Agreements being executed and
delivered by the Designated Stockholders to TTIS contemporaneously with the
execution and delivery of this
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Agreement, each Designated Stockholder shall cause all shares of the capital
stock of the Company that are owned, beneficially or of record, by such
Designated Stockholder on the record date for the Company Stockholders' Action
to be voted in favor of the Merger and this Agreement at such meeting or in such
action.
5.4 Public Announcements. During the Pre-Closing Period, (a) neither the
Company nor any of the Designated Stockholders nor TTIS shall (and the Company
and TTIS 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
the other party's prior written consent provided that TTIS shall be entitled to
issue any press release or make any public statement regarding the Merger as
required by law, in which event TTIS will use reasonable best efforts to consult
with the Company prior to issuing any such press release or making any such
public statement.
5.5 Stock Options. Following the Closing, TTIS shall grant to the key
managerial employees of the Company (the "Key Employees") listed on Exhibit G
hereto, either nonqualified options or incentive stock options to acquire shares
of TTIS's Common Stock (the "Options") in TTIS's sole discretion. The Options
will be granted to the Key Employees subject to substantially similar terms and
conditions as options granted to similarly situated employees of TTIS. The
exercise price for such options shall be set at the fair market value of TTIS's
Common Stock on the date of grant and shall vest from the date of grant equally
over four years, on an annual basis.
5.6 Reasonable Best Efforts. During the Pre-Closing Period, (a) the
Company and the Designated Stockholders shall use their reasonable best efforts
to cause the conditions set forth in Section 6 to be satisfied on a timely
basis, and (b) TTIS and Merger Sub shall use their reasonable best efforts to
cause the conditions set forth in Section 7 to be satisfied on a timely basis.
5.7 Regulatory Approvals. The Company and TTIS shall use reasonable best
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 TTIS 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 TTIS shall respond as promptly as practicable to (i)
any inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation and (ii) any
inquiries or requests received from any state attorney general or other
Governmental Body in connection with antitrust or related matters. Each of the
Company and TTIS 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 TTIS will consult and
cooperate with one another, and will consider in good faith the views of one
another, in connection with any
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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 TTIS 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. The
Parties will split the filing fees under the HSR Act as set forth in Section
10.3 if filing is necessary.
5.8 FIRPTA Matters. At the Closing, (a) the Company shall deliver to TTIS
a statement (in such form as may be reasonably requested by counsel to TTIS)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall deliver to the Internal
Revenue Service the notification required under Section 1.897 - 2(h)(2) of the
United States Treasury Regulations.
5.9 Release. At the Closing, each of the Designated Stockholders shall
execute and deliver to the Company a Release in the form of Exhibit H.
5.10 Information Statement. The Company shall prepare an information
statement for the Company Stockholders for purposes of soliciting the approval
of the Merger in accordance with this Agreement (the "Information Statement").
The Information Statement will contain the type of information generally
included in a proxy statement for a merger as required under the Exchange Act.
The Company shall submit a draft of the Information Statement to TTIS for its
prior written approval.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TTIS AND MERGER SUB
The obligations of TTIS 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:
6.1 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 TTIS in
connection with the transactions contemplated by this Agreement shall have been
accurate in all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Scheduled Closing Time as if made at
the Scheduled Closing Time (without giving effect to any update to the
Disclosure Schedule other than the Special Disclosure Schedule Amendment).
6.2 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.
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6.3 Stockholder Approval. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least (a) 95% of the shares of
Company Common Stock and Preferred Stock entitled to vote with respect thereto.
6.4 Consents. All Consents required to be obtained by the Company in
connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Part 2.21 of the Disclosure
Schedule) shall have been obtained and shall be in full force and effect.
6.5 Agreements and Documents. TTIS and the Company shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) a Release, executed by each of the Designated Stockholders and
each director or officer of the Company;
(b) the statement referred to in Section 5.8, executed by the
Company;
(c) an estoppel certificate, dated as of a date not more than five
days prior to the Closing Date and satisfactory in form and content to TTIS,
executed by the landlords of the Company's leased premises in Greenbelt,
Maryland and Waltham, Massachusetts;
(d) a legal opinion of Pillsbury Madison & Sutro LLP, dated as of
the Closing Date, in the form of Exhibit I;
(e) a certificate executed by the Designated Stockholders and
containing the representation and warranty of each Designated Stockholder 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 6.1, 6.2, 6.3 and 6.4 have been duly satisfied
(the "Designated Stockholders' Closing Certificate"); and
(f) written resignations of all directors of the Company, effective
as of the Effective Time.
6.6 FIRPTA Compliance. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.8.
6.7 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.
6.8 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 TTIS of any material right pertaining to its ownership of stock
of the Surviving Corporation.
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6.9 HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
6.10 Employees. No more than three (3) of the individuals identified on
Exhibit J shall have ceased to be employed by, or expressed an intention to
terminate their employment with, the Company.
6.11 No Material Adverse Change. Since March 31, 1999, there shall have
been no material adverse change in the business, conditions, assets,
liabilities, operations, financial performance or prospects of the Company;
provided that TTIS first notifies the Company in writing of the alleged material
adverse change and gives the Company a commercially reasonable period to cure
the material adverse change (unless the change is a nature that it cannot be
cured or can only be cured in a manner that itself constitutes a material
adverse change).
6.12 Bring-down of Fairness Opinion If Parent requests a bring-down of its
fairness opinion from AG Edwards, it shall have received a bring-down of such
opinion to a date immediately prior the Closing Date.
7. 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:
7.1 Accuracy of Representations. Each of the representations and
warranties made by TTIS and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving effect to any materiality or similar qualifications contained 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 materiality or similar qualifications contained in
such representations and warranties).
7.2 Performance of Covenants. All of the covenants and obligations that
TTIS 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.
7.3 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.
7.4 Agreements and Documents. The Company shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, in the form of Exhibit K; and
(b) the Guaranty Agreement, executed by Parent.
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(c) a certificate executed by the President of TTIS containing the
representation and warranty that each of the representations and warranties set
forth in Section 3 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 7.1, 7.2 and
7.6 have been duly satisfied.
7.5 HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.6 Consents. All Consents required to be obtained by TTIS in connection
with the Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
7.7 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.
8. TERMINATION
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by TTIS if TTIS reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of TTIS or Merger Sub to
comply with or perform any covenant or obligation of TTIS 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 7 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 TTIS);
(c) by TTIS if the Closing has not taken place on or before August
2, 1999 (other than as a result of any failure on the part of TTIS to comply
with or perform any covenant or obligation of TTIS set forth in this Agreement);
(d) by the Company if the Closing has not taken place on or before
August 2, 1999 (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 TTIS); or
(e) by the mutual consent of TTIS and the Company.
8.2 Termination Procedures. If TTIS wishes to terminate this Agreement
pursuant to Section 8.1(a) or Section 8.1(c), TTIS shall deliver to the Company
a written notice stating that TTIS is terminating this Agreement and setting
forth a brief description of the basis on which TTIS is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to Section
8.1(b) or Section 8.1(d), the Company shall deliver to TTIS a written notice
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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.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor TTIS shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; and (b) the parties shall, in all
events, remain bound by and continue to be subject to the provisions set forth
in Section 5.4 and Section 10.
9. INDEMNIFICATION, ETC.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company and the
Designated Stockholders (including the representations and warranties set forth
in Section 2 and the representations and warranties set forth in the Designated
Stockholders' Closing Certificate) shall survive the Closing and shall expire on
the first anniversary of the Closing Date; provided, however, that if, at any
time prior to the first anniversary of the Closing Date, any Indemnitee (acting
in good faith) delivers to the Stockholders' Agent a written notice alleging the
existence of an inaccuracy in or a breach of any of the representations and
warranties made by the Company or Designated Stockholders (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 9.2 based
on such alleged inaccuracy or breach, 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 TTIS
and Merger Sub shall terminate and expire as of the Effective Time, and any
liability of TTIS or Merger Sub with respect to such representations and
warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
the Company and the Designated Stockholders, and the rights and remedies that
may be exercised by the Indemnitees, shall not be limited or otherwise affected
by or as a result of any information furnished to, or any investigation made by
or knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company and the Designated Stockholders in this Agreement in the context of
the representation and warranty to which such statement or other item of
information applies.
9.2 Indemnification by Stockholders.
(a) From and after the Effective Time (but subject to Section
9.1(a)), the Stockholders, jointly but not severally, shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
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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 set forth in Section 2; (ii) any breach of any
covenant or obligation of the Company or any of the Designated Stockholders
(including the covenants set forth in Sections 4 and 5); or (iii) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section
9)(each of the foregoing, an "Indemnification Event").
(b) The Stockholders 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, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) TTIS shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach.
9.3 Threshold; Ceiling.
(a) Except as set forth in this Section 9.3 the Stockholders shall
not be required to make any indemnification payment pursuant to Section 9.2 for
any inaccuracy in or breach of any of the representations, covenants or
obligations made by the Company or Designated Stockholders herein until such
time as the total amount of all Damages that have been directly or indirectly
suffered or incurred by any one or more of the Indemnitees, or to which any one
or more of the Indemnitees has or have otherwise become subject, exceeds
$250,000 in the aggregate. If the total amount of such Damages exceeds $250,000,
then the Indemnitees shall be entitled to be indemnified against and compensated
and reimbursed only for the portion of such Damages exceeding $250,000.
(b) Except in the case of fraud, the Indemnitees' exclusive remedy
for any Indemnifiable Event shall be the indemnification provided for under this
Section 9 and the exclusive source of payment for any indemnification liability
under this Section 9, shall be in the form of an offset to the First Payment or
Second Payment in accordance with Section 9.8.
9.4 No Contribution. Each Designated Stockholder waives, and acknowledges
and agrees that he shall not have and shall not exercise or assert (or attempt
to exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement or the Designated Stockholders'
Closing Certificate.
9.5 Interest. Any Indemnitee who is held harmless, indemnified,
compensated or reimbursed pursuant to this Section 9 with respect to any Damages
shall also be entitled to receive interest on the amount of such Damages (but
only to the extent that the Damages on which interest accrues does not include
an interest accrual for the same period)(for the period commencing as of the
date on which the Stockholders' Agent first received notice of a claim for
recovery by such Indemnitee and ending on the date on which the liability for
such payment to
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such Indemnitee is fully satisfied) 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.
9.6 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 TTIS or against any other Person) with respect to
which the Stockholders may become obligated to hold harmless, indemnify,
compensate or reimburse any Indemnitee pursuant to this Section 9, TTIS shall
have the right, at its election, to proceed with the defense of such claim or
Legal Proceeding on its own. If TTIS so proceeds with the defense of any such
claim or Legal Proceeding, TTIS shall:
(a) pursue the defense of such claim or Legal Proceeding diligently
and in good faith;
(b) consult with the Stockholders' Agent or a representative thereof
(including legal counsel appointed by the Stockholders' Agent) throughout the
defense of such claim or Legal Proceeding regarding the status of, and the
strategy for defending, such claim or Legal Proceeding; and
(c) have the right to settle, adjust or compromise such claim or
Legal Proceeding with the consent of the Stockholders' Agent, such consent not
to be unreasonably withheld.
9.7 Exercise of Remedies by Indemnitees Other Than TTIS. No Indemnitee
(other than TTIS or any successor thereto or assign thereof) shall be permitted
to assert any indemnification claim or exercise any other remedy under this
Agreement unless TTIS (or any successor thereto or assign thereof) shall have
consented to the assertion of such indemnification claim or the exercise of such
other remedy.
9.8 Recovery of Damages from First Payment or Second Payment. Any
Indemnitee that has suffered, incurred or otherwise become subject to any
Damages subject to indemnification in accordance with the provisions of this
Section 9, including the limitations on indemnification set forth in Section
9.3, shall be entitled to offset the aggregate amount of such Damages plus
interest thereon computed as set forth in Section 9.5 through an offset pro rata
against the First Payment and/or the Second Payment payable pursuant to Section
1.5(a)(ii)(to the extent that Damages are offset first against the principal
amount of any First Payment or Second Payment and then against any accrued and
unpaid interest); provided that the Indemnitee complies with the following
procedure:
(a) Prior to any offset, the Indemnitee shall deliver to the
Stockholders' Agent a notice (a "Claim Notice") that shall: (i) state that the
Indemnitee has suffered or incurred Damages or reasonably believes in good faith
it will prospectively incur Damages, (ii) specify the amount of such Damages and
the date on which such Damages were suffered or incurred or are expected to be
incurred and (iii) specify in reasonable detail the facts alleged as the basis
for such Damages and the section or sections of this Agreement or other document
the violation or breach of which is alleged to have resulted in or given rise to
such Damages.
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(b) If the Indemnitee delivers a Claim Notice to the Stockholders'
Agent and the Stockholders' Agent agrees with the Claim or fails to respond
within 30 calendar days commencing on the delivery of the Claim Notice, then
TTIS may offset the claim against the First Payment or Second Payment.
(c) If, during the 30 day period commencing on the date of delivery
of a Claim Notice, TTIS shall have received a written notice from or on behalf
of the Stockholders' Agent stating that the Stockholders in good faith dispute
the claim asserted in such Claim Notice, then TTIS shall not make any offset
against the First Payment and/or the Second Payment until: (i) TTIS and the
Stockholders' Agent agree in writing on the amount of Damages to be offset, or
(ii) the disputed claim is resolved through a final arbitration in accordance
with this Agreement.
10. MISCELLANEOUS PROVISIONS
10.1 Stockholders' Agent. By virtue of approval of this Agreement and the
Merger by the Company's Board of Directors and approval of this Agreement by the
Stockholders pursuant to the Company's Certificate of Incorporation and By-Laws
and applicable provisions of the Delaware General Corporation Law, each
Stockholder (whether or not he, she or it executes a letter of transmittal) will
be agreeing and hereby agrees as follows:
(a) The Stockholders hereby irrevocably appoint, authorize and
empower Charles A. Fowler, and each successor appointed in accordance with this
Section 10.1, as their agent (the "Stockholders' Agent") in connection with and
to facilitate the consummation of the transactions contemplated by this
Agreement, and in connection with the activities to be performed on behalf of
Stockholders under this Agreement, for the purposes and with the powers and
authority hereinafter set forth in this Section 10.1, which shall include the
power and authority:
(i) to execute and deliver such waivers and consents in
connection with this Agreement and the consummation of the transactions
contemplated hereby and thereby as the Stockholders' Agent, in his sole
discretion, may deem necessary or desirable;
(ii) to enforce and protect the rights and interests of the
Stockholders and to enforce and protect the rights and interests of the
Stockholders' Agent arising out of or under or in any manner relating to this
Agreement and each other agreement, document, instrument or certificate referred
to herein or the transactions provided for herein (including, without
limitation, in connection with any and all claims for Damages brought by any
Indemnitee under Section 9 of this Agreement) and, in connection therewith, to:
(A) investigate, defend, contest or litigate any claim initiated by any
Indemnitee, or any other Person, against the Stockholders or the Stockholders'
Agent and receive process on behalf of the Stockholders in any such claim,
action, proceeding or investigation and compromise or settle on such terms as
the Stockholders' Agent shall determine to be appropriate, and give receipts,
releases and discharges on behalf of all of the Stockholders with respect to,
any such claim; (B) file any proofs of debts, claims and petitions as the
Stockholders' Agent may deem advisable or necessary; (C) settle or compromise
any claims asserted under Section 9 of this Agreement; (D) assume, on behalf of
all of the Stockholders the defense of any claim asserted under Section 9 of
this Agreement; and (E) file and prosecute appeals from any decision, judgment
or award
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rendered in any of the foregoing actions, proceedings or investigations, it
being understood that the Stockholders' Agent shall not have any obligation to
take any such actions, and shall not have any liability for any failure to take
any such actions;
(iii) to enforce payment of any amounts payable to the
Stockholders, in each case on behalf of the Stockholders, in the name of the
Stockholders' Agent or, if the Stockholders' Agent so elects, in the names of
one or more of the Stockholders;
(iv) to refrain from enforcing any right of the Stockholders
or any of them and/or of the Stockholders' Agent arising out of or under or in
any manner relating to this Agreement or any other agreement, instrument or
document in connection herewith;
(v) to make, execute, acknowledge and deliver all such other
agreements, guarantees, orders, receipts, endorsements, notices, requests,
instructions, certificates, stock powers, letters and other writings, and, in
general, to do any and all things and to take any and all action that the
Stockholders' Agent, in his sole and absolute discretion, may consider necessary
or proper or convenient in connection with or to carry out the activities
described in paragraphs (i) through (iv) above and the transactions contemplated
by this Agreement and all other agreements, documents or instruments referred to
herein or therein or executed in connection herewith or therewith.
The grant of authority provided for in this Section 10.1: (i) is coupled
with an interest and is being granted, in part, as an inducement to TTIS and
Merger Sub to enter into this Agreement and shall be irrevocable and survive the
death, incompetency, bankruptcy or liquidation of any Stockholder and shall be
binding on any successor thereto; (ii) subject to the provisions of Section
10.1(j) below, may be exercised by the Stockholders' Agent acting by signing as
a Stockholders' Agent of each of the Stockholders; and (iii) shall survive the
delivery of an assignment by any Stockholder of the whole or any fraction of
his, her or its interest in this Agreement or any payment to be made to such
Stockholder hereunder.
(b) In connection with the performance of his obligations hereunder,
the Stockholders' Agent shall have the right at any time and from time to time
to select and engage, at the cost and expense of the Stockholders, attorneys,
accountants, investment bankers, advisors, consultants and clerical personnel
and obtain such other professional and expert assistance, and maintain such
records, as the Stockholders' Agent may deem necessary or desirable and incur
other out-of-pocket expenses.
(c) The Stockholders' Agent shall have the right to open such
account or accounts, which, in the discretion of the Stockholders' Agent, may or
may not be interest-bearing accounts, in his own name as Stockholders' Agent of
the Stockholders in any bank or trust company as he may select in order to
deposit all sums which he may receive and hold hereunder and to issue checks or
draw money upon his signature (or the signature of one or more Persons the
Stockholders' Agent may designate) on each such account. In accordance with
Section 1.5(a)(i) of this Agreement, an amount of $50,000 shall be withheld from
the initial cash payment to be paid to the Stockholders and deposited in an
account established in the name of the Stockholder's Agent for purposes of this
Section 10.1. The Stockholders' Agent shall have no responsibility or obligation
whatsoever to any of the Stockholders or to any other Person for
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the performance of any accounts or investments made in accordance with the
provisions of this Agreement or for any losses realized by any thereof.
(d) The Stockholders' Agent shall be entitled to the payment of all
of his out-of-pocket expenses incurred as Stockholders' Agent, and in
furtherance of the foregoing, may pay or cause to be paid or reimburse himself
for the payment of any and all such expenses (it being understood that neither
TTIS nor the Company shall be responsible for any such payments).
(e) In dealing with this and any instruments, agreements or
documents relating thereto, and in exercising or failing to exercise all or any
of the powers conferred upon the Stockholders' Agent hereunder or thereunder,
(i) the Stockholders' Agent shall not assume any, and shall incur no,
responsibility whatsoever to any of the Stockholders by reason of any error in
judgment or other act or omission performed or omitted hereunder or in
connection with this Agreement or any other agreement, instrument or document
other than with respect to willful misconduct or gross negligence on the part of
the Stockholders' Agent, and (ii) the Stockholders' Agent shall be entitled to
rely in good faith on the advice of counsel, public accountants or other
independent experts experienced in the matter at issue, and any error in
judgment or other act or omission of the Stockholders' Agent pursuant to such
advice shall in no event subject the Stockholders' Agent to liability to any of
the Stockholders of Seller's Stock or any other Person.
(f) Each of the Stockholders shall indemnify the Stockholders' Agent
pro rata, based on the number of shares of the Company held by each Stockholder
immediately prior to the Effective Time, against all damages, liabilities,
claims, obligations, costs and expenses, including reasonable attorneys',
accountants' and other experts' fees and the amount of any judgment against
them, of any nature whatsoever, arising out of or in connection with any claim,
investigation, challenge, action or proceeding or in connection with any appeal
thereof, relating to the acts or omissions of the Stockholders' Agent hereunder
or otherwise. The foregoing indemnification shall not be deemed exclusive of any
other right to which the Stockholders' Agent may be entitled apart from the
provisions hereof.
(g) All of the indemnities, immunities and powers granted to the
Stockholders' Agent under this Agreement shall survive the Closing and/or any
termination of this Agreement.
(h) TTIS shall be entitled to deal exclusively with the
Stockholders' Agent on all matters relating to this Agreement and shall be
entitled to rely conclusively (without further evidence of any kind whatsoever)
on any document executed or purported to be executed on behalf of any
Stockholder by the Stockholders' Agent, and on any other action taken or
purported to be taken on behalf of any Stockholder by the Stockholders' Agent,
as fully binding upon such Stockholder.
(i) If the Stockholders' Agent shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the
Stockholders, then the Stockholders (by majority vote based upon the number of
shares held by the Stockholder in the Company immediately prior to the Effective
Time) shall, within ten days after such death or disability,
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appoint a successor agent and, promptly thereafter, shall notify TTIS of the
identity of such successor. Any successor Stockholders' Agent shall have all of
the authority and responsibilities conferred upon or delegated to a
Stockholders' Agent pursuant to this Section 10.1. If for any reason there is no
Stockholders' Agent at any time, all references herein to the Stockholders'
Agent shall be deemed to refer to the Designated Stockholders.
(j) The Stockholders' Agent may be removed at any time by a written
notice to the Stockholders' Agent, the Stockholders and TTIS delivered by
Stockholders holding a majority vote (based upon the number of shares held by
the Stockholders in the Company immediately prior to the Effective Time). A
Stockholders' Agent so removed shall be replaced promptly in accordance with
Section 10.1(i).
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees and Expenses.
(a) Each party to this Agreement shall bear and pay all fees, costs
and expenses (including legal fees and accounting fees and including any special
bonuses or change of control payments payable by the Company if the Merger is
consummated) that have been incurred or that are 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 TTIS and its Representatives
with respect to the Company's business (and the furnishing of information to
TTIS and its Representatives in connection with such investigation and review),
(b) the negotiation, preparation and review of this Agreement (including the
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. Any Stockholder who retains counsel or
advisors (other than counsel to the Company) to advise or represent such
Stockholder in connection with such transaction shall be responsible for paying
such fees and shall not seek reimbursement from TTIS or the Company.
Notwithstanding anything to the contrary contained in this Section, the
Stockholders and TTIS shall each bear and pay 50% of all filing fees required to
be paid under the HSR Act, in connection with the transactions contemplated
hereby. Immediately prior to the Effective Time, the Company shall provide to
TTIS the amount of all of its accrued transaction costs (will shall include a
good faith estimate of any amounts that have not yet been billed and paid) and
TTIS shall reduce the cash Merger Consideration payable by the total amount of
the Company's transaction costs.
(b) Notwithstanding the foregoing, if the Company and/or any of the
Stockholders elect not to consummate this transaction, other than as a result of
a breach of Section 4.4 hereof, they shall pay TTIS's actual transaction costs,
fees and expenses incurred up
44.
<PAGE>
to $75,000. In the event that the Company and/or the Stockholders fail to
consummate this transaction as a result of a breach of Section 4.4 hereof, then
so long as TTIS does not first withdraw from this transaction, the Company and
the Stockholders shall pay TTIS's actual transaction costs, fees and expenses up
to $250,000. If TTIS elects not to consummate this transaction, other than due
to a material adverse change as set forth in Section 6.11 or other than failure
of the conditions to closing set forth in Sections 6.1, 6.2, 6.3 or 6.4, it
shall pay the Company's transaction costs, fees and expenses incurred up to
$250,000.
10.4 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).
10.5 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 TTIS:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
Attention: Ira Frazer, Esq., General Counsel
Telephone: (858) 552-9500
Facsimile: (858) 597-9055
with a copy to:
Barbara L. Borden, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Telephone: (858) 550-6000
Facsimile: (858) 453-3555
if to the Company: Atlantic Aerospace Electronics Corporation
6404 Ivy Lane, Suite 300
Greenbelt, MD 20770-1406
Telephone: (301) 220-1501
Facsimile: (301) 982-5278
with a copy to: Pillsbury Madison & Sutro LLP
1100 New York Avenue, N.W.
Washington, D.C. 20005-3918
Attention: Keith J. Mendelson, Esq.
Telephone: (202) 861-3593
45.
<PAGE>
Facsimile: (202) 822-0944
if to Stockholders' Agent:
Charles A. Fowler
15 Woodberry Road
Sudbury, MA 01776
Telephone: (978) 443-7509
Facsimile: (978) 443-7509
10.6 Confidentiality. Without limiting the generality of anything
contained in Section 5.5, 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 TTIS.
10.7 Time of the Essence. Time is of the essence of this Agreement.
10.8 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.
10.9 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.
10.10 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).
10.11 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); TTIS 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 1.7); TTIS; Merger Sub; the other Indemnitees
(subject to Section 9.7); and the respective successors and assigns (if any) of
the foregoing. TTIS may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 9), in whole or in
part, to any other Person without obtaining the consent or approval of any other
party hereto or of any other Person.
10.12 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
46.
<PAGE>
observance and performance of such covenant, obligation or other provision, and
(b) an injunction restraining such breach or threatened breach.
10.13 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
10.14 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.
10.15 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.16 Parties in Interest. Except for the provisions of Sections 1.5, 1.8
and 1.9 and 9, 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).
10.17 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 the Mutual Non-Disclosure
Agreement executed on behalf of TTIS and the Company on __________, ____ shall
not be superseded by this Agreement and shall remain in effect in accordance
with its terms until the earlier of (a) the Effective Time, or (b) the date on
which such Mutual Non-Disclosure Agreement is terminated in accordance with its
terms.
10.18 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.
47.
<PAGE>
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.19 Negotiation of Disputes. Except as provided in Section 1.5(a)(ii)(7)
if a dispute arises between the parties relating to the interpretation or
performance of this Agreement or any other agreement or instrument that is an
exhibit to this Agreement or the grounds for the termination thereof, and the
parties cannot resolve the dispute within thirty days of a written request by
either party to the other, such dispute shall be referred to the Chief Financial
Officer of TTIS and the Stockholders' Agent for resolution. Such persons shall
hold a meeting to attempt in good faith to negotiate a resolution of the dispute
prior to pursuing other available remedies. If within 10 business days after
such meeting, the Chief Financial Officer of TTIS and the Stockholders' Agent
have not succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to arbitration as set forth in Section 10.19(a) below:
(a) Arbitration. Except as provided in Section 1.5(a)(ii)(1)
disputes that have not been successfully resolved pursuant to Section 10.19
above shall be submitted to final and binding arbitration under the then current
commercial rules and regulations of JAMS Endispute ("JAMS") relating to
voluntary arbitration in San Diego, California. The arbitration shall be
conducted by three arbitrators, one selected by each party to the arbitration
and one selected by arbitrators appointed by the parties. If the arbitrators
cannot agree on a third arbitrator, the third arbitrator shall be selected in
accordance with the JAMS rules. If a party fails to designate an arbitrator
within the time limits set by the JAMS rules, the arbitrator selected by the
other party shall be the sole arbitrator. All arbitrators must be knowledgeable
in the subject matter at issue in the dispute. Each party shall initially bear
its own costs and legal fees associated with such arbitration and the parties
shall split the cost of the arbitrators. The prevailing party in any such
arbitration shall be entitled to recover from the other party the reasonable
attorneys' fees, costs and expenses incurred by such prevailing party in
connection with such arbitration. The decision of the arbitrator(s) shall be
final and may be sued on or enforced by the party in whose favor it runs in any
court of competent jurisdiction at the option of the successful party. The
rights and obligations of the parties to arbitrate any dispute relating to the
interpretation or performance of this Agreement or the grounds for the
termination thereof, shall survive the expiration or termination of this
Agreement for any reason. The arbitrator(s) shall be empowered to award specific
performance, injunctive relief and other equitable remedies as well as damages,
but shall not be empowered to award punitive or exemplary damages or award any
damages in excess of any limitations set forth in this Agreement.
48.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of July 1, 1999.
TITAN TECHNOLOGIES AND INFORMATION
SYSTEMS CORPORATION,
a Delaware corporation
By: _____________________________
Its: _____________________________
TTIS MERGERCO, INC.,
a Delaware corporation
By: _____________________________
Its: _____________________________
ATLANTIC AEROSPACE ELECTRONICS
CORPORATION,
a Delaware corporation
By: _____________________________
Its: _____________________________
[AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
<PAGE>
DESIGNATED STOCKHOLDERS:
_________________________________
ROBERT S. COOPER
_________________________________
V. LARRY LYNN
_________________________________
A. CHARLES BUFFALANO
[AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
<PAGE>
EXHIBIT A
DESIGNATED STOCKHOLDERS
Robert S. Cooper
V. Larry Lynn
A. Charles Buffalano
A-1.
<PAGE>
EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
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 Disclosure
Schedule), as it may be amended from time to time.
Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
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, 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 less
B-1.
<PAGE>
amounts recovered through insurance (provided that the claim does not cause an
increase in the Surviving Company's or its affiliates insurance premiums).
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to TTIS on behalf of the Company and
the Designated Stockholders.
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.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
First Payment. "First Payment" shall mean any of the contingent payment
amount earned in accordance with Section 1.5(a)(ii) on or before the First
Payment Date.
"First Payment Date. "First Payment Date" shall mean the last business day
of the month which is the twenty-first month after the month in which the
Closing occurs.
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.
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
B-2.
<PAGE>
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 the following Persons: (a) TTIS; (b)
TTIS's current and future affiliates (including the Surviving Corporation); (c)
the respective Representatives of the Persons referred to in clauses "(a)" and
"(b)" above; and (d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)" and "(c)" above; provided, however, that the
Designated Stockholders shall not be deemed to be "Indemnitees."
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit
(other than federal income tax audits), 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 Designated Stockholders' 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 Company's business, condition, assets, liabilities,
operations, financial performance or prospects.
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, 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-3.
<PAGE>
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Second Payment. "Second Payment" shall mean any of the contingent payments
earned in accordance with Section 1.5(a)(ii) on or before June 30, 2002 that
were not earned on or before the First Payment Date.
Second Payment Date. "Second Payment Date" shall mean the last business
day of the month which is the thirty-ninth month after the month in which the
Closing occurs.
Second Payment Earn Date. "Second Payment Earn Date" shall mean the last
business day of the month which is the thirty-sixth month after the month in
which the Closing occurs.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Stockholders' Agent. "Stockholders' Agent" shall have the meaning assigned
to such term in Section 10.1 of the Agreement.
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.
Year 2000 Compliant. "Year 2000 Compliant" shall mean, in regard to any
product or internal system, that such product or internal system can
individually continue to be used normally and to operate successfully (both in
functionality and performance in all material respects) over the transition into
the twenty first century when used in accordance with the documentation relating
to such product or internal system, including being able to, before, on and
after January 1, 2000 substantially conform to the following: (i) use logic
pertaining to dates that allow users to identify and/or use the century portion
of any date fields without special processing; and (ii) respond to all date
elements and date input so as to resolve any ambiguity as to century in a
disclosed, defined and pre-determined manner and provide date information in
ways that are unambiguous as to century, either by permitting or requiring the
century to be specified or where the data element is represented without a
century, the correct century is unambiguous for all manipulations involving that
element.
B-4.
<PAGE>
EXHIBIT C
PRINCIPAL STOCKHOLDERS
Harry B. Lee
Robert Stovall
Ted Bially
Robert Schneider
C-1.
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
SOLIANCE NETWORKS, LLC
Dated as of August 25, 1999
<PAGE>
THIS LIMITED LIABILITY COMPANY AGREEMENT of SOLIANCE NETWORKS, LLC a
Delaware limited liability company (the "Company"), is made and effective as of
August 25, 1999, among Sempra Energy Information Solutions, a California
corporation ("SEIS"), Modis, Inc., a Florida corporation ("Modis"), and
Cayenta.com, a Delaware corporation, ("Cayenta") (SEIS, Modis and Cayenta are
collectively referred to herein as the "Members").
WHEREAS, the Members desire to form the Company under the Delaware
Act for the purposes and upon the terms and conditions set forth herein;
WHEREAS, the Members desire that the Company be their vehicle for
the provision of certain products and services supporting underlying business
processes to be marketed to organizations within the energy, water, and utility
industries on the terms and conditions set forth herein; and
WHEREAS, Modis, SEIS and Cayenta have agreed to provide certain
necessary services to the Company pursuant to the Management Service Agreements.
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINED TERMS
SECTION 1.01 Definitions. Each of the following terms shall have the
meaning provided in the Section or Schedule set forth opposite such term:
Term Section
---- -------
Adjusted Capital Account Schedule 1.01
Adjusted Capital Account Deficit Schedule 1.01
Affiliate Schedule 1.01
Agreement Schedule 1.01
Appraiser 11.02
Asset Value Schedule 1.01
Auditors 9.01
Bankruptcy Schedule 1.01
Business Day Schedule 1.01
Capital Account Schedule 1.01
Capital Contribution Schedule 1.01
Cayenta Preamble
1
<PAGE>
Cayenta Dedicated Assets 4.02
Cayenta Initial Membership Units 5.02
Cayenta Representatives 6.03
Certificate Schedule 1.01
Chairman 6.03
Code Schedule 1.01
Company Preamble
Company Business Schedule 1.01
Company Minimum Gain Schedule 1.01
Conversion 16.01
Conversion Date 16.01
Corporation 16.01
Covered Person Schedule 1.01
Customer Contract Schedule 1.01
Debt Schedule 1.01
Dedicated Assets Schedule 1.01
Delaware Act Schedule 1.01
Delinquent Member 4.04
Depreciation Schedule 1.01
Existing Programs 14.01
Fair Market Value 11.02
Fiscal Year Schedule 1.01
Former Member 11.02
GAAP Schedule 1.01
Information 14.04
Interest Rate Schedule 1.01
License Agreement 4.02
Liens Schedule 1.01
Liquidating Trustee 11.03
Majority Vote Schedule 1.01
Management Services Agreement 4.02
Managing Members Schedule 1.01
Marketable Securities Schedule 1.01
Member Schedule 1.01
Member Nonrecourse Debt Schedule 1.01
Member Nonrecourse Debt Minimum Gain Schedule 1.01
Member Nonrecourse Deductions Schedule 1.01
Members Preamble
Members Committee 6.03
Membership Unit Schedule 1.01
Modis Preamble
Modis Dedicated Assets 4.02
Modis Initial Membership Units 5.02
Modis Representatives 6.03
Net Distributable Cash Schedule 1.01
2
<PAGE>
Non-Delinquent Members 4.04
Nonrecourse Deductions Schedule 1.01
Nonrecourse Liability Schedule 1.01
Officers 6.11
Person Schedule 1.01
President 6.11
Products Schedule 1.01
Property Schedule 1.01
Regulations Schedule 1.01
Regulatory Allocations 7.03
Related Agreements Schedule 1.01
Representatives 6.02
SEIS Preamble
SEIS Dedicated Assets 4.02
SEIS Initial Membership Unit 5.02
SEIS Representatives 6.03
Services Agreement Schedule 1.01
Subsidiary or Subsidiaries Schedule 1.01
Transfer Schedule 1.01
Transferee Schedule 1.01
Unanimous Vote Schedule 1.01
Unrecovered Capital 16.01
ARTICLE II
FORMATION AND TERM
SECTION 2.01 Formation.
(a) The parties hereto hereby form and confirm the formation of the
Company as a limited liability company under and pursuant to the provisions of
the Delaware Act and all other pertinent laws of the State of Delaware for the
purposes and upon the terms and conditions hereinafter set forth. The parties
hereto agree that the rights, duties and liabilities of the initial Members and
any additional Member admitted to the Company in accordance with the terms
hereof shall be as provided in the Delaware Act, except as otherwise provided
herein.
(b) The name and mailing address of each Member shall be listed on
Schedule 2.01 attached hereto. Each of SEIS, Modis and Cayenta is hereby
admitted as a Member of the Company. Additional Members shall be admitted as
Members of the Company in accordance with Article X. The Chief Executive
Officer, or a designee of the Chief Executive Officer, shall be required to
update Schedule 2.01 from time to time, as necessary to reflect accurately the
information herein as known by the Chief Executive Officer, but no such update
shall modify Schedule 2.01 in any manner inconsistent with this Agreement or the
Delaware Act. Any amendment or revision to Schedule 2.01 made in accordance with
this Agreement shall not be deemed an amendment to this Agreement for purposes
of Section 17.12. Any reference in this
3
<PAGE>
Agreement to Schedule 2.01 shall be deemed to be a reference to Schedule 2.01,
as amended and in effect from time to time.
(c) The President, or a designee of the Chief Executive Officer, is
hereby designated as an authorized person, within the meaning of the Delaware
Act, to execute, deliver and file, or to cause the execution, delivery and
filing of, any amendments or restatements of the Certificate and any other
certificates, notices, statements or other instruments (and any amendments or
restatements thereof) necessary or advisable for the formation of the Company or
the operation of the Company in all jurisdictions where the Company may elect to
do business, but no such amendment, restatement or other instrument may be
executed, delivered or filed unless adopted in a manner authorized by this
Agreement.
SECTION 2.02 Name. The name of the Company is Soliance Networks. The
business of the Company may not be conducted under any other name unless all the
parties hereto expressly agree in writing.
SECTION 2.03 Term. The term of the Company shall commence, and the
Certificate shall be filed in the office of the Secretary of State of the State
of Delaware, on the date hereof and shall continue for a term as set forth in
the Certificate of Formation, subject to the provisions set forth in Article XI
and applicable law. The existence of the Company as a separate legal entity
shall continue until cancellation of the Certificate in the manner required by
the Delaware Act or this Agreement.
SECTION 2.04 Principal Place of Business. The principal place of
business of the Company shall be SEIS's principal place of business, whether in
California or otherwise, or such other place as the Members Committee may
determine from time to time, and the Company shall have other regional offices
and operations as the Members Committee may determine from time to time.
SECTION 2.05 Title to Company Property. All property of the Company,
whether real, personal or mixed, tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually, shall have any
direct ownership interest in such property. At no time will the Company own or
include in Company Property, the SEIS Dedicated Assets, the Modis Dedicated
Assets or the Cayenta Dedicated Assets.
SECTION 2.06 Agent for Service of Process. The Company's registered
agent for service of process in the State of Delaware shall be as set forth in
the Certificate, as the same may be amended by the Members Committee from time
to time.
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ARTICLE III
PURPOSE AND POWER OF THE COMPANY
SECTION 3.01 Purpose. The purpose of the Company is to engage in (a)
the Company Business and (b) any and all lawful activities in accordance with
the Delaware Act which the Members Committee deems necessary or advisable in
connection with the Company Business.
SECTION 3.02 Powers of the Company. Subject to the limitations set
forth in this Agreement, the Company will possess and may exercise all of the
powers and privileges granted to it by the Delaware Act, by any other law or
this Agreement, together with all powers incidental thereto, so far as such
powers are necessary or convenient to the conduct, promotion or attainment of
the purpose of the Company set forth in Section 3.01.
SECTION 3.03 Maintenance of Separate Existence. The Company shall do
all things necessary to maintain its limited liability company existence
separate and apart from each Member and any Affiliate of any Member, including
holding regular meetings of the Members and maintaining its books and records on
a current basis separate from that of any Affiliate of the Company or any other
Person, and shall not commingle the Company's assets with those of any Affiliate
of the Company or any other Person. In furtherance, and not in limitation, of
the foregoing, the Company shall not:
(a) Authorize or permit any Person, other than the Chief Executive
Officer, to act on its own behalf with respect to matters (other than matters
customarily delegated to others under powers of attorney) for which a limited
liability company's members or managing member would customarily be responsible;
(b) Fail (i) to maintain, or cause to be maintained by an agent
under the Company's control, physical possession of all its books and records,
(ii) to maintain capitalization adequate for the conduct of its business, (iii)
to account for and manage all of its liabilities separately from those of any
other Person, including payment by it of administrative expenses and taxes,
other than income taxes, from its own assets, or (iv) to the extent practicable,
to identify or cause to be identified, on its books and records or otherwise,
separately all of its assets from those of any other Person;
(c) Except as contemplated by the preceding clause (b) or Section
4.03, commingle or permit the commingling of its funds with the funds of any
Member or any Affiliate of any Member or use its funds for other than the
Company Business; or
(d) Except as contemplated by Section 4.03, maintain or permit the
maintenance of joint bank accounts or other depository accounts to which any
Member would have independent access.
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ARTICLE IV
CAPITAL CONTRIBUTIONS, RELATED
AGREEMENTS, DEDICATION OF ASSETS,
CAPITAL ACCOUNTS AND ADVANCES
SECTION 4.01 Capital Contributions.
(a) SEIS. In exchange for the SEIS Initial Membership Units, SEIS
hereby agrees to make a Capital Contribution of $4,000,000 as provided in
Section 4.01(d) below.
(b) Modis. In exchange for the Modis Initial Membership Units, Modis
hereby agrees to make a Capital Contribution of $5,000,000 as provided in
Section 4.01(d) below.
(c) Cayenta. In exchange for the Cayenta Initial Membership Units,
Cayenta hereby agrees to make a Capital Contribution of $5,000,000 as provided
in Section 4.01(d) below.
(d) Initial Capital Contributions. SEIS, Modis and Cayenta shall
make their respective Initial Capital Contribution on or before October 1, 1999
after receiving appropriate wire instructions from the Company.
SECTION 4.02 Related Agreements: Dedication of Assets.
(a) SEIS. SEIS hereby agrees:
(i) to enter into (A) a Management Services Agreement with the
Company for Energy Commodity Products dated and effective as of the date hereof
in form and substance satisfactory to the Members ( "Management Services
Agreement") and (B) an intellectual property license agreement with the Company
effective as of the date hereof in form and substance satisfactory to the
Members ("License Agreement"), and
(ii) to make available to the Company on a non-exclusive
basis, to the extent requested by the Members Committee and approved by SEIS,
such other assets, facilities and services as the Members Committee may
reasonably request at any time (such assets, facilities and services being the
"SEIS Dedicated Assets"). The Company shall have no right to the earnings or
other financial results of any such dedicated assets.
(iii) to provide Company a restricted source code license in
perpetuity to the Sempra Energy Enterprise Frameworks (EFX) and its related
components. SEIS shall provide Modis and Cayenta a restricted source code
license in perpetuity to the EFX for use in their respective businesses outside
of the American gas, water and electric utility industries. In the event of a
dissolution and winding up of the Company by SEIS, Cayenta and Modis shall
receive an unrestricted source code license in perpetuity to the Sempra Energy
Enterprise Frameworks (EFX) and its related components subject to Section 14.01
herein.
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(b) Modis. Modis hereby agrees:
(i) to enter into (A) a Management Services Agreement with the
Company dated and effective as of the date hereof in form and substance
satisfactory to the Members, and (B) a License Agreement, and
(ii) to make available to the Company on a non-exclusive
basis, to the extent requested by the Members Committee pursuant to a Majority
Vote and approved by Modis, such other assets, facilities and services as the
Members Committee may reasonably request at any time (such assets, facilities
and services being the " Modis Dedicated Assets"). The Company shall have no
right to the earnings or other financial results of any such dedicated assets.
(c) Cayenta. Cayenta hereby agrees:
(i) to enter into (A) a License Agreement, and (B) a
Management Services Agreement, and
(ii) to make available to the Company on a non-exclusive
basis, to the extent requested by the Members Committee and approved by Cayenta,
such other assets, facilities and services as the Members Committee may
reasonably request at any time (such assets, facilities and services being the
"Cayenta Dedicated Assets"). The Company shall have no right to the earnings or
other financial results of any such dedicated assets.
(d) All parties shall have the right of first refusal to provide any
and all personnel for internal and external development activities, projects, or
maintenance requirements for all areas outlined in the Company's Service Level
Agreement.
(e) Compensation.
(i) The Company shall pay SEIS, Modis and Cayenta the amounts
due them in accordance with the Management Services Agreement or the License
Agreement to which such Member shall be a party. All licenses granted to the
Company under the License Agreements shall be royalty-free.
(ii) The Company shall pay SEIS, Modis and Cayenta an amount
for the use of the SEIS Dedicated Assets, the Modis Dedicated Assets or the
Cayenta Dedicated Assets, respectively.
(iii) The Members Committee shall adopt guidelines to
calculate costs under Related Agreements and for use of Dedicated Assets. Such
guidelines shall not include as a cost salaries and benefits of senior
executives of such Member. Within five Business Days of the last day of each
month, each Member shall notify the Company in writing of the compensation due
for services under its Related Agreement and for the use of its Dedicated
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Assets, during the preceding month. Should the Company not pay said sum, or any
part thereof, within 30 calendar days from the date of the monthly invoice (A)
interest at the Interest Rate shall be additionally due and owing on the unpaid
balance from the date past due and (B) the Member to which such sum is owed
shall, effective 30 days following the delivery of written notice to the
Company, have no further obligation pursuant to its Related Agreement to perform
thereunder or pursuant to Section 4.02 to make available to the Company any of
its Dedicated Assets until such unpaid balance plus all accrued interest shall
have been paid; provided, that no Member shall be relieved of any of its
obligations pursuant to a Related Agreement to perform such services or pursuant
to this Section 4.02 to make available its Dedicated Assets if, following the
delivery of written notice pursuant to this clause (B) but prior to 30 days
following such delivery, the Company shall deliver to the relevant Member
written notice setting forth in reasonable detail why the Company in good faith
believes no unpaid amount is owed pursuant to its Related Agreement or this
Section 4.02. Such Member will research the items in question and resolve any
differences with the Company. In the event any amount that was paid by the
Company was not properly owed, then within 30 days after the delivery of such
notice, the Company shall be reimbursed that amount with interest at the
Interest Rate from the date the original payment was received until the
adjustment was refunded. Upon the dissolution and winding up of the Company,
each Member will bill the Company for the actual costs it incurred since the
last billing under the terms and conditions mentioned above and the Company
shall pay promptly such Member.
(f) Audit Rights. The Company shall conduct an annual audit to
examine the costs, payments, and/or settlements charged to the Company pursuant
to Section 4.02(d) in respect of Related Agreements and Dedicated Assets. Such
audit shall take place in the first quarter of each year for the immediately
preceding year and be conducted by the Auditors who shall report the findings to
the Member's Committee no later than April 15 of each year. By unanimous vote
the Members may elect not to conduct such audit. In any event each Member
reserves the right to designate its own employee representative, or its
contracted representative, who shall have the right to audit and to examine any
cost, payment, settlement, or supporting documentation charged to the Company
pursuant to Section 4.02(d) in respect of any other Member's Related Agreement
or Dedicated Assets. Any such audit shall be undertaken at the expense of the
party requesting such audit at reasonable times and in conformance with
generally accepted auditing standards. The Company and each Member agree to
fully cooperate with any such audit. The right to audit shall extend during the
term of this Agreement and for a period of two years following the date of final
payment by the Company to such Member. Each Member and its respective Affiliates
shall retain all necessary records/documentation for two years, or such longer
period as may be required by order, law, regulation or rule, after the year to
which they pertain. Each Member and the Company will be notified in writing of
any exception taken as a result of an audit. If the auditing Member and the
audited Member agree that the Company has been overcharged with regard to the
audited Member's Related Agreement or Dedicated Assets, such Member shall refund
the agreed upon amount plus interest to the Company within 30 days (or,
alternatively, with prior written approval of the Company, deduct the dollar
amount from the next invoice submitted to the Company). In the event agreement
is not reached within 30 days of delivery of the notice referred to above, the
matter shall be referred to the Auditors who shall decide such matter within 60
days of such referral. The fees of the Auditors in
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connection with such matter shall be paid by the party against which the
Auditors decide. Interest will be computed at the Interest Rate from the date
the excess payment was made by the Company until the repayment or offset was
made.
SECTION 4.03 Additional Funding.
(a) In the event that the Members Committee determines pursuant to a
Majority Vote that additional capital or credit support is required by the
Company, it will be funded through any or a combination of the following
mechanisms at the option of the Members Committee:
(i) pursuant to a Majority Vote through revolving credit
facilities or other credit support from third parties (such as banks);
(ii) pursuant to a Majority Vote through credit support,
subject to availability, from SEIS and/or its Affiliates (by means of guaranty
or otherwise);
(iii) pursuant to a Unanimous Vote through additional capital
contributions made by all Members at the same ratio as the initial capital
contributions. Unless approved by Unanimous Vote the maximum additional capital
contribution, shall be $2 million for SEIS; $2.5 million for Modis and $2.5
million for Cayenta. Unless a Member fails to make its capital contribution
hereunder, in which case such Member shall be subject to the terms of Section
4.04 herein, such contributions shall increase the number of Membership Units of
each Member by the ratio of the additional capital contribution to the initial
capital contribution.
(iv) pursuant to a Unanimous Vote through Member loans by each
of SEIS, Modis and Cayenta and/or their Affiliates (a schedule of anticipated
Member loans including repayment terms will be developed by the Company after
six months of operation hereunder); it being understood that such Member loans
shall not exceed an aggregate of $8 million and $1 million, and $1 million
respectively, for the first six months after the date hereof; or
(v) pursuant to a vote of the majority of the Members
representing at least the majority of the outstanding Member Units through
additional cash capital contributions made by existing Members, who elect to
make such additional contributions, or new member(s).
(b) In the event that such funding is to be made in the form of
Member loans or credit support, the Company shall notify SEIS, Modis, and/or
Cayenta, as the case may be, of the Member loans to be made or credit support to
be provided, pursuant to this Section 4.03 by delivering a written notice to
SEIS, Modis and/or Cayenta, specifying the aggregate amount of Member loans to
be made by each of them. In each case, the obligation of SEIS, Modis and/or
Cayenta to make Member loans or provide credit support, as the case may be, as
determined by the Members Committee, shall be subject to and conditioned on the
Company meeting funding criteria. The Members expect that the funding criteria
will be established by the Members Committee prior to January, 2000 and reviewed
and revised by the Members Committee from
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time to time based on the then current operations and business plans of the
Company. The amount of Member loans to be made by SEIS, Modis and/or Cayenta
shall be the product of (A) the aggregate amount of Member loans to be made and
(B) a fraction, the numerator of which shall be the aggregate number of
Membership Units owned by SEIS, Modis, or Cayenta, as the case may be, and the
denominator of which shall be the number of outstanding Membership Units owned
by the parties. The Member loans to be made by SEIS, Modis and Cayenta shall be
made in such amount as is specified in such notice in immediately available
funds by wire transfer or other similar means to a bank account designated by
the Company in such notice prior to the close of business on the fifth Business
Day following the date of delivery of such notice. Subject to paragraphs (c) and
(d) below, each Member loan shall be on such terms as to repayment and otherwise
as the Members by a Majority Vote shall agree.
(c) The Company shall, on demand, reimburse SEIS, Modis, Cayenta
and/or their Affiliates, as the case may be, for all costs and expenses directly
incurred by them in providing any Member loan, credit support or other extension
of credit to or for the benefit of the Company and reimburse them for all
amounts payable to third parties in connection with each such extension of
credit provided by them. The Company shall compensate SEIS, Modis, and Cayenta
for any Member loans made by them and for funds advanced under credit support
and the extensions of credit to or for the benefit of the Company by SEIS and/or
its Affiliates on a quarterly basis until repaid in full together with interest
thereon, by the payment of interest at the Interest Rate calculated from the
date each loan or advance is made until the date all outstanding principal and
interest thereon is paid in full. Member loans and funds advanced under credit
support or other extension of credit for the Company shall be repaid, in inverse
order of maturity, in equal quarterly installments over such period of time as
approximately two (2) years, provided, that, in addition to repayment of such
amounts in such equal quarterly installments, the Company shall make mandatory
prepayments out of Net Distributable Cash in respect of such Member loans and
funds advanced under credit support or other extension of credit for the Company
each quarter in an amount determined in accordance with Section 8.05(a)(iii)
hereof (after giving effect to any distributions called for by clauses (i) or
(ii) thereof), and upon withdrawal of such Member its Member loans and credit
supports and other extensions of credit for the Company shall be repayable on
the same terms as if such Member did not so withdraw. For purposes hereof, a
borrowing by SEIS, Modis, and/or Cayenta to fund a Member loan or credit support
or otherwise provide liquidity to or for the benefit of the Company, or the
extension to the Company of credit as an unmargined line shall, in every
instance, be treated as a Member loan.
(d) Notwithstanding any other provisions in this Agreement, the
obligations of the Members pursuant to this Section 4.03 shall not be, and shall
not be deemed to be, a guaranty, maintenance or support agreement or other
similar agreement, or under any circumstances utilized to satisfy the general or
other obligations and liabilities of the Company.
SECTION 4.04 Delinquent Members. If SEIS, Modis, or Cayenta
wrongfully fails to timely advance all or any portion of any capital
contributions or Member loans that it has agreed to make pursuant to the
provisions of this Article IV, within 15 days following notice by the Company to
such Member (the "Delinquent Member") of such failure, the Company may exercise
any one or more of the following rights or remedies:
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(a) Taking such action as the Managing Members other than the
Delinquent Member deem appropriate to obtain payment or provision by the
Delinquent Member of that portion of its agreed advance or credit support that
is in default, together with interest thereon at the Interest Rate from the date
that such advance or credit support was due until the date that such advance is
made, at the cost and expense of the Delinquent Member; and
(b) Permitting those Members that desire to do so (the
"Non-Delinquent Members") to advance that portion of the advance that is in
default, with the result that, the sum thus advanced shall be determined to be a
loan from the Non-Delinquent Members to the Delinquent Member pursuant to this
Article IV. The loan shall have the following terms: (A) the principal balance
of such loan and all accrued unpaid interest thereon shall be due and payable in
whole within thirty days after written demand therefor has been given to the
Delinquent Member by the Non-Delinquent Members; (B) the loan shall bear
interest at the Interest Rate, from the date that the loan was made until the
date that such loan, together with all interest accrued thereon, is repaid to
the Non-Delinquent Members; (C) all distributions from the Company that would
otherwise be made to the Delinquent Member are hereby assigned by the Delinquent
Member to the Non-Delinquent Members (whether before or after dissolution of the
Company) until the loan and all interest accrued thereon have been repaid in
full to the Non-Delinquent Members (with all such payments being applied first
to interest earned and unpaid and then to principal); and (D) the Non-Delinquent
Members shall have the right, in addition to the other rights and remedies
granted to them pursuant to this Agreement or available to them at law or in
equity, to take such action as the Non-Delinquent Members deem appropriate to
obtain payment by the Delinquent Member of the principal balance of such loan
and all accrued and unpaid interest thereon, at the cost and expense of the
Delinquent Member.
SECTION 4.05 Status of Capital Contributions.
(a) No Member shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company or otherwise in its capacity as a Member,
except as otherwise specifically provided in this Agreement or in the Management
Services Agreements, or License Agreements. Except as otherwise expressly
provided herein, no Member will be permitted to borrow, make an early withdrawal
of, or demand or receive a return of any Capital Contributions. Under
circumstances requiring a return of any Capital Contributions, except as
otherwise expressly provided in this Agreement, no Member will have the right to
receive property other than cash.
(b) Except as otherwise provided herein, the Members shall be liable
only to make their Capital Contributions and Member loans and other credit
support pursuant to this Article IV, and no Member shall otherwise be required
to lend any funds to the Company or, after a Member's Capital Contributions have
been fully paid pursuant to this Article IV, to make any additional capital
contributions to the Company. No Member shall have any personal liability for
the repayment of any Capital Contribution of any other Member or Transferee. A
Member's obligation to contribute capital to the Company is conditional (within
the meaning of Section 18-502(b) of the Delaware Act), payable only to the
extent, and only in such amounts,
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required to be paid to the Company pursuant to this Agreement. Notwithstanding
any other provision in this Agreement, the obligations of the Members pursuant
to this Section 4.05 shall not be, and shall not be deemed to be, a guaranty,
maintenance or support agreement or other similar agreement, or under any
circumstances utilized to satisfy the general or other obligations and
liabilities of the Company.
SECTION 4.06 Capital Accounts.
(a) An individual Capital Account shall be established and
maintained for each Member.
(b) The Capital Account of each Member shall be maintained in
accordance with the substantial economic effect and special rule provisions of
Regulations Sections 1.704-1(b)(2) and 1.704-2 and the following provisions:
(i) to each Member's Capital Account there shall be credited
such Member's Capital Contributions, such Member's distributive share of Net
Profits, any items in the nature of income or gain that are specially allocated
to such Member pursuant to Article VII and the amount of any Company liabilities
that are assumed by such Member or that are secured by any Company assets
distributed to such Member;
(ii) to such Member's Capital Account there shall be debited
the amount of cash and the Asset Value of any Company assets distributed to such
Member pursuant to any provision of this Agreement, such Member's distributive
share of Net Losses, any items in the nature of deductions or losses that are
specially allocated to such Member pursuant to Article VII and the amount of any
liabilities of such Member that are assumed by the Company or that are secured
by any property contributed by such Member to the Company;
(iii) in the event all or some of a Member's interest in the
Company is assigned in accordance with Article X, the assignee shall succeed to
the Capital Account of the assignor to the extent it relates to the assigned
interest; and
(iv) no Member shall be required to pay to the Company or to
any other Member or Person any deficit in such Member's Capital Account upon
liquidation (as such term is defined in Regulations Section
1.704-1(b)(2)(ii)(g)) of its interest in the Company or upon dissolution of the
Company or otherwise.
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ARTICLE V
MEMBERSHIP UNITS
SECTION 5.01 Membership Units. All Membership Units shall have
identical rights in all respects as all other Membership Units except as
otherwise specified in this Agreement. Each Member hereby agrees that its
interest in the Company and in its Membership Units shall for all purposes be
personal property. A Member shall have no interest in specific Company property.
SECTION 5.02 Initial Membership Units. Effective as of the date
hereof, SEIS shall have an aggregate of 800 Membership Units (the "SEIS Initial
Membership Units"), Modis shall have an aggregate of 100 Membership Units (the "
Modis Initial Membership Units"), and Cayenta shall have an aggregate of 100
Membership Units (the "Cayenta Initial Membership Units").
SECTION 5.03 Additional Membership Units. In the event additional
Membership Units shall be issued to an initial Member, or to any other Person
and such Person shall be admitted as a Member in accordance with Article X, the
Chairman (as defined in Section 6.03(a) shall amend Schedule 2.01 accordingly.
The Capital Contribution to be made by such Person except as provided for in
4.03(iii) shall be in the form and amount determined by Unanimous Vote and the
amount of such Capital Contribution shall be credited to such Person's Capital
Account.
ARTICLE VI
MANAGING MEMBERS; MEMBERS COMMITTEE;
MANAGEMENT COMMITTEE; AND OFFICERS
SECTION 6.01 Management by the Managing Members. The Company shall
be managed by the Managing Members.
SECTION 6.02 Power of Managing Members.
(a) The Managing Members shall have the power to exercise any and
all rights or powers granted to the Members pursuant to the terms of this
Agreement. In addition to the foregoing, the Managing Members shall have the
power to exercise any and all other rights or powers of the Company and do all
lawful acts and things as are not directed or required to be exercised or done
by the Company under the Delaware Act or this Agreement.
(b) With respect to the internal management of the Company, without
limiting the authority of the Managing Members, in their capacities as such, to
act for and bind the Company, the Managing Members shall act through their
designees (collectively, the "Representatives") on the Members Committee, who
may be replaced at any time by the Managing Member that appointed such
Representative (with or without cause), subject to Section 6.03(a). Any vote or
consent to be taken by the Managing Members shall be taken with
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the approval of not less than a Majority Vote of the Members Committee, except
as otherwise provided in the Delaware Act or this Agreement.
SECTION 6.03 Members Committee.
(a) The forum for meetings of the Managing Members shall be a
members committee (the "Members Committee"). Each Managing Member shall be
entitled to be represented at Members Committee meetings by its Representatives.
The total number of Representatives that shall be entitled to attend Members
Committee meetings shall be six, (i) of whom two shall be designated by SEIS
(the "SEIS Representatives"), (ii) two shall be designated by Modis (the " Modis
Representatives") and (iii) two shall be designated by Cayenta (the "Cayenta
Representatives"). In addition, the President of the Company shall be entitled
to participate but not vote in all Members Committee meetings unless the
President is also acting as a Representative of one of the Managing Members. The
Members Committee shall select a chairman (the "Chairman") from among the SEIS
Representatives, who shall preside over meetings of the Members Committee. The
SEIS Representatives shall be officers, directors or employees of SEIS or its
Affiliates, the Modis Representatives shall be officers, directors or employees
of Modis or its Affiliates, and the Cayenta Representatives shall be officers,
directors or employees of Cayenta or its Affiliates. The initial SEIS
Representatives, Modis Representatives and Cayenta Representatives are named on
Schedule 6.03. The number of Representatives in the Members Committee may be
amended by unanimous vote of the Members to accommodate new Members.
(b) In addition to the Members' Representatives, officers,
directors, employees or other representatives (including the accountants,
attorneys and/or financial advisors) of a Member and its Affiliates shall be
permitted to attend Members Committee meetings as observers, in accordance with
non-discriminatory rules to be adopted by the Members Committee.
(c) The Members Committee shall meet no less frequently than
semi-annually at such place and time as shall be determined by Majority Vote.
Special meetings of the Members Committee, to be held at the offices of the
Company as above provided (or such other place as shall be agreed by Majority
Vote), shall be called at the direction of the Chairman or a Managing Member
upon not less than five Business Days' notice given by the Chairman.
(d) With respect to quarterly meetings and special meetings, not
later than five Business Days before each such meeting the Chairman shall
deliver to each Managing Member, together with the notice of each such meeting,
an agenda specifying in reasonable detail the matters to be discussed at the
applicable Members Committee meeting. Any Managing Member that wishes to have
any additional matter discussed at any such meeting, shall give to the Chairman
and each other Managing Member not later than two Business Days prior to any
such meeting, notice of each matter it so wishes to discuss.
(e) At any meeting of the Members, every Member entitled to vote may
vote or attend in person or by proxy.
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(f) A quorum shall be at least one Representative of each Member.
Notwithstanding the above, if a Member has not attended two consecutive duly
noticed Member Meetings and does not attend the subsequent duly noticed
meeting(s), such Member will be deemed to be present so that a quorum will be
considered present. For any vote of the Members at such meeting the votes of the
absent Member shall be cast to concur with the majority vote of the Members who
are present.
(g) For each Membership Unit (or fraction thereof) of a Member, such
Member shall be entitled to one vote (or a corresponding fractional vote).
Member's votes may be cast by any one of its Representatives.
(h) Any one or more Members or Representatives or any committee
thereof may participate in a meeting of such Members, Members Committee or other
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
SECTION 6.04 Approval Required.
(a) Except as expressly required by the Delaware Act or by this
Agreement, no vote, consent or authorization of the Members shall be required
for the taking of any action on behalf of or with respect to the Company. The
Members Committee shall have authority with respect to all aspects of the
operation of the Company. Except as otherwise provided in the Delaware Act or in
this Agreement, action required to be approved by vote of the Members or Members
Committee shall be authorized if approved by a Majority Vote. Except as
otherwise provided herein, in every instance where this Agreement requires the
consent or authorization of Members or of any particular group of Members, such
consent or authorization need not be in writing.
(b) Without limiting the generality of the foregoing, the Company
shall not take any of the following actions except pursuant to an Unanimous
Vote:
(i) the conduct by the Company of any business other than, or
the engagement by the Company in any transaction not substantially related to,
the Company Business; it being understood that the approval of the modification
or expansion of Company Business or any component thereof, shall not by itself
modify or expand the scope of Section 14.01;
(ii) the amendment or restatement of the Articles, except as
otherwise permitted pursuant to Section 17.12;
(iii) the admission of a Member and the approval of any
Transfer by a Member of a Membership Interest or Member loan, except as
otherwise permitted pursuant to Section 10.01(a);
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(iv) the sale, transfer, lease, sublease, license or other
disposition by the Company to a third party of any material property or asset,
real, personal or mixed (including leasehold interests and intangible assets
other than in the ordinary course of the Company's Business); or grant a Lien on
any assets of the Company, other than pursuant to Section 4.03(d);
(v) the authorization, issuance, sale, acquisition, repurchase
or redemption by the Company of any Membership Units or other equity interest
(or option, warrant, conversion or similar right with respect to any equity
interest) in or of the Company, including but not limited to, the establishment
of a Membership Unit option plan and the granting of options or other rights
thereunder;
(vi) the merger or consolidation with, or acquisition of an
interest in, any Person other than in the ordinary course of the Company
Business, or the acquisition of a substantial portion of the assets or business
of any Person or any division or line of business thereof other than in the
ordinary course of the Company Business, or any other acquisition of material
assets not in the ordinary course of the Company Business, or the entering into
of any joint venture, partnership or similar arrangement;
(vii) the assumption or guarantee of any Debt of any third
party, other than of Members with respect to obligations incurred in accordance
with a Related Agreement or a Member loan, credit support or other extension of
credit to or for the benefit of the Company as contemplated by Section 4.03;
(viii) the commitment to any capital expenditure in excess of
$5 million;
(ix) other than pursuant to the types of contracts described
in clause (c)(vi) below and as contemplated by Section 4.03, the entering into
by the Company of any agreement, contract or arrangement pursuant to which the
Company is obligated to pay or entitled to receive payments in excess of
$5,000,000 over the term of such contract;
(x) the entering into, or amendment of, any (1) agreement,
arrangement or transaction, including a Related Agreement, with any officer,
Affiliate or Member of the Company (or any relative, beneficiary, employee or
Affiliate of such person), (2) any arrangement that would obligate the Company
to pay any employee in excess of $350,000 per year, or (3) any arrangement that
would obligate the Company to pay any employee compensation based on the net
profits, revenues or gross sales of the Company or any other contingent basis;
(xi) the commencement or settlement of any litigation for an
amount in excess of $1 million in any such commencement or settlement or series
of relate commencements or settlements; or
(xii) any change in the number of, or method of designating,
Representatives on the Members Committee;
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(xiii) the appointment of any President, chief executive
officer, or chief financial officer;
(xiv) (1) the dissolution, liquidation or winding up of the
Company, or
(2) the commencement of a voluntary proceeding
seeking reorganization or other similar relief;
(c) To avoid confusion, the Company shall be entitled to take any of
the following actions pursuant to a Majority Vote:
(i) any determination with respect to, or the sending of any
notice to SEIS, Modis, and Cayenta requesting, additional capital contributions,
credit support or Member loans pursuant to Section 4.03;
(ii) other than pursuant to the types of contracts described
in clause (vii) below, the incurrence, issuance, assumption or refinancing of
any Debt of the Company if the aggregate amount of such Debt and all other
outstanding Debt of the Company exceeds $5,000,000, other than Member loans,
credit supports or other extensions of credit to or for the benefit of the
Company as contemplated by Section 4.03;
(iii) the declaration, making or payment of any dividend or
distribution (whether in cash, securities or other property) to the Members or
otherwise;
(iv) the termination of any President, Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, General Manager,
President or Senior Vice President, or any person who performs similar
functions, or the selection or replacement of the independent auditors of the
Company; the appointment of any Chief Operating Officer, General Manager,
President or Senior Vice President, or any person who performs similar
functions;
(v) unless required by law or a change in GAAP, the making of
any material change in the accounting methods of the Company;
(vi) the initial public offering of securities by the Company
or the Conversion of the Company into a Corporation in connection therewith or
otherwise, including the authorization, issuance and sale by the Company of any
Membership Unit or other equity interest (or option, warrant, conversion or
similar right with respect to any equity interest) in or of the Company in
connection therewith.
(d) To avoid confusion, the President and/or Chief Financial Officer
of the Company are authorized to enter into contracts and commitments on behalf
of the Company up to a maximum $1 million and the Management Committee is
authorized to enter into such contracts and commitments up to a maximum of $5
million, without obtaining approval from the Members Committee.
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SECTION 6.05 Management Committee.
(a) The Members Committee may, by resolution passed by a Majority
Vote, appoint a Management Committee of three members, to serve at the pleasure
of the Members Committee, to consist of one member designated by each Member,
including as one of such three members, the President of the Company. Each
designee of a Member shall also be one of its Representatives. The Chairman of
the Management Committee, who shall preside over meetings of the Executive
Committee, shall be the President. The initial members of the Management
Committee are named on Schedule 6.03. Any member of the Management Committee may
be removed or replaced by the Member that designated such member.
(b) In addition to the members of the Management Committee,
designees, officers, directors, employees or other representatives (including
the accountants, attorneys and/or financial advisors) of a Member and its
Affiliates shall be permitted to attend Management Committee meetings as
observers, in accordance with non-discriminatory rules to be adopted by the
Management Committee.
(c) The Management Committee shall, by a vote of a majority of its
members, fix its own times and places of meeting, and prescribe its own rules of
procedure, no change in which shall be made save by a majority vote of its
members; provided, that no such rule shall be inconsistent with any provision of
this Agreement.
(d) During the intervals between the meetings of the Members
Committee, except as otherwise provided by the Members Committee in the
resolutions establishing the Management Committee or otherwise, the Management
Committee shall possess and may exercise all the powers of the Members Committee
in the management and direction of the business and affairs of the Company which
are legally delegable to a committee of Members; provided, that the Management
Committee shall not have the power to take any of the actions that require a
Unanimous Vote or Majority Vote of the entire Members Committee pursuant to
Section 6.04. All action taken by the Management Committee shall be subject to
review, amendment and repeal by the Members Committee; provided, that no rights
of third parties shall be adversely affected by any such review, amendment or
repeal. A quorum shall be at least two-thirds (2/3) of all members of the
Management Committee.
SECTION 6.06 Action by Written Consent. Any action required or
permitted to be taken by the Managing Members, the Members Committee or the
Management Committee, either at a meeting or otherwise, may be taken without a
meeting if Managing Members or Representatives having not less than the same
voting power required to approve such action at a meeting of the Managing
Members, the Members Committee or the Management Committee, as the case may be,
consent in writing and the writing or writings are filed with the minutes of
proceedings of the Managing Members, the Members Committee or the Management
Committee, as the case may be. At least two Business Days prior to the
effectiveness of any such action, written consent will be given by the President
or Secretary of the Company to those Managing Members who have not consented in
writing.
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SECTION 6.07 Telephonic Meetings. Managing Members and
Representatives may participate in a meeting of the Managing Members, the
Members Committee or the Management Committee, as the case may be, by means of a
conference telephone or similar communications equipment through 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.
SECTION 6.08 Company Minutes. The decisions and resolutions of the
Members, the Members Committee and the Management Committee shall be reported in
minutes, which shall state the date, time and place of the meeting (or the date
of the written consent in lieu of meeting), the Members or Representatives, as
the case be, present at the meeting, the resolutions put to a vote (or the
subject of a written consent) and the results of such voting (or written
consent). The minutes shall be entered in a minute book kept at the principal
office of the Company and a copy of the minutes shall be provided to each
Managing Member. All action by the Management Committee shall be reported
promptly to the Members Committee.
SECTION 6.09 No Reimbursements. Except as set forth in this
Agreement or in any Related Agreement, or otherwise agreed upon by the Members
Committee, the Company shall not reimburse the Members for any expenses incurred
by the Members on behalf of the Company.
SECTION 6.10 Partition. Until termination of the Company, each
Member hereby specifically renounces, waives and forfeits all rights, whether
arising under contract or statute or by operation of law, to seek, bring or
maintain any action in any court of law or equity for partition of the Company,
or any interest which is considered to be Company assets, regardless of the
manner in which title to any such assets may be held.
SECTION 6.11 Officers.
(a) The Company shall have employees or agents who are denominated
as officers (including, but not limited to a President, one or more
Vice-Presidents, a Chief Financial Officer or a Treasurer, one or more Assistant
Treasurers, a Secretary, and one or more Assistant Secretaries), as the Members
Committee may designate from time to time (the "Officers"). The initial chief
executive officer of the Company shall be the President. The President shall be
a designee of SEIS.
(b) The Officers shall be responsible for implementing the decisions
of the Members Committee and Management Committee and for conducting the
ordinary and usual business and affairs of the Company, including, subject to
the policies and limitations established by, and the supervision of, the Members
Committee or Management Committee and subject to the terms of this Agreement,
including, without limitation, Section 6.04:
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(i) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Company;
(ii) the acquisition or disposition of assets in the ordinary
course of the Company Business;
(iii) the use of the assets of the Company (including, without
limitation, the financing of the conduct of the operations of the Company, the
lending of funds to other Persons and the repayment of obligations of the
Company);
(iv) the maintenance of insurance for the benefit of the
Members and the Company; and
(v) the control of any matters affecting the rights and
obligations of the Company, including, without limitation, the bringing and
defending of actions at law or in equity and otherwise engaging in the conduct
of litigation and the incurring of legal expenses and settlement of claims and
litigation up to $250,000 in amount.
(c) The Officers shall be entitled to receive for their services to
the Company such compensation as may be determined by the Members Committee from
time to time, such compensation to be paid by the Company. The Officers shall at
all times be subject to the supervision and control of the Members Committee and
shall conform to policies and programs established by the Members Committee, and
the scope of the Officers' authority shall be limited to such policies and
programs. The acts of the Officers shall bind the Company when conducted within
the scope of the authority of such Officers. Except as otherwise authorized by
the Members Committee or the President, no other Person shall have authority to
bind or act for, or assume any obligations or responsibilities on behalf of, the
Company. The Officers shall keep the Members Committee informed as to all
matters of concern to the Company.
(d) Nothing in this Section 6.11 shall be construed so as to limit
the authority of the Managing Members, in their capacities as such, to act for
and bind the Company.
ARTICLE VII
ALLOCATIONS; TAX MATTERS
SECTION 7.01 Allocations.
(a) The Company's Net Profits and Net Losses, subject to the special
allocations pursuant to Sections 7.02 and 7.03, shall be allocated for each
fiscal year to the Members as follows:
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(i) the Company's Net Profits shall be allocated to the
Members pro rata in accordance with the number of Membership Units owned by each
Member; and
(ii) the Company's Net Losses shall be allocated to the
Members, pro rata in accordance with the number of Membership Units owned by
each Member.
(b) Notwithstanding anything to the contrary in Section 7.01(a), in
the event of the winding up and dissolution of the Company pursuant to Section
11.04 hereof, Net Profit and Net Losses (and items of gross income, loss or
deduction, if necessary), including gain or loss realized by the Company upon
the sale (or deemed sale) of its property or assets, shall be allocated to the
extent possible, subject to the special allocations of Sections 7.02 and 7.03,
in a manner so as to cause the Capital Accounts of the Members to equal the
amounts due the respective Members in accordance with the provisions of Section
11.04.
SECTION 7.02 Special Allocations.
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article VII, if there is a net decrease in Company Minimum Gain during any
fiscal year, each Member shall be specially allocated items of Company income
and gain for the fiscal year (and, if necessary, subsequent fiscal years) in an
amount equal to such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items to
be so allocated shall be determined in accordance with Sections 1.704-2(f)(6)
and 1.704-2(j)(2) of the Regulations. This Section 7.02(a) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(b) Member Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
this Section 7, if there is a net decrease in Member Nonrecourse Debt Minimum
Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each
Member who has a share of the Member Nonrecourse Debt, determined in accordance
with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated
items of Company income and gain for such Allocation Year (and, if necessary,
subsequent Allocation Years) in an amount equal to such Member's share of the
net decrease in Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amount required to be allocated to
each Member pursuant thereto. The items to be so allocated shall be determined
in accordance with Sections 1.704-2(i)(4) of the Regulations. This Section
7.02(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company gross
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income and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the Regulations,
the Adjusted Capital Account Deficit of such Member as quickly as possible;
provided, that an allocation pursuant to this Section 7.02(c) shall be made only
if and to the extent that such Member would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Article VII have been
tentatively made as if this Section 7.02(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any fiscal year which is in excess of the sum of
(i) the amount such Member is obligated to restore pursuant to any provision of
this Agreement, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated
items of Company gross income and gain in the amount of such excess as quickly
as possible; provided, that an allocation pursuant to this Section 7.02(d) shall
be made only if and to the extent that such Member would have a Adjusted Capital
Account Deficit in excess of such sum after all other allocations provided for
in this Article VII have been made as if Section 7.02(c) and this Section
7.02(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year shall be allocated to the Members, pro rata, in accordance with the number
of Membership Units owned by such Member.
(f) Member Loan Deductions. All items of Company gross deduction and
loss attributable to a Member loan which constitutes partner nonrecourse debt
within the meaning of Regulations Section 1.704-2(b)(4) shall be allocated to
the Member or Members that bear the economic risk of loss for such loan in
accordance with Regulations Section 1.704-2(i)(1).
(g) Net Losses Limitation. The Net Losses and items of Company gross
deduction or loss allocated pursuant to Sections 7.01 and 7.02 shall not exceed
the maximum amount of Losses and items of deduction and loss that can be so
allocated without causing any Member to have an Adjusted Capital Account Deficit
at the end of any Fiscal Year. All Net Losses and items of Company gross
deduction or loss in excess of the limitations set forth in this Section 7.02
shall be allocated to the Members who do not have Adjusted Capital Account
Deficit in proportion to their Adjusted Capital Accounts.
SECTION 7.03 Curative Allocations. The allocations set forth in
Section 7.02 hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 7.03.
Therefore, notwithstanding any other provision of this Article VII (other than
the Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss or deduction in whatever manner they
determine appropriate so that, after such offsetting allocations are made, each
Member's Capital Account balance is, to the extent possible,
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equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to this Article VII without regard to the Regulatory
Allocations. In exercising their discretion under this Section 7.03, the Members
shall take into account future Regulatory Allocations under Section 7.02 that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Section 7.02.
SECTION 7.04 Other Allocation Rules.
(a) Solely for purposes of determining the Members' proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
are in proportion to their ownership of Membership Units.
(b) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Members shall endeavor to treat distributions of cash as having
been made from the proceeds of a nonrecourse liability only to the extent that
such distributions would cause or increase an Adjusted Capital Account Deficit
for any Member.
(c) If the number of Membership Units owned by any Member changes
during the fiscal year, the Company's Net Profits and Net Losses for that fiscal
year shall be allocated evenly among each day of the fiscal year, and each
Members' share of Net Profits and Net Losses for such fiscal year shall be the
sum of its shares of the Net Profits and Net Losses for each day during the
fiscal year.
SECTION 7.05 Tax Allocation.
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for Federal income tax purposes
and its initial Asset Value (computed in accordance with the definition of Asset
Value).
(b) In the event the Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii) of the definition of Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
Federal income tax purposes and its Asset Value in the same manner as under Code
Section 704(c) and the Regulations thereunder.
(c) Any elections or other decisions relating to such allocations
shall be made by the tax matters Member in any manner that reasonably reflects
the purpose and intention of this Agreement. Allocations pursuant to this
Section 7.05 are solely for purposes of Federal, state, and local taxes and
shall not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of Net Profit, Net Losses, other items, or
distributions pursuant to any provision of this Agreement.
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(d) Except as otherwise provided in this Agreement, all items of
Company gain, loss, deduction, and any other allocations not otherwise provided
for shall be divided among the Members in the same proportion as they share Net
Profit or Net Losses, or amounts specially allocated pursuant to Section 7.02 or
7.03 hereof, as the case may be, for the fiscal year.
SECTION 7.06 Tax Decisions.
(a) The Company shall file as a partnership for Federal and state
income tax purposes. All elections required or permitted to be made by the
Company, and all other tax decisions and determinations relating to Federal,
state or local tax matters, shall be made by the tax matters Member, in
consultation with the Managing Members and the Company's attorneys and/or
accountants. Tax audits, controversies and litigations shall be conducted under
the direction of the tax matters Member. The tax matters Member shall submit to
the Members, for their review and comment, any settlement or compromise offer
with respect to any disputed item of income, gain, loss, deduction or credit of
the Company. SEIS shall be the initial tax matters Member within the meaning of
Section 6231(a)(7) of the Code. The tax matters Member shall furnish to the
Members a copy of all notices or other written communications received by the
tax matters Member from the Internal Revenue Service or any state of local
taxing authority. The tax matters Member shall cause all tax returns of the
Company to be timely filed. Copies of such returns shall be kept at the
Company's principal place of business or at such other place as the tax matters
Member shall determine and shall be available for inspection by the Members or
their duly authorized representatives during regular business hours. The tax
matters Member shall distribute to each of the Members, as soon a practicable
after the end of the fiscal year of the Company, information with respect to the
Company necessary for each Member to prepare its Federal, state and local tax
returns.
(b) The Managing Members may, by Majority Vote, amend the provisions
of this Agreement relating to the manner in which tax items are allocated to the
extent necessary to comply with Regulations Sections 1.704-1(b) and 1.704-2;
provided, however, that any such amendment may be made only if it is not likely
to have a material effect on the amounts distributable to any Member pursuant to
Article XI hereof upon the liquidation of the Company.
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ARTICLE VIII
DISTRIBUTIONS
SECTION 8.01 Distributions.
The Members Committee, as determined in accordance with Article VI, may make
distributions to the Members, pro rata in accordance with their respective
Membership Units.
SECTION 8.02 Liquidation Distributions. Distributions made upon
liquidation of the Company shall be made as provided in Section 11.04.
SECTION 8.03 Distribution Rules.
(a) All amounts withheld pursuant to the Code or any provision of
any state or local tax law with respect to any payment, distribution or
allocation by the Company to the Members shall be treated as amounts distributed
to the Members pursuant to this Article VIII for all purposes of this Agreement.
The President is authorized and directed to withhold from distributions, or with
respect to allocations, to the Members and to pay over to any Federal, state or
local government any amounts required to be so withheld pursuant to the Code or
any provision of any other Federal, state or local law and shall allocate such
amounts to those Members with respect to which such amounts were withheld.
Promptly upon learning of any requirement under any provision of the Code or any
other applicable law requiring the Company to withhold any sum from a
distribution to a Member or to make any payment to any taxing authority in
respect of such Member, the Company shall give written notice to such Member of
such requirement and, if practicable and if requested by such Member, shall
cooperate with such Member in all lawful respects to minimize or to eliminate
any such withholding or payment.
(b) A Member shall not have the status of, and is not entitled to
the remedies available to, a creditor of the Company with regard to
distributions on its Membership Units that such Member becomes entitled to
receive pursuant to this Agreement and the Delaware Act.
(c) If any amounts owed by a Member to the Company pursuant to any
of the Related Agreements are then due and payable, the Company shall have the
right to withhold and offset all or part of such amounts from and against any
distributions otherwise payable to such Member.
SECTION 8.04 Limitations on Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make a distribution to any Member on account of its Membership Units, if (i)
such distribution would violate Section 18-607(a) of the Delaware Act or other
applicable law, (ii) such distribution would be made from funds other than Net
Distributable Cash, (iii) any costs or expenses directly incurred by SEIS,
Modis, Cayenta and/or their Affiliates in providing any Member loan, credit
support or other extension of credit to or for the benefit of the Company, or
any regular quarterly payment of principal theretofore due in respect of any
such Member loan, credit support or other extension of credit, or any mandatory
prepayment based on Net Distributable Cash contemplated by the proviso in
Section 4.03(c) above), or any interest thereon, shall in any such case be due
and
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remain unpaid, provided that this clause (iii) shall not prohibit distributions
in accordance with Sections 8.05(a)(i) and (ii) prior to such mandatory
prepayments, or if such mandatory prepayment or other payments shall be made
from borrowed funds or otherwise on credit, or (iv) any amount then due and
payable by the Company to any Member pursuant to any of the Related Agreements
remains outstanding and unpaid.
SECTION 8.05 Distribution Priority. Distribution Priority
Distributions (including the payments contemplated by clause (a)(ii) below which
shall not be an equity transaction), other than distributions upon the
liquidation of the Company, and contractual or guaranteed payments, whether in
respect of Net Distributable Cash of the Company or otherwise, shall be made to
the Members as follows and in the following order of priority:
(a) The following distributions (including the payments contemplated
by clause (ii) below which shall not be an equity transaction) shall be made
each quarter, unless determined otherwise by an Unanimous Vote of the Members:
(i) After the end of each Fiscal Year, to the extent
permissible pursuant to financing agreements to which the Company is now or
hereafter may become a party, the Company shall distribute to each Member the
aggregate amount by which (A) United States federal and state income taxes that
would be payable by a Member in the highest tax bracket applicable from time to
time to a corporation (and taking into account the character of such income),
with respect to the taxable income and gains of the Company allocated to such
Member for the Fiscal Year of the Company ending in such year and for all prior
Fiscal Years, and after giving effect to all deductions and losses of the
Company allocated to such Member for such Fiscal Year and prior Fiscal Years, if
applicable (and in each case applying such highest applicable tax brackets
thereto), exceeds (B) all amounts previously distributed (or deemed distributed)
to such Member in respect of its Membership Interest pursuant to this Agreement.
Subject to the limitations set forth above, the Company will, where reasonably
practicable, make distributions on a quarterly basis to facilitate the payment
of quarterly estimated income taxes by the Members, subject to adjustment at or
following the end of such calendar year, as the Company may deem appropriate
(including the right of the Company to require prompt repayment of amounts
distributed under this sentence in excess of that ultimately determined to be
required to be distributed for such period).
(ii) Thereafter, distributions to the Members will be made in
respect of the outstanding balance of all debts and liabilities of the Company
to the Members to whom the same are owed, including Member loans and amounts
payable to withdrawing members pursuant to Section 10.06, in the ratio of the
aggregate outstanding amount owed to each such Member by the Company, until paid
in full.
(b) Thereafter, the following distributions shall be made if, as and
then only to the extent determined from time to time by a Majority Vote of the
Members in the sole and absolute discretion of such majority in interest:
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(i) Distributions to the Members will be made in the ratio of
their respective Membership Units.
(c) Distributions in connection with the liquidation of the Company
shall be made as provided in Article XI hereof.
ARTICLE IX
BOOKS AND RECORDS; FINANCIAL STATEMENTS
SECTION 9.01 Books and Records; Financial Statements
(a) At all times during the continuance of the Company, the Company
shall maintain separate books of account for the Company that shall show a true
and accurate record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with the
operation of the Company Business in accordance with GAAP consistently applied,
and, to the extent inconsistent therewith, in accordance with this Agreement.
Such books of account, together with a complete and correct copy of this
Agreement and of the Articles, shall at all times be maintained at the principal
place of business of the Company and shall be open to inspection and examination
at reasonable times by each Member and its duly authorized representatives for
any purpose reasonably related to such Member's interest in the Company. The
books of account and the records of the Company shall be examined by and
reported upon as of the end of each Fiscal Year by a firm of independent
certified public accountants that shall be selected by the Members Committee
from among the five largest U.S. accounting firms (the "Auditors"). Any Member
shall have the right to have a private audit of the Company books and records
conducted at reasonable times and after reasonable advance notice to the Company
for any purpose reasonably related to such Member's interest in the Company, but
any such private audit shall be at the expense of the Member desiring it, and it
shall not be paid for out of Company funds. Such private right to audit the
books and records of the Company shall also include the right to audit and make
recommendations regarding the internal control systems, policies and procedures
and compliance therewith of the Company.
(b) The President, Chief Financial Officer, Treasurer or Controller
shall prepare and maintain, or cause to be prepared and maintained, the books of
account of the Company and the following financial information, prepared, in the
case of (i)(A), (i)(B) and (i)(C) below in accordance with GAAP, and in the case
of (i)(A), on an accrual basis, together with an operating report in a form to
be determined by the Members Committee analyzing such information, shall be
transmitted by the President, Chief Financial Officer, Treasurer or Controller
to each Member at the times hereinafter set forth:
(i) Within 60 days after the close of each Fiscal Year, the
following financial statements, examined by and certified to by the Auditors:
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(A) the balance sheet of the Company as of the close of
such Fiscal Year;
(B) a statement of Company Net Profits and Net Losses
for such Fiscal Year;
(C) a statement of the Company's cash flows for such
Fiscal Year; and
(D) a statement of such Member's Capital Account as of
the close of such Fiscal Year, and changes therein during such Fiscal Year.
(ii) Within 60 days after the close of each Fiscal Year, a
statement indicating such Member's share of each item of Company income, gain,
loss, deduction or credit for such Fiscal Year for income tax purposes.
(iii) As soon as available and in any event within 30 days
after the end of each three-month period, balance sheets of the Company as of
the end of such three-month period and statements of income and Company Net
Profits and Net Losses for the period commencing at the end of the previous
fiscal year and ending with the end of such three-month period, certified by the
President, Chief Financial Officer, Treasurer or Controller of the Company.
(iv) As soon as practicable and in any event within 20 days
following the end of each calendar month, a monthly operating summary of the
Company's activities in a form to be established by the Members' Committee.
(c) Each Member shall provide to the President, Chief Financial
Officer, Treasurer or Controller upon request tax basis information about
contributed assets and other tax information reasonably requested by the
President, Chief Financial Officer, Treasurer or Controller.
SECTION 9.02 Reporting Requirements. The President shall furnish or
cause to be furnished to each Member:
(a) as soon as possible and in any event within ten days after the
Company has received notice of the occurrence of any default or event of default
continuing on the date of such statement under any agreement relating to any
material obligation of the Company, a statement of the President setting forth
details of such default or event of default and the action which the President
has taken and proposes to take with respect thereto;
(b) promptly after the sending or filing thereof, copies of all
material reports that the Company sends to any of its creditors, and copies of
all income tax returns that the Company files with any federal or state taxing
authority;
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(c) within 15 days of the filing by the tax matters Member of the
Company's federal tax return (Federal Form 1065), a copy of Schedule K-1 of
Federal Form 1065 reporting the Member's allocable share of Net Profits, Net
Losses and other items of income, gain, deductions or loss for such Fiscal Year;
and, from time to time, such additional information as the Member may reasonably
require for tax purposes;
(d) on a quarterly basis, a copy of the report from Modis, Cayenta
and SEIS pursuant to its Management Services Agreement, stating, among other
things, its current accomplishments, problems/issues, upcoming events, schedule
progress, budget versus actual revenues and expenses and such other information
regarding the condition or operations, financial or otherwise, of the Company as
any Member may from time to time reasonably request.
ARTICLE X
TRANSFERABILITY AND ADDITIONAL MEMBERS
SECTION 10.01 General Restrictions on Transfer
(a) No Transfer may be made by any Member of all or any part of its
Membership Units in the Company or Member loan except pursuant to the Unanimous
Vote of the Members Committee, except that a Member may transfer its Membership
Units or Member loan to an Affiliate without the consent of the other Members so
long as neither the Company nor any non-Transferring Member shall incur any
additional liability as a result of such Transfer and the Transferring Member
shall not be released from any liability or obligation under this Agreement or
any Related Agreement. Notwithstanding the foregoing, any Member or Affiliate of
a Member may pledge, hypothecate or grant a Lien on any Member loan in
connection with such Member's financing thereof.
(b) Each time a Member proposes to transfer all or any part of its
Membership Units (or as required by operation of law or other involuntary
transfer to do so), such Member shall first offer such Membership Units to the
Company and the non-transferring Members in accordance with the following
provisions:
(i) Such Member shall deliver a written notice ("Option
Notice") to the Company and the other Members stating such Member's bona fide
intention to transfer such Membership Units, the Membership Units to be
transferred, the purchase price and terms of payment for which the Member
proposes to transfer such Membership Units and the name and address of the
proposed transferee.
(ii) Within thirty (30) days after receipt of the Option
Notice, the Company shall have the right, but not the obligation, to elect to
purchase all or any part of the Membership Units upon the price and terms of
payment designated in the Option Notice. If the Option Notice provides for the
payment of non-cash consideration, the Company may elect to pay the
consideration in cash equal to the good faith estimate of the present fair
market value of
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the non-cash consideration offered as determined by the Management Committee. If
the Company exercises such right within such thirty (30) day period, the
Management Committee shall give written notice of the fact to the transferring
and non-transferring Members.
(iii) If the Company fails to elect to purchase the entire
Membership Units proposed to be transferred within the thirty (30) day period
described in Section 10.01(b)(ii), the non-transferring Members shall have the
right, but not the obligation, to elect to purchase any remaining share of such
Membership Units upon the price and terms of payment designated in the Option
Notice. If the Option Notice provides for the payment of non-cash consideration,
such purchasing Members each may elect to pay the consideration in cash equal to
the good faith estimate of the present fair market value of the non-cash
consideration offered as determined by the Management Committee. Within sixty
(60) days after receipt of the Option Notice, each non-transferring Member shall
notify the Management Committee in writing of its desire to purchase a portion
of the Membership Units proposed to be so transferred. The failure of any Member
to submit a notice within the applicable period shall constitute an election on
the part of that Member not to purchase any of the Membership Units which may be
so transferred. Each Member so electing to purchase shall be entitled to
purchase a portion of such Membership Units in the same proportion that the
Units of such Member bears to the aggregate of the Units of all of the Members
electing to so purchase the Membership Units being transferred. In the event any
Member elects to purchase none or less than all of its pro rata share of such
Membership Units, then the other Members can elect to purchase more than their
pro rata share.
(iv) If the Company and the other Members elect to purchase or
obtain any or all of the Membership Units designated in the Option Notice, then
the closing of such purchase shall occur within ninety (90) days after receipt
of such notice and the transferring Member, the Company and/or the other Members
shall execute such documents and instruments and make such deliveries as may be
reasonably required to consummate such purchase.
(v) If the Company and the other Members elect not to purchase
or obtain, or default in their obligation to purchase or obtain, all of the
Membership Units designated in the Option Notice, then the transferring Member
may transfer the portion of the Membership Units described in the Option Notice
not so purchased, to the proposed transferee, providing such transfer is
completed within thirty (30) days after the expiration of the company's and the
other Members' right to purchase such Membership Units, is made on terms no less
favorable to the transferring Member than as designated in the Option Notice. If
such Membership Units are not so transferred, the transferring Member must give
notice in accordance with this Section prior to any other or subsequent transfer
of such Membership Units.
(c) In the case of permitted Transferees, any Transferee of a
Membership Units (including an Affiliate of the transferor) shall be admitted as
a Member only after such Transferee agrees to assume all obligations of the
transferor hereunder and otherwise be bound by the provisions of this Agreement.
(d) Any Person that becomes a Member after the date hereof, accepts,
ratifies and agrees to be bound by all actions duly taken pursuant to the terms
and provisions of this
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Agreement by the Company prior to the date such Person became a Member and,
without limiting the generality of the foregoing, specifically ratifies and
approves all agreements and other instruments as may have been executed and
delivered on behalf of the Company prior to such date and which are in force and
effect on such date.
(e) Each Transfer of all or a part of Membership Units (other than
any Transfer of all or part of Membership Units or any interest therein upon
foreclosure of a security interest created in such Membership Units) to a
permitted Transferee shall entitle such Transferee to share in such Net Profits
and Net Losses, to receive such distributions, and to receive such allocations
of income, gain, loss, deduction or credit or similar item to which the
transferor was entitled, but only to the extent of the transferred Membership
Units. Such Transfer shall also give a permitted Transferee the right to
participate in the management of the Company through voting or otherwise and any
other rights exercisable by a Member or, in the case of a Transfer by a Managing
Member, such Managing Member, subject to the compliance of such Transferee with
the provisions of paragraph (b) above and the admission of such Transferee as a
Member.
(f) Notwithstanding the above, a Managing Member may transfer up to
twenty per cent (20%) of its initial Membership Units to one or more of its
employees. Such Transfer shall entitle such Transferee to share in such Net
Profits and Net Losses, to receive such distributions, and to receive such
allocations of income, gain, loss, deduction or credit or similar item to which
the transferor was entitled, but only to the extent of the transferred
Membership Units. Such Transfer shall not give such employee Transferee the
right to participate in the management of the Company through voting or
otherwise nor any other rights exercisable by a Member.
SECTION 10.02 Recognition of Transfer by Company. No Transfer of
Membership Units, or any part thereof, that is in violation of this Article X
shall be valid or effective, and neither the Company nor the Members shall
recognize the same for the purpose of making distributions pursuant to Section
8.01 hereof with respect to such Membership Units or part thereof. Neither the
Company nor the non-transferring Members shall incur any liability as a result
of refusing to make any such distributions to the Transferee of any such invalid
Transfer.
SECTION 10.03 Indemnification. In the case of a Transfer or
attempted Transfer of an interest in the Company contrary to the provisions of
Section 10.01 hereof, the parties engaging or attempting to engage in such
Transfer shall indemnify and hold harmless the Company and each of the other
Members from all costs, liabilities or damages that any of such indemnified
Persons may incur (including, without limitation, incremental tax liability and
lawyers' fees and expenses) as a result of such Transfer or attempted Transfer
and efforts to enforce terms of this Agreement and the indemnity granted hereby.
SECTION 10.04 Effective Date of Transfer. Any valid Transfer of a
Membership Units in the Company, or part thereof, shall be effective as of the
close of business on the last day of the calendar month in which such Transfer
occurs. The Company shall, from the effective date of such Transfer, thereafter
pay all further distributions on account of the Membership Units (or part
thereof) so transferred, to the Transferee of such interest, or part
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thereof. As between any Member and its Transferee, Net Profits and Net Losses
for the Fiscal Year of the Company in which such Transfer occurs shall be
apportioned for federal income tax purposes in accordance with any convention
permitted under Code Section 706(d) and selected by the transferring Member and
its Transferee.
SECTION 10.05 Additional Transfer Provisions. In the case of any
Transfer under this Article X:
(a) Except as otherwise provided in this Section 10.05, upon the
Transfer of the entire Membership Units of a Member, such Member shall have no
further obligations as a Member pursuant to this Agreement, except that (i) the
obligations of such Member pursuant to Section 14.01 shall survive for a period
of twelve (12) months after the Transfer in accordance with the terms thereof
and Section 14.04 shall survive indefinitely, (ii) the obligations of such
Member pursuant to Article XV and Sections 17.02 and 17.10 shall survive for a
period of 24 months after the effective date of such Transfer, unless a claim
for indemnification shall have been made under Section 15.02 prior to the
expiration of such 24-month period, in which case such Member's obligations
under Article XV shall survive until the final disposition of such claim
pursuant to a binding settlement, non-appealable decision of a court of law or
otherwise, and (iii) if such Member shall transfer its Membership Units to an
Affiliate, such Member shall not be released from any liability or obligation
under this Agreement, and for purposes of all provisions of this Agreement which
are based on or calculated with respect to such date of Transfer, including
without limitation, the provisions of Section 10.05(b), 10.06 and 14.01 (but
other than the second sentence of Section 10.04), the date of Transfer shall be
deemed the date such Membership Units shall become owned by a Person other than
the Member or an Affiliate. The contractual rights and obligations of such
Member to the Company (other than pursuant to this Agreement) shall remain
unaffected unless otherwise provided in paragraph (b) below.
(b) Upon the Transfer of a Member's Membership Units (other than to
an Affiliate), the following specific provisions shall apply (which provisions
illustrate and clarify the provisions of paragraph (a) above):
(i) such Member shall no longer have any obligation to make
Capital Contributions or provide credit support or make Member loans, pursuant
to Section 4.01 or 4.03, but any assets or cash contributed to the Company prior
to the date of such Transfer shall remain property of the Company;
(ii) such Member shall continue to provide to the Company the
Dedicated Assets provided by it, so long as requested by the Company (and shall
be entitled to continue to receive compensation therefor), in accordance with
Section 4.02, but not longer than one hundred eighty (180) days after the
Transfer,
(iii) any License Agreement between such Member and the
Company shall remain in effect in accordance with its terms;
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(iv) any Management Services Agreement between such Member and
the Company shall remain in effect in accordance with its terms, so long as
requested by the Company, but not more than one hundred eighty (180) days after
the Transfer;
(v) such Member shall have no further obligation to make
certain Persons available to perform services in accordance with Section
12.01(a); and
(vi) Persons who become employees of the Company in accordance
with Section 12.01(b) shall remain employees of the Company.
(c) The Transferee or Transferees, as the case may be, shall be
required to pay any and all filing and recording fees, fees of counsel and
accountants and other costs and expenses reasonably incurred by the Company as a
result of such Transfer.
(d) No such Transfer of Membership Units shall be made except upon
terms which would not, in the opinion of counsel to the Company, result in a
violation of the Securities Act of 1933, as amended, or any "Blue Sky" laws or
other securities laws of any state of the United States applicable to the
Company or the Membership Interest to be transferred.
(e) Notwithstanding any other provision of this Article X, no
Transfer of Membership Units will occur (a) unless and until any and all
necessary regulatory approvals and third-party approvals have been obtained,
including, without limitation, expiration of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
(b) if such transfer would (x) cause the Company or any Member to become subject
to any statute, rule, regulation, order or injunction that would impose material
limitations or restrictions on its ability to conduct the Company Business.
SECTION 10.06 Withdrawal.
(a) Each Member shall have the right, upon thirty (30) days prior
written notice of its desire to withdraw given to all other Members, to withdraw
from the Company and resign as a Member at any time, commencing on the
expiration of thirty-six (36) full calendar months after the month in which this
Agreement is executed. Such notice shall become effective upon the expiration of
such thirty (30) day period, and shall specify a time and date (which shall not
be less than thirty (30) days following the determination of the Fair Market
Value) for the purchase of such Membership Units. No Member may otherwise
withdraw from the Company or resign as a Member except as a result of a Transfer
made in accordance with this Article X or upon dissolution in accordance with
Article XI. If any Member withdraws from the Company or resigns as a Member in
breach of this provision, such withdrawal or resignation shall be of no force or
effect. The withdrawal of a Member shall not dissolve the Company.
(b) Upon the withdrawal or resignation of any Member for any reason,
the following shall apply:
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(i) all Customer Contracts shall remain the property of the
Company;
(ii) the provisions of Section 10.05 shall apply with respect
to such Member as if it affected a Transfer, including without limitation, the
provisions of Section 14.01 for a period of twelve (12) months after the date of
such withdrawal;
(iii) if the Company is continued in accordance with Section
11.02(d) after the expiration of the fiscal quarter after the quarter in which
the closing shall occur, the withdrawing Member shall be entitled to receive,
subject to the Delaware Act, the Fair Market Value of its Membership Units,
determined in accordance with Section 11.02, as of the date of withdrawal,
except that the cost of determining the Fair Market Value shall be borne 50% by
the Company and 50% by the withdrawing Member. The interest of any Member who
has given notice of its desire to withdraw shall thereafter not be included in
calculating the requisite number of Members or percentage of interests required
for action of the Company; and
(iv) all Member loans, credit supports and other extensions of
credit to or for the benefit of the Company by the withdrawing Member shall be
payable on the same terms as if such Member did not so withdraw, including
distributions in accordance with Section 8.05(a)(iii).
(c) The closing of such purchase of such Membership Units shall take
place at the offices of the Company in accordance with, and at the time
specified in, such notice of withdrawal. The purchase price for the Membership
Interest shall be paid out of the Net Distributable Cash of the Company (if any)
to the extent that such purchase price balance plus the purchase price balance
resulting from any other purchase by the Company of a Membership Interest does
not exceed 50% of such Net Distributable Cash. In the event the Company shall
have any such purchase price payment obligations to two or more Members, the
amount payable out of such Net Distributable Cash for any given period shall be
allocated pro rata among such Members. Subject to the foregoing, payments in
respect of the Membership Units of a withdrawn Member shall be made quarterly,
out of Net Distributable Cash (if any) on the same basis as, and pro rata with,
mandatory prepayments of the principal amount of Member loans pursuant to
Section 8.05(a)(iii). The remaining purchase price balance for any such purchase
and sale shall be due and payable on the fifth (5th) anniversary of the date of
withdrawal, and shall bear interest at a rate equal to the rate announced from
time to time by the principle lending bank to SEIS, as its prime rate, or in the
absence thereof at the prime rate published in The Wall Street Journal or an
analogous publication selected by SEIS.
(d) On the closing date, such withdrawing Member shall pay to the
Company any and all liabilities and monetary obligations of the withdrawing
Member to the Company or to any other Member, and the Company shall be entitled
to deduct from the purchase price payable hereunder the full amount of such
liabilities and obligations, as well as any income tax which the Company is
obligated (in the opinion of counsel chosen by the remaining Managing Members)
to deduct and withhold as a result of the subject purchase and sale. At the
closing, the withdrawing Member shall transfer, convey and deliver all right,
title and interest in and to such Membership Units being transferred by such
party, which shall constitute (and, at the closing, the withdrawing
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Member shall certify the same in writing) good and unencumbered title to such
Membership Units, free and clear of all Liens. In addition, the withdrawing
Member shall deliver to the Company at such closing any opinions of counsel
(relating to transferability) and certificates that the Company may reasonably
request.
(e) In each case where the Company is required to purchase a
Membership Units pursuant to this Section 10.06, each Member (including the
withdrawing Member) shall, at the request of the Company, take such action as is
necessary and lawful to permit the Company's purchase, including, but not
limited to, the incurrence of indebtedness and, if applicable, the creation of
legally available surplus (whether by reduction of capital, revaluation of
assets or otherwise).
SECTION 10.07 Further Assurances. The Members shall cooperate and
use all reasonable efforts to take all actions necessary to complete a Transfer
in accordance with this Article X, including the making of filings, and
provision of information, necessary to comply with Sections 10.05(e).
ARTICLE XI
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 11.01 No Dissolution. The Company shall not be dissolved by
the admission of additional Members in accordance with the terms of this
Agreement.
SECTION 11.02 Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:
(a) the expiration of the term of the Company as provided in Section
2.03;
(b) at any time after the expiration of twenty-four (24) months
after the effective date of this Agreement, the Majority Vote of the Members
Committee to dissolve, wind up and liquidate the Company;
(c) the sale of all or substantially all the assets of the Company;
(d) the Bankruptcy, insolvency, expulsion from the Company or
withdrawal pursuant to Section 10.06 of a Managing Member, unless within 90 days
after the occurrence of such an event, Members holding a majority of the
remaining Membership Units agree in writing to continue the Company Business and
to the appointment, if necessary or desired, effective as of the date of such
event, of one or more additional Members; or
(e) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act.
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If the Company is continued pursuant to clause (d) above after the
Bankruptcy, insolvency, expulsion or withdrawal of a Managing Member (the
"Former Member"), the other Managing Members and the Company shall have the
right to purchase the Membership Interest of such Former Member at the Fair
Market Value of such Membership Units in accordance with the procedures set
forth below. The cost of determining the Fair Market Value shall be borne 50% by
the Company and 50% by the Former Member.
The "Fair Market Value" of the Company shall be determined by a
nationally recognized investment banking firm, accounting firm or valuation firm
selected by the other Managing Members from a list of three such firms provided
by a representative of the Former Member (the "Appraiser"). The Appraiser's
determination of the Fair Market Value shall be considered in the context of a
hypothetical purchase of the Company negotiated between a willing buyer and a
willing seller, neither of whom is under compulsion to act, without any control
premium or any discount for a minority interest, transfer restrictions,
illegality or other similar factors. The Appraiser shall also assume that the
Company will continue to have obligations to third parties but that the proceeds
of the sale shall be used to make payments representing a return of Capital
Contributions and the repayment of any Member loans by the Former Member
(including any interest thereon). In evaluating the Company, the Appraiser shall
give due consideration to the prospects and potential of the Company. Within 30
days of the date of selection, the Appraiser will determine the Fair Market
Value and allocate such value between the Membership Interests of the Former
Member and the other Members and within 30 days of the delivery of such
determination and allocation by the Appraiser, the other Managing Members shall
notify the representative of the Former Member whether such other Managing
Members will exercise their right to acquire the Membership Units of the Former
Member. Any acquisition pursuant to this Section 11.02 shall be completed within
90 days of the date of the selection of the Appraiser.
SECTION 11.03 Notice of Dissolution. Upon the dissolution of the
Company, the Person or Persons approved by the Members holding a majority of the
remaining Membership Units to carry out the winding up of the Company (the
"Liquidating Trustee") shall promptly notify the Members of such dissolution,
except that in the case of a dissolution pursuant to Section 11.02(d) the
Liquidating Trustee shall be the Managing Member (or Members) that is not a
Former Member.
SECTION 11.04 Liquidation.
(a) Upon dissolution of the Company, the Liquidating Trustee shall
immediately commence to wind up the Company's affairs; provided, that a
reasonable time shall be allowed for the orderly liquidation of the assets of
the Company and the satisfaction of liabilities to creditors so as to enable the
Members to minimize the normal losses attendant upon a liquidation. The Members
shall continue to share Net Profits and Net Losses and items of Company gross
income, gain, deduction and loss during liquidation in the same proportions, as
specified in Article VII hereof, as before liquidation. Each Member shall be
furnished with a statement audited by the Auditors that shall set forth the
assets and liabilities of the Company as of the date of dissolution. Each Member
(and its Affiliates) shall pay to the Company all amounts
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then owing by it (and them) to the Company. The Liquidating Trustee shall take
the following action and make the following distributions out of the assets of
the Company, in the following manner and order of priority:
(i) first, pay or establish adequate reserves for all debts
and liabilities of the Company to persons other than Members and expenses of
liquidation in the order of priority provided by law;
(ii) then, establish any reserves which are reasonably deemed
necessary to provide for contingent liabilities or obligations of the Company;
provided, however, that, at the expiration of such period of time as the
Liquidating Trustee may reasonably deem advisable, the balance of any reserves
shall be paid or distributed as provided in clauses (iii) through (v) of this
Section 11.04 (in the order of priority thereof), it being agreed that such
reserves may, at the election of the Liquidating Trustee, be paid over to an
independent escrow agent to be held by it in escrow for the purpose of
disbursing such reserves in payment of any of the aforesaid contingencies;
(iii) then, pay out of the balance of such assets, if any, the
outstanding balance of all remaining debts and liabilities of the Company to the
Members including any Member who has withdrawn pursuant to Section 10.06 to whom
the same are owed, pro rata, including satisfaction of the liabilities of the
Company and borrowings by SEIS, Modis, and/or Cayenta to fund Member loans or
credit supports or otherwise provide liquidity to or for the benefit of the
Company, including the extension of credit as an unmargined line (whether by
payment or the making of reasonable provision for payment thereof), other than
liabilities for distributions on Membership Units;
(iv) then, after giving effect to all allocations provided in
Article VII hereof, including those required under clause (ii) of the definition
of "Asset Value" on Schedule 1.01, pay the Members who have Unrecovered Capital,
pro rata, to the extent of their respective amounts of Unrecovered Capital but
not in excess of their respective Capital Accounts, the balance, if any, of such
assets; and
(v) then pay the balance, if any, of such assets to the
Members in the following order and priority:
(A) to the Members, pro rata, in accordance with their
positive Capital Account balances;
(B) to the Members, pro rata, in accordance with the
number of Membership Units owned by each such Member.
To the extent that the Members determine that any or all of the
assets of the Company shall be sold, such assets shall be sold as promptly as
practicable, in a commercially reasonable manner. For purposes of making the
liquidating distributions required by this Section 11.04(a), the Liquidating
Trustee may determine, at the direction of the Members by Majority
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Vote, whether to distribute all or any portion of the assets of the Company in
kind or to sell all or any portion of the assets of the Company and distribute
the proceeds therefrom. Each Member shall receive copies of all customer
information relating to customers of the Company. Subject to paragraph (c)
below, Customer Contracts will be divided among the Members such that each
Member receives its pro rata share (in accordance with the number of Membership
Units) of the aggregate value of Customer Contracts, unless all of the Members
otherwise agree in writing to distribute Customer Contracts to certain but not
all Members. The Capital Account of each Member shall be adjusted to take into
account the Net Profit and Net Losses resulting from the sale of the Company's
assets and all other transactions in connection with the winding up of the
Company.
Notwithstanding anything herein to the contrary, all Joint Work
Product (as such term is defined in the License Agreement) except all Company
Marks and Hybrid Marks (as those terms are defined in the License Agreement)
shall be distributed to the Members and such Joint Work Product shall thereafter
be jointly owned by the Members and each Member shall have the unrestricted
right to use, license, distribute, sell or otherwise fully exploit such rights
without accounting to the other Members, subject to any rights of third parties
with regard to such Joint Work Product. In the event that any Joint Work Product
is embodied in or is used in connection with a Member's Separate Work Product
(as such term is defined in the License Agreement), such Member shall grant to
each other Member a limited non-exclusive, royalty-bearing license, on
commercially reasonable terms, to use the Separate Work Product solely in
connection with obligations and services being provided pursuant to contracts
and agreements in effect on the date liquidation of the Company begins, and not
for general use of the Joint Work Product in the Member's business. The
Liquidating Trustee shall promptly cause copies of any physical embodiments of
all Joint Work Product (including source code) other than Company Marks and
Hybrid Marks to be delivered to each Member. All Company Marks and all Hybrid
Marks shall be deemed to be abandoned. The Members shall have no rights in the
Company Marks, Hybrid Marks or any component parts of any Hybrid Marks, or any
goodwill associated with any of the foregoing except that (x) the Members shall
be permitted to use such Company Marks and Hybrid Marks solely in connection
with obligations and services being provided pursuant to contracts and
agreements in effect on the date liquidation of the Company begins, and not for
general use in the Member's business and (y) SEIS shall own and have the sole
right to use the name "Soliance" and all variations thereof and derivations
therefrom. All rights in said component parts, and the goodwill associated
therewith, shall revert to the Member owning such component parts.
(b) Notwithstanding any provision to the contrary in this Section
11.04, upon dissolution of the Company as a result of Section 11.02(a) or (b),
the Liquidating Trustee shall, to the extent practicable and consistent with
Sections 11.04(a)(iv) and 11.04(a)(v), distribute in kind to each Member the
respective assets contributed or transferred by such Member to the Company. The
value of each such asset at dissolution shall be determined using the same
methodology that was used to determine the value of the assets to be contributed
to the Company.
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(c) To the extent that, pursuant to the provisions of paragraphs (a)
and (b) above, a Member does not, as provided in Section 11.04(a)(v), receive
property or assets equal to the value of such Member's Capital Account plus a
proportionate share of the remainder of property and assets available for
distribution after all Members' Capital Accounts have been eliminated pursuant
to the liquidation, an attempt will be made to re-allocate the Customer
Contracts such that each Member receives property and assets equal to the value
of such Member's aggregate Capital Account plus a proportionate share of the
remainder of property and assets available for distribution after all Members'
Capital Accounts have been eliminated pursuant to the liquidation. In the event
that the re-allocation of the Customer Contracts fails to provide each Member
with the full value of such Member's Capital Account plus a proportionate share
of the remainder of property and assets available for distribution after all
Members' Capital Accounts have been eliminated pursuant to the liquidation, each
Member which has received more than the full value of its Capital Account plus a
proportionate share of the remainder of property and assets available for
distribution after all Members' Capital Accounts have been eliminated pursuant
to the liquidation, shall pay to the other Member(s), within five Business Days
of the notice described in paragraph (d) below becoming final, a cash amount in
immediately available funds, equal to the difference in the amount such Member
was entitled to receive pursuant to Section 11.04(a)(v) and the amount such
Member actually received. Notwithstanding any other provisions of this
paragraph, in the event that should there be an insufficient amount of assets to
return to each Member the full value of its Capital Account, the Liquidating
Trustee will, in its discretion, divide the assets such that each Member
receives as near as possible the proportionate amount it was entitled to receive
pursuant to Section 11.04(a)(v).
(d) As soon as practicable, the Liquidating Trustee shall deliver a
notice to each Member setting forth the value assigned to each asset and the
Member to which such asset will be distributed, in connection with the
provisions of paragraphs (a), (b) and (c) above. Each Member shall have 15 days
to dispute such valuation and if no notice of dispute is delivered to the
Liquidating Trustee and the other Members, the notice of valuation shall become
final. If such notice of dispute is delivered, the matter shall be submitted to
a nationally recognized investment banking firm, accounting firm or valuation
firm selected by the Liquidating Trustee from a list of three such firms
provided by the disputing Member. The banking, accounting or valuation firm
shall make a decision within 60 days of referral, which decision shall be final
and binding, and the fees and expenses of such firm shall be borne by the
Company.
SECTION 11.05 Termination. The Company shall terminate when all of
the assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
holders of Membership Units in the manner provided for in this Article XI, and
the Certificate shall have been canceled in the manner required by the Delaware
Act.
SECTION 11.06 Claims of the Members. The Members shall look solely
to the Company's assets for the return of their Capital Contributions, and if
the assets of the Company remaining after payment of or due provision for all
debts, liabilities and obligations of the Company (including any credit support
or other liquidity provided by SEIS or Member loans
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made by SEIS and Cayenta and borrowings thereof to fund Member loans, credit
support or otherwise provide liquidity to or for the benefit of the Company) are
insufficient to return such Capital Contributions, the Members shall have no
recourse against the Company or any other Member or any other Person. No Member
with a negative balance in such Member's Capital Account shall have any
obligation to the Company or to the other Members or to any creditor or other
Person to restore such negative balance upon dissolution or termination of the
Company or otherwise.
ARTICLE XII
EMPLOYEES
SECTION 12.01 Employees.
(a) Commencing on the date hereof, each Member hereby agrees to make
certain Persons available to perform services and work for the Company as and
when requested by the Members Committee and approved by such Member. The
relevant Member shall bill the Company at their employees' normal billing rates.
Market-based consultant billing rates will be established for any salaried
employee providing services to the Company. Members are encouraged to enter into
fixed price, fixed time line contracts when appropriate, the details of which
are more fully discussed in the Services Agreements. Should the Company not pay
said sum, or any part thereof, within 30 calendar days from the date of the
monthly invoice (i) interest at the Interest Rate shall be additionally due and
owing on the unpaid balance, from the date past due and (ii) the Member to which
such sum is owed shall, effective 30 days following the delivery of written
notice to the Company, have no further obligation pursuant to this Section 12.01
to make available to the Company any Persons until such unpaid balance plus all
accrued interest shall have been paid; provided, that no Member shall be
relieved of any of its obligations pursuant to this Section 12.01 to make
available any Persons if, following the delivery of written notice pursuant to
this clause (ii) but prior to 30 days following such delivery, the Company shall
deliver to the relevant Member written notice setting forth in reasonable detail
why the Company in good faith believes no unpaid amount is owed pursuant to this
Section 12.01. The Company shall notify the relevant Member of any billing items
in question. Such Member will research the items in question and resolve any
differences with the Company. In the event any amount that was paid by the
Company was not properly owed, then within 30 days after the delivery of such
notice, the Company shall be reimbursed that amount with interest at the
Interest Rate from the date the original payment was received until the
adjustment was refunded. Upon the termination of this Agreement, each Member
will bill the Company for the actual costs incurred since the last billing under
the normal terms and conditions mentioned above. Each Member shall have the same
audit rights in respect of compensation due pursuant to this Section 12.01 as
they have pursuant to Section 4.02(e).
(b) In the event the Members Committee hires employees to work
directly for the Company, or determines to have certain employees of a Member
become employees of the Company rather than provide services on a dedicated
basis, it shall determine whether to establish welfare and benefit plans for the
Company and provide payroll services directly or
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contract with one or more of the Members to provide such benefits and services.
In the event the Members Committee elects to contract with a Member for such
benefits and services, such contract shall be on the terms set forth in
paragraph (a) above, except as otherwise provided in any Management Services
Agreement between the Company and such Member.
(c) Each Member (and former Member) agrees that from and after the
date hereof, for the duration of the Company and for a period of two (2) years
after the dissolution of the Company or after the date the Member transferred
its Membership Units, it shall not solicit the employment of any employee of any
of the other Members unless such Member consents thereto in advance, provided
that a general advertisement in the public media shall not constitute a
violation of this section.
ARTICLE XIII
PRODUCTS
SECTION 13.01 Company Products. The Company provides information
products and services to the energy provider market (collectively referred to
herein as, the "Products"). For purposes of this Agreement, "Products" is
defined as the provision of Application Service Provider (ASP) and Web-hosting
services for the utility industry (any company engaged in the generation,
distribution, transmission and retail sale of electrical energy, gas and water
to retail sellers or transporters of energy commodity including municipalities,
utilities and other energy service providers (ESPs). Each Managing Member will
contribute its unique expertise to provide a complete solution for the customer.
SEIS will provide the industry knowledge and expertise, Cayenta will provide
application and technology interoperability expertise, and Modis will provide
application configuration expertise. In addition, SEIS will provide service
bureau operational support, application licenses, and the operations
infrastructure; this can include related sale, lease and rental of software,
hardware, and telecommunication services. When needed, all Managing Members will
provide expert information technology consulting services in support of
delivering a total solution to the customer.
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ARTICLE XIV
CERTAIN AGREEMENTS
SECTION 14.01 Scope of Business
(a) The Products will be marketed by and offered by the Members
through the Company. Members will provide Company all leads on new marketing and
sales opportunities for Products. If the Company elects, in writing, not to
proceed with the lead, the individual Member who initiates the lead may go
forward to unilaterally develop such lead. Any Member may deliver written notice
to the Company requesting whether a Product not then offered by the Company will
be offered by the Company and the Company shall have 90 days to respond to such
Member. In the event that within such 90-day time period the Members Committee
is unable to determine that such Product will be offered by the Company then the
Members hereby agree that such Product may be offered on a non-exclusive basis
by the notifying Member, or any other Member, or any of their Affiliates as well
as by the Company.
The Members agree that this Agreement will not prevent any
Member from marketing any products or services that do not constitute Products
at any time, or from marketing Products after the last day of the fifteenth (15)
calendar month commencing with the first month after the month in which such
Member has transferred its entire Membership Interest (other than to an
Affiliate) and ceased to be a Member of the Company or withdrawn from the
Company.
Subject to the foregoing, the Members agree that they will not enter into any
other new agreement to provide any of the Products with any other party.
(b) No Subsidiary or Affiliate of a Member shall have any obligation
to refrain from (i) engaging in the same or similar activities or lines of
business as the Company or developing or marketing any products or services that
compete, directly or indirectly, with those of the Company or (ii) investing or
owning any interest publicly or privately in, or developing a business
relationship with, any Person engaged in the same or similar activities or lines
of business as, or otherwise in competition with, the Company; and neither the
Company nor any Member (or any Subsidiary or Affiliate of such Member) shall
have any right by virtue of this Agreement in or to, or to be offered any
opportunity to participate or invest in, any venture engaged or to be engaged in
by any other Member (or any Subsidiary or Affiliate of such Member) or any right
of this Agreement in or to any income or profits derived therefrom.
SECTION 14.02 Compliance with U.S. Foreign Corrupt Practices Act.
(a) Each Member shall take all appropriate action to cause the
Company to adopt such internal policies as are necessary to assure that the
business of the Company and the conduct of its officers, employees and agents
are consistent with the following operating principles: No money or other thing
of value shall be offered, promised or given directly or indirectly to (i) any
governmental official, (ii) any political party or official thereof, (iii) any
candidate for political office, or (iv) any other person, while knowing or
having reason to know that all or a portion of such money or thing of value will
be offered, promised or given, directly
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or indirectly, to any of those listed in items (i) through (iv) above for the
purpose of influencing any action, omission or decision by the recipient in
order to either obtain or retain business for the Company or to direct business
to another.
(b) Upon receiving information which provides reasonable certainty
that any such payment has been made, or action has been taken, each Member shall
(i) advise all other Members of the occurrence, and (ii) take all actions
reasonably necessary to mitigate, correct and report such occurrence, under law
or otherwise (such steps may include termination or severance of the
individual(s) involved).
All Members acknowledge they have a good working knowledge of the
requirements of the Foreign Corrupt Practices Act. The Members also agree to
adhere to the foregoing operating principle with respect to their own actions on
behalf or in the name of the Company.
SECTION 14.03 Regulatory Approvals. Each Member shall cooperate and
use its best efforts to promptly prepare and file all necessary documentation,
to effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
necessary permits, consents, approvals and authorizations of all governmental or
regulatory authorities necessary or advisable to (i) consummate the transactions
contemplated by this Agreement and (ii) allow the Company to engage in the
Company Business. Each Member shall have the right to review and approve in
advance all characterizations of the information relating to such Member which
appear in any filing made in connection with the transactions contemplated by
this Agreement. The Members agree that they will consult with each other with
respect to the obtaining of all such necessary permits, consents, approvals and
authorizations of governmental and regulatory authorities. The Members shall
jointly assist the Company in its efforts to obtain necessary approvals from any
governmental or regulatory authority.
SECTION 14.04 Confidentiality. Each Member and each of its
Affiliates shall keep confidential and not reveal, and shall cause its
Affiliates and Subsidiaries and the officers, directors, employees, agents and
representatives of such Member and its Affiliates and Subsidiaries, to keep
confidential and not to reveal, to any other Person (other than on a "need to
know" basis, to the Company or its officers and employees, to any Affiliate or
any officer, director, employee, agent or representative of such Member or its
Affiliates (each of whom shall be subject to confidentiality obligations), or to
any other Member or such Member's Affiliates), any documents and other
information concerning, relating to or in connection with the Company or another
Member or the business of the Company or such other Member, that come to the
knowledge of such Member or its Affiliates or their respective representatives
or agents by reason of the relationship of such Member or Affiliate with the
Company or such other Member, including but not limited to other leads brought
to the Company for consideration by a Member. Information does not include
knowledge that (a) is generally available to the public (other than as a result
of a disclosure by such Member or its Affiliates), (b) is available to such
Person on a non-confidential basis from a source that is not prohibited from
disclosing such information to such Person, (c) is independently developed by
such Person without assistance by the disclosure
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of such information, or (d) such Person can demonstrate was known to it prior to
the disclosure thereof by the Company ("Information"). In the event that any
Member or any such agent, representative, Affiliate, employee, officer or
director becomes legally compelled to disclose any such Information, such party
shall provide the Managing Members with prompt written notice of such
requirement so that such Managing Members or the Company may seek a protective
order or other remedy or waive compliance with this Section 14.04; provided,
that in the event that such protective order or other remedy is not obtained, or
the Managing Members waive compliance with this Section 14.04, the disclosing
party shall furnish only that portion of such Information which is legally
required to be provided and shall exercise all reasonable efforts to obtain
assurances that confidential treatment will be accorded such information. The
Members further agree not to use any Information for any purpose other than in
connection with activities of the Company and shall cause each of their
respective employees who have access to Information to sign a confidentiality
agreement. The provisions of this Section 14.04 shall survive the termination or
dissolution of the Company with respect to any such documents and other
information concerning another Member or the business of such other Member, and
shall survive the Transfer of any Membership Units or the withdrawal of any
Member with respect to any such documents and other information concerning the
Company or another Member or the business of the Company or such other Member.
ARTICLE XV
LIABILITY AND INDEMNIFICATION
SECTION 15.01 Liability.
(a) Except as otherwise provided by the Delaware Act or this
Agreement, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Covered Person shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Covered Person.
(b) Except as otherwise expressly required by law, a Member, in its
capacity as such, shall have no liability in respect of any distributions
wrongfully distributed to it unless such Member had actual knowledge at the time
of the distribution of facts indicating the impropriety of the distribution and
if immediately after giving effect to such distribution all liabilities of the
Company (other than liabilities to Members or assignees on account of their
Membership Units and liabilities as to which recourse is limited to specific
property of the Company) exceed the fair market value of the Company's assets;
provided, that a Member shall have no liability under this Section 15.01 in
respect of any distribution on or after the third anniversary of the
distribution unless an action to recover such distribution from such Member is
commenced prior to such third anniversary and an adjudication of liability
against such Member is made in such action.
(c) No Managing Member, nor any Affiliate of any Managing Member,
shall have any personal liability to the Company or any of the Members (i) for
damages for any breach
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of duty as a manager of the Company or as a Managing Member or as an authorized
agent, as the case may be, when acting with the requisite consent or
authorization of the Managing Members (which may include such Member) or (ii)
for any act or omission performed or omitted by it pursuant to authority granted
by this Agreement, provided that the foregoing provision shall not eliminate or
limit the liability of any Managing Member if a judgment or other financial
adjudication adverse thereto establishes that acts or omissions thereto involved
intentional misconduct or a knowing violation of law. Each Member, acting in any
capacity hereunder, having the opportunity to grant or withhold its consent or
authorization shall be entitled to grant or withhold its consent or
authorization to any act hereunder in its sole and absolute discretion, and is
entitled to act in its own self-interest in all matters affecting the management
or affairs of the Company. Without limiting the foregoing, no Managing Member
nor any Affiliate of a Managing Member shall have personal liability to the
Company or any of the Members in connection with any decisions, whether for good
reason or no reason, that the Company requires or does not require additional
capital or credit support or as to the manner of providing any such additional
funding, and no consent or authorization as to a level of funding has been
expressed nor should be implied.
(d) No Member or Managing Member shall be personally liable for the
return or payment of all or any portion of the capital of or profits allocable
to or loans to the Company by any Member (or any successor, assignee or
transferee thereof), it being expressly agreed that any such return of capital
or payment of profits made pursuant to this Agreement, or any payment or
repayment in respect of any such loan, shall be made solely from the assets of
the Company (which shall not include any right of contribution from any Member
or Managing Member).
SECTION 15.02 Indemnification.
(a) To the fullest extent permitted by applicable law, a Covered
Person shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Covered Person by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement, except that no Covered
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Covered Person by reason of gross negligence, bad faith
or willful misconduct with respect to such acts or omissions; provided, that any
indemnity under this Section 15.02 shall be provided out of and to the extent of
Company assets only, and no other Covered Person shall have any personal
liability on account thereof.
(b) (i) In the event that any claim, demand, action, suit or
proceeding shall be instituted or asserted or any loss, damage or claim shall
arise in respect of which indemnity may be sought by a Covered Person pursuant
to Section 15.02(a), such Covered Person shall promptly notify the Company
thereof in writing. Failure to provide notice shall not affect the Company's
obligations hereunder except to the extent the Company is actually and
materially prejudiced thereby.
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(ii) The Company shall have the right, exercisable subject to
the approval of the disinterested Members, to participate in and control the
defense of any such claim, demand, action, suit or proceeding and, in connection
therewith, to retain counsel reasonably satisfactory to each Covered Person, at
the Company's expense, to represent each Covered Person and any others the
Company may designate in such claim, demand, action, suit or proceeding. The
Company shall keep the Covered Person advised of the status of such claim,
demand, action, suit or proceeding and the defense thereof and shall consider in
good faith recommendations made by the Covered Person with respect thereto.
(iii) In any such claim, demand, action, suit or proceeding,
any Covered Person shall have the right to retain its own counsel at its own
expense; provided, that the fees and expenses of such Covered Person's counsel
shall be at the expense of the Company if (A) each other Member and such Covered
Person shall have mutually agreed to the retention of such counsel, (B) the
Company shall have failed, within a reasonable time after having been notified
of the existence of an indemnified claim, to assume the defense of such
indemnified claim or (C) the named parties to any such claim, demand, action,
suit or proceeding (including any impleaded parties) include both the Company
and such Covered Person and representation of both parties by the same counsel
would be inappropriate in the judgment of the Covered Person (as evidenced by an
opinion of counsel) due to actual or potential differing interests between them
and the Company shall have failed, within a reasonable time after having been
notified of the Covered Person's objection under this Section 15.02(b)(iii)(C)
to such joint representation, to retain counsel for such Covered Person
reasonably satisfactory to such Covered Person. It is understood that the
Company shall not, in respect of the legal expenses of any Covered Person, in
connection with any claim, demand, action, suit or proceeding or related claims,
demands, actions, suits or proceedings in the same jurisdiction, be liable for
the fees and expense of more than one separate firm (in addition to any local
counsel) for all such Covered Persons and that all such fees and expenses shall
be reimbursed as they are incurred; provided, that if there exists or is
reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of a Covered Person (as evidenced by an opinion of
counsel) for the same counsel to represent such Covered Person and any other
Covered Person, then such Covered Person shall be entitled to retain its own
counsel, in each jurisdiction for which the Covered Person reasonably determines
counsel is required, at the expense of the Company.
(iv) The Company shall not be liable for any settlement of any
claim, demand, action, suit or proceeding effected without its written consent
(which consent shall not be unreasonably withheld or delayed), but if settled
with such consent or if there be a final judgment for the plaintiff, the Company
agrees to indemnify each Covered Person, to the extent provided in Section
15.02(a), from and against all losses, damages or claims by reason of such
settlement or judgment. The Company shall not effect any settlement of any
pending or threatened claim, demand, action, suit or proceeding in respect of
which any Covered Person is seeking indemnification hereunder without the prior
written consent of each such Covered Person (which consent shall not be
unreasonably withheld or delayed by any such Covered Person), unless such
settlement includes an unconditional release of each such Covered Person from
all liability and claims that are subject matter of such claim, demand, action,
suit or proceeding.
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(v) As necessary or useful to the defending party in effecting
the foregoing procedures, the parties shall cooperate in the execution and
delivery of agreements, instruments and other documents and in the provision of
access to witnesses, documents and property (including access to perform
interviews, physical investigations or other activities).
SECTION 15.03 Expenses. To the fullest extent permitted by
applicable law, expenses (including legal fees) actually and reasonably incurred
by a Covered Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined that the Covered Person is not entitled to
be indemnified therefor as authorized in Section 15.02 hereof.
ARTICLE XVI
CONVERSION TO CORPORATION
SECTION 16.01 Conversion to Corporation.
(a) At such time and in such manner as the Members shall determine
to be appropriate, the Members Committee by Unanimous Vote shall be entitled to
cause the Company to be converted into and reconstituted as a corporation under
the laws of the State of Delaware (the "Corporation"), whether by conversion
pursuant to Delaware Act ss.18-214, merger, transfer and/or contribution of
assets and liabilities of the Company to the Corporation in exchange for shares
of capital stock of the Corporation (and distribution of such shares to the
Members in liquidation of the Company) or otherwise (a "Conversion", and the
actual date of such Conversion being referred to herein as the "Conversion
Date").
As of the Conversion Date, each Member shall, to the extent
hereinafter provided, be entitled to receive:
(i) a capital share ownership interest in the Corporation
substantially equivalent, as reasonably determined by the Managing Members, to
the Units comprising its Membership Interest as of the Conversion Date; and
(ii) each Member shall also be issued in respect of the sum of
such Member's Unrecovered Capital preferred stock of the Corporation with an
aggregate redemption price and liquidation preference equal in the aggregate to
such Unrecovered Capital, and otherwise with such rights, preferences and
privileges as in the reasonable judgment of the Managing Member(s) shall be
equitable in light of the rights, preferences and privileges to which Members
are entitled under this Agreement in respect of their respective Unrecovered
Capital.
(b) Each of the Members hereby agrees to cooperate fully with such
Conversion and enter into one or more stockholders' agreements which shall
reflect each of their
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respective rights and obligations as stockholders of the Corporation, which
rights and obligations shall be substantially equivalent to the respective
rights and obligations of the Members under this Agreement, and with such
changes taking account of the differences between the Company and the
Corporation and the laws governing the same, as the Managing Member(s) shall
reasonably determine.
ARTICLE XVII
MISCELLANEOUS
SECTION 17.01 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopier or by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(i) if given to the Company, in care of the Secretary at
101 Ash Street, San Diego, California 92101, or such other address as the
Company may hereafter designate in writing; or
(ii) if given to any Member at the address set forth
opposite its name on Schedule 2.01 attached hereto, or at such other address as
such Member may hereafter designate by written notice to the Company.
SECTION 17.02 Public Announcements. The Members (and their
Affiliates) agree to consult with each other before issuing any press release or
making any public statement with respect to this Agreement and will not issue
any such press release or make any such public statement prior to such
consultation, and, except as may be required by applicable law, will not issue
any such press release or make any such public statement without the prior
consent of the other party.
SECTION 17.03 Cumulative Remedies. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
SECTION 17.04 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of all of the parties and, to the extent permitted by
this Agreement, their successors, executors, administrators, heirs, legal
representatives and assigns.
SECTION 17.05 Interpretation. Throughout this Agreement, nouns,
pronouns and verbs shall be construed as masculine, feminine, neuter, singular
or plural, whichever shall be applicable. Unless otherwise specified, all
references herein to "Articles", "Sections" and paragraphs shall refer to
corresponding provisions of this Agreement.
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SECTION 17.06 Severability. If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions is not affected in any manner
materially adverse to any party. Upon a determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby by consummated as
originally contemplated to the fullest extent possible.
SECTION 17.07 Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in two or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 17.08 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining hereto.
SECTION 17.09 Governing Law; Dispute Resolution
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
(b) Dispute Resolution.
(i) The Members shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly by negotiation
between their respective executives who have authority to settle the
controversy. Any Member may give the other Members written notice of any dispute
not resolved in the normal course of business. Within five (5) Business Days
after the date that the notice is deemed to have been delivered, executives of
the disputing Members shall agree upon a mutually acceptable time and place to
meet and shall meet at that time and place, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and to attempt to
resolve the dispute. The first of those meetings shall take place within ninety
(90) days after the date that the notice referred to above has been deemed to be
delivered. If a disputing Member intends to be accompanied at a negotiation
meeting by an attorney, that disputing Member shall give the other Members at
least three (3) business days notice of that intention, and the other Members
also may be accompanied by an attorney. If the matter has not been resolved
within ninety (90) calendar days of the disputing Member's notice or if, within
five (5) business days of delivery of that notice, the Members fail to agree on
a time and place for an initial meeting, any Member may initiate arbitration of
the dispute, controversy or claim as provided in Section 17.09. In addition, if
one Member has requested another Member to participate in a non-binding
procedure and the other Member has failed to participate, the requesting Member
may initiate arbitration pursuant to Section 17.09
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prior to the expiration of the ninety (90) days. The ninety (90) day periods in
this Section 17.09 are referred to in this Article 17 as the "Notice Periods."
(ii) Arbitration. Any dispute, controversy or claim arising
out of or relating to this Agreement, including the breach, termination or
validity hereof, which cannot be resolved by negotiation as provided in Section
17.09, shall be finally settled under the Rules of Conciliation and Arbitration
of the American Arbitration Association (the "Rules") by an arbitral tribunal
(the "Tribunal") comprising one arbitrator appointed by the disputing Member(s),
one arbitrator appointed by the non-disputing Member(s) and a third arbitrator
appointed by the two arbitrators appointed by the Members. The third arbitrator
shall act as the presiding arbitrator (the "Chairman"). A decision of the
majority of the arbitrators shall be binding.
(iii) The arbitration shall be held in San Diego, California.
(iv) Any arbitration proceeding hereunder must be instituted
within two (2) years after the dispute, controversy or claim arises. Failure to
institute an arbitration proceeding within the two-year period shall constitute
an absolute bar to the institution of any proceedings respecting the dispute,
controversy or claim and a waiver thereof. The arbitration proceeding shall be
conducted and concluded as soon as reasonably practicable, based on the schedule
established by the Tribunal, but in any event the Tribunal shall render its
decision within one hundred twenty (120) calendar days following the selection
of the Chairman. The Members desire that any dispute, controversy or claim be
resolved quickly and at the lowest possible cost, and the Tribunal shall act in
a manner consistent with these intentions, including limiting discovery to only
that which is absolutely necessary to enable the Tribunal to render a fair
decision that reflects the Members' intent as set forth in this Agreement.
(v) The Tribunal shall interpret this Agreement in accordance
with the laws stipulated in Section 17.09 and the rules of construction
stipulated in this Agreement. The procedural law of the forum shall be applied
with respect to matters not covered by the Rules. All statutes of limitation
that otherwise would be applicable shall apply to the arbitration proceeding
provided that such statutes of limitation shall be tolled to the extent
necessary to allow the Members and the Tribunal the full benefit of the Notice
Periods. Any attorney-client privilege and other protection against disclosure
of privileged or confidential information, including any protection afforded the
work product of any attorney, that otherwise could be claimed by any Member
shall be available to and may be claimed by that Member in any arbitration
proceeding. No Member waives any attorney-client privilege or any other
protection against disclosure of privileged or confidential information by
reason of anything contained in, or done pursuant to, the arbitration provisions
of this Agreement.
(vi) The decision of the Tribunal pursuant to this Article 17
shall be final and binding on the parties of this Agreement. The Members agree
to submit to the jurisdiction of any court having jurisdiction over the Member
or the property of the Member against whom enforcement is sought for purposes of
the enforcement of any award, order or judgment.
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(vii) Any award of damages pursuant to the arbitration shall
be included in a written decision signed by the arbitrator (or a majority of the
arbitrators) which shall state the reasons upon which the award was based,
including all the elements involved in the calculation of any award of damages.
The award of damages shall not include punitive, special, exemplary or
consequential damages, including loss of profits or lost business opportunity,
or any damages other than or in addition to actual damages, but may include
interest from the date of the award. Any monetary award shall be in the United
States dollars, free of any tax or other deduction, and shall include interest
from the date of claim for any breach or other violation of this Agreement to
the date paid in full at a floating rate of interest equal to the prime rate of
interest in effect from time to time at Citibank, N.A., New York, New York.
(viii) Notwithstanding any provision of this Agreement, either
Member shall have the right, at any time after commencement of any arbitration
proceeding hereunder and prior to the rendering of any award, order or judgment
thereunder, to apply to the Tribunal or to any court of competent jurisdiction
for injunctive or preliminary relief. No application for injunctive or
preliminary relief shall be construed to infringe this arbitration agreement or
affect the powers of the Tribunal.
(ix) The Members agree that during the pendency of any
mediation and/or arbitration, the Company shall continue its operations and each
of the Members will continue to provide its services under the existing
Management Services Agreement as if there were no dispute.
(c) The parties hereto agree that irreparable damage would occur in
the event any provision of this Agreement was not performed in accordance with
the terms hereof and that the parties hereto shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
SECTION 17.10 Expenses. Each of the Members will bear its own costs
and expenses, including brokers' or finders' fees, if any, incurred in
connection with the preparation and execution of this Agreement.
SECTION 17.11 Further Assurances. The Members will execute and
deliver such further instruments and do such further acts and things as may be
required to carry out the intent and purpose of this Agreement.
SECTION 17.12 Amendments and Waivers; Assignment.
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by all parties hereto, or in the case of a waiver, by the party or
parties against whom the waiver is to be effective; provided, that Schedule 2.01
to this Agreement shall be deemed amended from time to time to reflect the
admission of a new Member, the withdrawal or resignation of a Member and the
adjustment of the Membership Units resulting from any sale, Transfer or other
disposition of a Membership Unit, in each case that is made in accordance with
the provisions thereof; and
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provided, further, that the Members Committee may, by Majority Vote, amend this
Agreement without the consent of any other Member (i) to reflect changes validly
made in the membership of the Company and corresponding changes in the terms and
provisions of this Agreement necessary to reflect or conform with any such
change in membership, (ii) to reflect changes permitted in accordance with this
Agreement in the Capital Accounts and/or Membership Units of the Members, (iii)
to clarify any ambiguities herein or to appropriately adjust any mechanics or
procedures set forth herein so long as the rights of the Members are not
prejudiced thereby, or (iv) if such amendment is of an inconsequential nature
(as reasonably determined by the Managing Members) and does not affect the
rights of the Members in any adverse respect. Anything in the foregoing
provisions of this Section 17.12 to the contrary notwithstanding, this Agreement
shall be amended from time to time (without any required consent of the Members)
in each and every manner deemed necessary or appropriate by the Managing Members
or the tax matters Member to comply with the then existing requirements of the
Code and the Regulations and the Rulings of the Treasury Department or Internal
Revenue Service affecting the Company. Any amendment of the definition of the
term "Company Business" or expansion of the scope or coverage thereof shall not
itself amend or expand the scope or coverage of the restrictions imposed
pursuant to Section 14.01.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder (other than a failure or delay beyond a period of time
specified herein) shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(c) Except as provided in Article X hereof, this Agreement shall not
be assigned by the Members and no such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.
SECTION 17.13 No Third Party Beneficiaries. No person or entity
other than a party hereto shall have any rights or remedies under this
Agreement.
SECTION 17.14 Headings. The headings and subheadings in this
Agreement are included for convenience and identification only and are in no way
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have entered into this
Limited Liability Company Agreement or have caused this Agreement to be duly
executed by their respective authorized officers, in each case as of the date
first written above.
Sempra Energy Information Solutions
By: __________________________________
Name: __________________________________
Title: _________________________________
Modis, Inc.
By: __________________________________
Name: __________________________________
Title: _________________________________
Cayenta.com
By: __________________________________
Name: __________________________________
Title: _________________________________
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SCHEDULE 1.01
Certain Definitions
"Adjusted Capital Account" means, with respect to each Member, the
balance in such Member's Capital Account as of the end of the relevant Fiscal
Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of this Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences of each
of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in
Sections 1.704-(1)(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
"Adjusted Capital Account Deficit" means, with respect to each
Member, the deficit balance, if any, in such Member's Adjusted Capital Account
as of the end of the relevant Fiscal Year.
"Affiliate" means, with respect to a specified Person, any Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person, including,
without limitation, any partnership or joint venture in which the specified
Person (either alone or together with any other subsidiary) has, directly or
indirectly, an interest of 10% or more; provided that, with respect to each of
SEIS, Modis and Cayenta, an "Affiliate" means any non-regulated Person that
directly or indirectly is controlled by it. As used in this definition, the term
"control" means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, as trustee
or executor, by contract or credit arrangements or otherwise.
"Agreement" means this Limited Liability Company Agreement of
Soliance Networks, as amended, modified, supplemented or restated from time to
time.
"Asset Value" means, with respect to any asset or liability, such
asset's or liability's adjusted basis for federal income tax purposes, except as
follows:
(i) the initial Asset Value of any asset (other than money)
contributed by, or liability assumed from, a Member of the Company shall be the
value of such asset or liability as determined by Unanimous Vote of the Members;
and
(ii) the Asset Value of all assets and liabilities of the
Company shall be adjusted to equal their respective gross fair market values, as
determined by the Members Committee, in accordance with Regulations Section
1.704-1(b)(2)(iv)(f) at the following times:
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(i) the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis contribution to the
capital of the Company; (ii) the distribution by the Company to a Member of more
than a de minimis amount of Company assets other than money as consideration for
an interest in the Company; and (iii) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that
adjustments pursuant to clauses (i) and (ii) above shall be made only if
required by a Majority Vote of the Managing Members. Upon a revaluation of the
Company's assets pursuant to this clause (ii), each Member's Capital Account
shall be increased or decreased as if such assets were sold for their fair
market values and the gain or loss realized thereon were allocated among the
Members in accordance with Article VII hereof and Regulations Section
1.704-1(b)(2)(iv)(f).
If the Asset Value of an asset or liability has been determined or
adjusted pursuant to paragraph (i) or paragraph (ii) above, such Asset Value
shall thereafter be reduced by the Depreciation taken into account with respect
to such asset for purposes of computing Net Profits and Net Losses.
(iii) The Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair market value
(taking Code Section 7701(g0 into account) of such asset on the date of
distribution as determined by the Members' Committee; and
(iv) The Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of
the definition of "Net Profits" and "Net Losses" or Section 7.02 hereof;
provided, however, that Asset Values shall not be adjusted pursuant to this
subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii)
is required in connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (iv).
If the Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (ii) or (iv), such Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Net Profits and Net Losses.
"Bankruptcy" of a Member shall be deemed to occur for purposes of
this Agreement if:
(i) an involuntary petition under any bankruptcy or insolvency
law or under the reorganization provisions of any such law is filed with respect
to such Member or a receiver of or for the property of such Member is appointed
without acquiescence of such Member, which petition or appointment remains
undischarged or unstayed for an aggregate period of 90 days (whether or not
consecutive); or
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(ii) a voluntary petition under any bankruptcy or insolvency
law or under the reorganization provisions of any such law is filed by such
Member, a voluntary assignment of such Member's property for the benefit of
creditors is made, or a receiver of or for the property of such Member is
appointed by, or acquiesced in, by such Member.
"Business Day" means any day, except a Saturday, Sunday or other day
on which commercial banking institutions in New York City are authorized or
directed by law or executive order to close.
"Capital Account" means, with respect to any Member, the account
maintained for such Member in accordance with the provisions of Section 4.06.
"Capital Contribution" means, with respect to any Member, the
aggregate amount of money contributed to the Company and the initial Asset Value
of any property (other than money) contributed to the Company pursuant to
Article IV with respect to the Membership Units held by such Member. In the case
of a Member that acquires an interest in the Company by virtue of an assignment
or transfer in accordance with the terms of this Agreement, "Capital
Contribution" means the Capital Contribution of such Member's predecessor to the
extent relating to the acquired interest.
"Certificate " means the Certificate of Formation and any and all
amendments thereto and restatements thereof filed on behalf of the Company with
the office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any corresponding federal tax statute enacted after the date of this
Agreement. The reference to a specific section (ss.) of the Code refers not only
to such specific section but also to any corresponding provision of any federal
tax statute enacted after the date of this Agreement, as such specific section
or corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"Company Business" means any activity, business, project or
undertaking related to the production or distribution of Products as
contemplated in Article XIII in which the Members' Committee by Majority Vote
determines the Company should be engaged, and any other activity, business,
project or undertaking approved by the Unanimous Vote of the Members Committee;
provided, that any such additional activities, businesses, projects or
undertakings approved by such a Unanimous Vote shall not itself amend or expand
the scope or coverage of the restrictions imposed pursuant to Section 14.01.
"Company Minimum Gain" has the meaning given "partnership minimum
gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Covered Person" means a Member, any Affiliate of a Member, any
officers, directors, Representatives, shareholders, employees or partners or
members of a Member, or its respective Affiliates or any officers of the
Company.
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"Customer Contract" means written agreements between the Company,
directly or through an agent approved by the Members Committee, on the one hand,
and the customer, on the other hand, on such terms and subject to such
conditions as shall be within underwriting and other guidelines to be determined
from time to time by the Members Committee.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (c)
all obligations of such Person as lessee under leases that have been or should
be, in accordance with GAAP, recorded as capital leases, (d) all obligations,
contingent or otherwise, of such Person in respect of acceptances, letters or
credit or similar extensions of credit, (e) all Debt of others referred to in
clauses (a) through (d) above or clause (f) below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such Debt
or to advance or supply funds for the payment or purchase of such Debt, (ii) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Debt or to assure the holder of such Debt against loss, (iii) to supply
funds to or in any other manner invest in the debtor (including any agreement to
pay for property or services irrespective of whether such property is received
or such services are rendered) or (iv) otherwise to assure a creditor against
loss, and (f) all Debt referred to in clauses (a) through (e) above secured by
(or which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts and contract rights) owned by such Person, even through
such Person has not assumed or become liable for the payment of such Debt.
Notwithstanding the foregoing, Capital Contributions made pursuant to Article IV
shall not be considered Debt of any Person.
"Dedicated Assets" means all or any of the SEIS Dedicated Assets,
the Modis Dedicated Assets and the Cayenta Dedicated Assets.
"Delaware Act" means the Limited Liability Company Act, Delaware
Code ss.ss.18-101, et seq., as amended from time to time.
"Depreciation" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or other period; provided, that if the Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such Fiscal Year or other period, Depreciation shall be an amount that bears
the same ratio to such beginning Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction with respect to such
asset for such Fiscal Year or other period bears to such beginning adjusted tax
basis; and provided further that, if the federal income tax depreciation,
amortization or other cost recovery deduction for such Fiscal Year or other
period is zero, Depreciation shall be determined with reference to such
beginning Asset Value using any reasonable method selected by the Members.
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"Fiscal Year" means (i) the period commencing upon the formation of
the Company and ending on December 31, 1999, (ii) any subsequent twelve month
period commencing on January 1 and ending on December 31, or (iii) any portion
of the period described in clause (ii) of this sentence for which the Company is
required to allocate Net Profits, Net Losses and other items of Company income,
gain, loss or deduction pursuant to Article VII hereof.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Interest Rate" means the London Interbank Offered Rate (LIBOR) plus
2%.
"Liens" means any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever.
"Majority Vote" means, with respect to any matter to be voted on by
the Representatives designated by the Members, the written approval of, or the
affirmative vote by, in the aggregate, a majority of the number of Membership
Units.
"Managing Members" means each of SEIS, Modis and Cayenta and their
respective successors and permitted assigns.
"Marketable Securities" means shares of common stock that are listed
and traded on a national exchange or the Nasdaq National Market.
"Member" means any Person named as a member of the Company on
Schedule 2.01 hereto and any Person admitted as an additional Member pursuant to
the provisions of this Agreement, in each case, in such Person's capacity as a
member of the Company.
"Member Nonrecourse Debt" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"Member Nonrecourse Deductions" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"Membership Unit" means an equity interest in the Company
representing such fractional part of the interest of all unit holders pursuant
to this Agreement as is equal to the quotient of one divided by the total number
of Membership Units.
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"Net Distributable Cash" means, for any period for which the amount
thereof is being determined, the net income for the Company for such period,
after the deduction of all expenses incurred (including without limitation, the
amortization of the acquisition cost of Customer Contracts over such period and
at such rate as shall be determined by the Members Committee in accordance with
GAAP, all interest expenses incurred (including Member loans for liquidity or
margin), and reasonable reserves for Customer Contract attrition and
repudiation), and as further adjusted by subtracting the amount of any of the
following added, and by adding any of the following subtracted, in determining
such net income (i) the restoration of any reserve except to the extent that
provision for such reserve was made during such period, (ii) the write-up of any
assets, (iii) net gains arising from the collection of insurance proceeds, (iv)
any net income of any entity in which the Company has an ownership interest
except to the extent of the cash dividends or distributions actually received by
the Company from such entity, and (v) Depreciation (other than amortization of
Customer Contracts and other assets); minus
(i) if the Company is not a taxable entity for federal income
tax purposes, the amount of distributions made or to be made by the Company to
its Members with respect to the Company's taxable income for such period; or if
the Company is a taxable entity for federal income tax purposes, the amount of
tax payable in respect of the Company's taxable income for such period; minus
(ii) to the extent not previously deducted, all interest, fees
and other charges which are due or have accrued during such period under or in
respect of all indebtedness of the Company, and all principal payments due or
payable during such period under or in respect of indebtedness, including in
each case Member loans, credit supports and other extensions of liquidity in
accordance with Section 4.03; minus
(iii) an amount equal to the product of (x) the sum of the
aggregate cash outlay and uses of funds (including without limitation, operating
expenses, debt service (including all principal, interest, fees and charges) and
capital expenditures) of the Company accrued or paid in respect of the previous
fiscal quarter, times (y) the number of fiscal quarters of the Company included
within the period for which Net Distributable Cash is being determined; minus
(iv) the amount of capital expenditures actually made during
such period.
"Net Profits" and "Net Losses" mean, for each Fiscal Year, an amount
equal to the Company's taxable income or loss for such Fiscal Year, determined
in accordance with ss. 703(a) of the Code (but including in taxable income or
loss, for this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to ss. 703(a)(1) of the Code), with the following
adjustments:
(i) any income of the Company exempt from federal income tax
and not otherwise taken into account in computing Net Profits or Net Losses
pursuant to this definition shall be added to such taxable income or loss;
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(ii) any expenditures of the Company described in ss.
705(a)(2)(B) of the Code (or treated as expenditures described in ss.
705(a)(2)(B) of the Code pursuant to Regulation ss. 1.704-1(b)(2)(iv)(i)) and
not otherwise taken into account in computing Net Profits or Net Losses pursuant
to this definition shall be subtracted from such taxable income or loss;
(iii) in the event the Asset Value of any asset of the Company
is adjusted in accordance with paragraph (ii) or paragraph (iii) of the
definition of "Asset Value" above, the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such asset for purposes of
computing Net Profits or Net Losses;
(iv) gain or loss resulting from any disposition of any asset
of the Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such asset
differs from its Asset Value;
(v) to the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset ) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of
computing Net Profits or Net Losses; and
(vi) Notwithstanding any other provision of this definition,
any items which are specifically allocated pursuant to Section 7.02 or Section
7.03 hereof shall not be taken into account in computing Net Profits or Net
Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections 7.02 and 7.03 shall be
determined by applying rules analogous to those set forth in subparagraphs (i)
through (vi) above. Net Profits and Net Losses shall be determined net of the
items of Company income, gain, loss or deduction specially allocated pursuant to
Sections 7.02 and 7.03.
"Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, trust, unincorporated or
governmental organization or any agency or political subdivision thereof.
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"Products" is defined as the provision of Application Service
Provider (ASP) and Web-hosting services for the utility industry (any company
engaged in the generation, distribution, transmission and retail sale of
electrical energy, gas and water to retail sellers or transporters of energy
commodity including municipalities, utilities and other energy service providers
(ESPs).
"Property" means all real and personal property acquired by the
Company, including cash, and any improvement thereto, and shall include both
tangible and intangible property, but shall not include the SEIS Dedicated
Assets, Modis Dedicated Assets and Cayenta Dedicated Assets.
"Rate Earned" shall mean the dollar value of interest earned on cash
invested based on the applicable short-term money market rate.
"Regulations" means the income tax regulations, including temporary
regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Related Agreements" means the Management Services Agreements, and
the License Agreements as any of the same may be amended and/or restated from
time to time.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than 50% of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
"Transfer" means the voluntary or involuntary sale, assignment,
transfer, pledge, hypothecation or other disposition or conveyance of, or grant
of a Lien in respect of, legal or beneficial interest, directly or indirectly,
whether in one transaction or in a series of related transactions.
"Transferee" means any Person that is a transferee of a Member's
interest in the Company, or part thereof.
"Unanimous Vote" means, with respect to any matter to be voted on,
the written approval of, or the affirmative vote by, Representatives designated
by Members owning all of the Membership Units.
"Unrecovered Capital" shall mean, as to a particular Member at a
particular time, the amount, if any, by which (i) the aggregate Capital
Contributions of such Member pursuant to Sections 4.01 and 4.03(a)(iii) hereof
up to such time, exceeds (ii) all amounts theretofore distributed as a return of
Capital Contributions in respect of such Member's Membership Interest in the
Company pursuant to Sections 8.05(b)(i) and 11.04(b)(iv) hereof.
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SCHEDULE 2.01
Members, Capital Contributions, Addresses
and Number of Membership Units
Member Capital Number of
Name and Address Contribution Membership Units
Sempra Energy
Information Solutions $4 million 800
101 Ash Street
San Diego, CA 92101-3017
Modis, Inc. $5 million 100
1 Independent Drive
Jacksonville, FL 32202
Cayenta.com $5 million 100
225 Broadway, Suite 1500
San Diego, CA 92101
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SCHEDULE 6.03
Initial Representatives on Members Committee
Initial SEIS Initial Modis Initial Cayenta
Representatives Representatives Representatives
Don Felsinger Tim Payne Gene Ray
Jerry Deems Randy Ridenour Eric DeMarco
Initial Designees on Management Committee
Initial SEIS Initial Modis Initial Cayenta
Designees Designees Designees
Dale Kelly-Cochrane Randy Ridenour Dave Porreca
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TABLE OF CONTENTS
Page
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SCHEDULES
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SCHEDULE 1.01 Certain Definitions
SCHEDULE 2.01 Members, Capital Contributions, Addresses and Number of
Membership Units
SCHEDULE 6.03 Initial Representatives; Management Committee
i
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CONFIDENTIAL
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AS AMENDED
DATED AS OF OCTOBER 4, 1999
BY AND AMONG
INTEL CORPORATION
IPIVOT, INC.
AND
WCT ACQUISITION CORPORATION
AND
BRETT HELM AND WILLIAM STENSRUD, AS SECURITYHOLDER
REPRESENTATIVE
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 THE MERGER................................................................1
Section 1.1. The Merger........................................................1
Section 1.2. Effective Time ...................................................1
Section 1.3. Closing of the Merger ............................................2
Section 1.4. Effects of the Merger ............................................2
Section 1.5. Certificate of Incorporation and Bylaws ..........................2
Section 1.6. Directors .............................. .........................2
Section 1.7. Officers .........................................................2
Section 1.8. Conversion of Shares .............................................2
Section 1.9. Dissenters' Rights ...............................................4
Section 1.10. Payment for Shares; Escrow Amount ...............................5
Section 1.11 Company's Stock Options .........................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............................7
Section 2.1. Organization and Qualification; Subsidiaries; Investments ........7
Section 2.2. Capitalization of the Company ....................................8
Section 2.3. Authority Relative to this Agreement; Recommendation .............9
Section 2.4. Financial Statements ............................................10
Section 2.5. Consents and Approvals; No Violations ...........................10
Section 2.6. No Default ......................................................11
Section 2.7. No Undisclosed Liabilities; Absence of Changes ..................11
Section 2.8. Litigation ......................................................12
Section 2.9. Compliance with Applicable Law ..................................12
Section 2.10. Employee Benefits ..............................................12
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Section 2.11. Labor and Employment Matters ...................................16
Section 2.12. Environmental Laws and Regulations .............................17
Section 2.13. Taxes ..........................................................17
Section 2.14. Intellectual Property ..........................................19
Section 2.15. Title to Personal Property; Leases; Absence of Liens ...........24
Section 2.16. Insurance ......................................................24
Section 2.17. Certain Business Practices .....................................25
Section 2.18. Product Warranties .............................................25
Section 2.19. Material Contracts .............................................25
Section 2.20. Suppliers and Customers ........................................25
Section 2.21. Vote Required ..................................................26
Section 2.22. Brokers ........................................................26
Section 2.23. Representations Complete .......................................26
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION ................26
Section 3.1. Organization ....................................................26
Section 3.2. Authority Relative to this Agreement ............................26
Section 3.3 Consents and Approvals; No Violations ............................27
Section 3.4. Brokers .........................................................27
Section 3.5. Litigation ......................................................27
Section 3.6. Interim Operation of Acquisition ................................27
ARTICLE 4 COVENANTS ...............................................................28
Section 4.1. Operation of Business Prior to Effective Time ...................28
Section 4.2. No Solicitation or Negotiation; Non-Solicitation of Employees ...31
Section 4.3. Access to Information ..... ....................................32
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Section 4.4. Certain Filings; Reasonable Efforts; Meeting of Stockholders.....33
Section 4.5. Public Announcements ............................................34
Section 4.6. Notification of Certain Matters .................................35
Section 4.7. Additions to and Modification of Company Disclosure Schedule.....35
Section 4.8. Access to Company Employees .....................................35
Section 4.9. Deferred Contribution Pension Plans..............................36
Section 4.10. Service Credit; Employment .....................................36
Section 4.11. Indemnification and Directors' and Officers Insurance ..........37
Section 4.12. Fees and Expenses...............................................38
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER ................................39
Section 5.1. Conditions to Each Party's Obligations to Effect the Merger .....39
Section 5.2. Conditions to the Obligations of the Company ....................39
Section 5.3. Conditions to the Obligations of Parent and Acquisition .........40
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER ..........................................42
Section 6.1. Termination .....................................................42
Section 6.2. Effect of Termination ...........................................43
Section 6.3. Amendment .......................................................43
Section 6.4. Extension; Waiver ...............................................43
ARTICLE 7 SURVIVAL; INDEMNIFICATION ...............................................43
Section 7.1. General Survival ................................................43
Section 7.2. Indemnification .................................................44
Section 7.3. Manner of Indemnification .......................................45
Section 7.4. Securityholder Representative ...................................45
Section 7.5. Third-Party Claims ..............................................46
Section 7.6. Exclusive Remedy ................................................47
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ARTICLE 8 MISCELLANEOUS............................................................47
Section 8.1. Entire Agreement; Assignment ....................................47
Section 8.2. Validity ........................................................47
Section 8.3. Notices .........................................................47
Section 8.4. Dispute Resolution ..............................................49
Section 8.5. Governing Law and Venue; Waiver of Jury Trial ...................49
Section 8.6. Descriptive Headings ............................................50
Section 8.7. Parties in Interest .............................................50
Section 8.8. Certain Definitions .............................................50
Section 8.9. Personal Liability ..............................................52
Section 8.10. Counterparts....................................................52
</TABLE>
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TABLE OF EXHIBITS
Exhibit A.......Form of Certificate of Merger
Exhibit B.......Form of Escrow Agreement
Exhibit C.......Matters to be Covered by Opinion of Legal Counsel to Parent
Exhibit D.......Matters to be Covered by Opinion of Legal Counsel to the Company
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
Section 2.2(a) Capitalization .............................................8
Section 2.2(b) Options ....................................................8
Section 2.2(c) Repurchase Rights ..........................................9
Section 2.3(a) Other Agreements ...........................................9
Section 2.4 Financial Statement Exceptions ...............................10
Section 2.5 Consents and Approvals .......................................10
Section 2.6 Defaults .....................................................11
Section 2.7 Undisclosed Liabilities ......................................11
Section 2.8 Litigation ...................................................12
Section 2.10(b) Benefit Plan Obligation ..................................13
Section 2.10(d) Pension Plan .............................................13
Section 2.10(f) Suits ....................................................14
Section 2.10(h) Reportable Event .........................................14
Section 2.10(j) Excess Parachute Payment .................................14
Section 2.10(l) Compensation Plan Requirement Disclosures.................15
Section 2.10(o) Amendments ...............................................15
Section 2.10(s) Retroactive Premiums .....................................16
Section 2.11 Labor and Employment Matters ................................16
Section 2.13(b) Delinquent or Inaccurate Tax Returns .....................18
Section 2.13(d) Tax Claims ...............................................18
Section 2.13(e) Excess Parachute Payments ................................18
Section 2.13(f) Tax Sharing Arrangements .................................18
Section 2.13(g) Utilization of Net Operating Losses ......................19
Section 2.13(h) Adjustments ..............................................19
Section 2.14(a) Intellectual Property ....................................19
Section 2.14(b)(i) Trademarks - Compliance With Legal Requirements .......19
Section 2.14(e) License Agreements .......................................20
Section 2.14(j) No Infringement by Third Parties .........................22
Section 2.14(k) Assignment .............................................. 22
Section 2.14(l) Software .................................................22
Section 2.14(m) Performance of Existing Software Products ............... 22
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Term in Agreement Page
- ---- ------------ ----
<S> <C> <C>
1997 Stock Option Plan Section 1.11, 6
Section 2.7 Undisclosed Liabilities, 11
accumulated funding deficiency Section 2.10(h), 14
Acquisition Preamble, 1
Addition Section 4.7, 35
Additions Section 4.7, 35
affiliate Section 8.8(a), 50
Agreement Preamble, 1
Applicable Law Section 8.8(b), 50
Assumed Options Section 1.11, 7
at will Section 4.10(c), 37
business day Section 8.8(c), 51
California GCL Section 1.9, 4
Capital stock Section 8.8(d), 51
Certificate of Merger Section 1.2, 1
Section 2.14(k) Assignment, 22
Closing Date Section 1.3, 2
Closing Section 1.3, 2
CNDA Section 4.3(c), 33
Commitment Letter Section 8.8(e), 51
Common Amount Section 1.8(a)(i), 3
common control Section 2.10(d), 13
Commonly Controlled Entity Section 2.10(a), 12
Communication Product Group Section 4.2(b), 32
Company 401(k) Plan Section 4.9(a), 36
Company Balance Sheet Section 2.4, 10
Company Board Section 2.3(a), 9
Company Common Stock Section 1.8(a), 2
Company Disclosure Schedule Article 2, 7
Company Permits Section 2.9, 12
Company Preamble, 1
Company Preferred A Stock Section 1.8(a), 2
Company Preferred B Stock Section 1.8(a), 2
Company Stock Option Section 1.11, 6
Company Warrants Section 1.8(a), 2
Compensation and Benefit Plans Section 2.10(a), 12
consenting corporation Section 2.13(i), 19
Contract Section 2.19(a), 25
Copyrights Section 2.14(a), 19
Designated Employees Section 5.3(f), 40
DGCL Section 1.1, 1
Dissenting Shares Section 1.9, 4
</TABLE>
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Section 2.3(a) Other Agreements, 9
Section 2.4 Financial Statement Exceptions, 10
Section 2.5 Consents and Approvals, 10
Section 2.6 Defaults, 11
Section 2.8 Litigation, 12
Section 4.1 (a) Option Grants, 28
Section 5.3(d) Required Consents, 40
Section 5.3(f) Employees, 40
Section 8.8(f) Knowledge, 51
Securities Section 1.8(a), 2
Security Section 1.8(a), 2
Securityholder Indemnitees Section 7.2(b), 44
Securityholder Representative Section 7.4, 45
SERMA Section 4.10(a)(vii), 36
Service Credit Section 4.10(a), 36
Share Section 1.8(a)(i), 3
Share Subject to Repurchase Section 8.8(l), 52
Software Section 2.14(l), 22
Stock Option Plans Section 1.11, 6
subsidiary or subsidiaries Section 8.8(m), 52
Supply Contracts Section 2.14(p), 23
Surviving Corporation Section 1.1, 1
Tax or Taxes Section 2.13(a)(i), 17
Tax Return Section 2.13(a)(ii), 18
Third Party Expenses Section 4.12, 38
Trade Secrets Section 2.14(a), 19
Trademarks Section 2.14(a), 19
Unvested Non-Employee Options Section 1.8(a), 3
Vested Non-Employee Options Section 1.8(a), 2
Year 2000 Compliant Section 2.14(o)(i), 23
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, as amended, (this "Agreement")
dated as of October 4, 1999, is by and among IPIVOT, INC., a Delaware
corporation (the "Company"), INTEL CORPORATION, a Delaware corporation
("Parent), WCT ACQUISITION CORPORATION, a Delaware corporation and a wholly
owned subsidiary of Parent ("Acquisition") and, for purposes of Article 7
hereof, a committee consisting of Brett Helm and William Stensrud, as
representatives of the Escrow Securityholders (as defined herein). Capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in Section 8.8 of this Agreement.
WHEREAS, the parties have each determined that the Merger (as
defined below) is advisable and fair and in the best interests of their
respective stockholders; and
WHEREAS, concurrently herewith, as an essential inducement for
Parent and Acquisition entering into this Agreement, certain stockholders of the
Company have executed irrevocable proxy and voting agreements pursuant to which
such stockholders have agreed to vote in favor of the Merger and the
transactions contemplated by this Agreement; and
WHEREAS, as an essential inducement for Parent and Acquisition
entering into this Agreement, certain employees of the Company have agreed to
enter into employment and non-competition agreements with Parent and the
Company;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 THE MERGER. At the Effective Time (as defined
below) and upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Acquisition
shall be merged with and into the Company (the "Merger"). Following the Merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition shall cease.
Parent, as the sole stockholder of Acquisition, hereby approves the Merger and
this Agreement.
Section 1.2. EFFECTIVE TIME. Subject to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined in
Section 1.3): (a) a Certificate of Merger substantially in the form of EXHIBIT A
(the "Certificate of Merger") shall be duly executed by the Company and
thereafter delivered to the Secretary of State of the State of Delaware for
filing pursuant to Section 251 of the DGCL and (b) the parties shall make such
other filings with the Secretary of State of the State of Delaware as shall
be necessary to effect the Merger.
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The Merger shall become effective at such time as a properly executed copy of
the Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware in accordance with Section 251 of the DGCL, or such later time as
Parent and the Company may agree upon and as may be set forth in the Certificate
of Merger (the time the Merger becomes effective being referred to herein as the
"Effective Time").
Section 1.3. CLOSING OF THE MERGER. The closing of the Merger
(the "Closing") will take place at a time and on a Date (the "Closing Date") to
be specified by the parties, which shall be no later than the second business
day after satisfaction (or waiver) of the latest to occur of the conditions set
forth in Article 5 at the offices of Gibson, Dunn & Crutcher LLP, One
Montgomery Street, San Francisco, California 94104, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.4. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing
and subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS. The
Certificate of Incorporation of the Surviving Corporation will be amended as set
forth on Exhibit A to the Certificate of Merger. The Bylaws of Acquisition in
effect at the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with Applicable Law.
Section 1.6. DIRECTORS. The directors of Acquisition at the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
Section 1.7. OFFICERS. The officers of Acquisition at the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
Section 1.8. CONVERSION OF SHARES.
(a) The purchase price (the "Merger Consideration") payable
by Parent for each of the following securities (individually a "Security" and
collectively the "Securities") of the Company issued and outstanding as of the
Effective Time: (i) common stock ("Company Common Stock"), (ii) Series A
Preferred Stock ("Company Preferred A Stock"), (iii) Series B Preferred Stock
("Company Preferred B Stock"), (iv) all options to purchase Company Common
Stock held by non-employee service providers that have vested on or before the
Closing Date ("Vested Non-Employee Options") and (v) all warrants to purchase
shares of Company Common Stock ("Company Warrants"), shall be as follows:
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(i) $22.43 for each share (a "Share") of Company
Common Stock (the "Common Amount"), giving effect to the conversion of the
Company Preferred A Stock AND THE COMPANY PREFERRED B Stock, where each such
share of Company Preferred A Stock and Company Preferred B Stock would be
entitled to receive the Common Amount for each Share into which the Preferred
Stock is convertible;
(ii) an amount for each share of Company Common
Stock subject to a Vested Non-Employee Option calculated as the Common Amount
less the exercise price therefor; and
(iii) an amount for each share of Company Common
Stock subject to a Company Warrant calculated as the Common Amount less the
exercise price therefor.
All options to purchase Company Common Stock held by non-employee service
providers that have not vested on or before the Closing Date ("Unvested
Non-Employee Options") shall be entitled to receive, for each share of Company
Common Stock subject to such Unvested Non-Employee Options, an amount in cash
equal to the Common Amount less the exercise price therefor, but only if and
when the performance and vesting criteria with respect thereto are satisfied;
after such criteria have been satisfied, Parent shall pay such amount promptly
following written notice from the holder. Notwithstanding the foregoing, in no
event shall the sum of the aggregate Merger Consideration payable pursuant to
Clauses (i) through (iii) of Section 1.8(a) above, plus the aggregate amount of
the difference between the Common Amount and the exercise price of all Assumed
Options and Unvested Non-Employee Options, exceed the Maximum Merger
Consideration. In the event that the aggregate Merger Consideration so payable,
plus such additional aggregate amount, would exceed the Maximum Merger
Consideration, the Common Amount shall be adjusted downward to a number such
that the sum of all payments under Clauses (i) through (iii), plus such
additional aggregate amount, does not exceed the Maximum Merger Consideration.
(b) At the Effective Time:
(i) Except for Dissenting Shares and the
securities referred to in clause 1.8(b)(ii), each Share will automatically, by
virtue of the Merger and without any action on the part of the holder thereof,
be canceled and converted into a right to receive from Parent cash in the amount
as determined pursuant to this Section 1.8.
(ii) Each Share held in the treasury of the
Company and each security of the Company held by Parent, Acquisition or any
subsidiary of Parent, Acquisition or the Company immediately prior to the
Effective Time will, by virtue of the Merger and without any action on the part
of Acquisition, the Company or the holder thereof, be canceled, retired and
cease to exist, and no consideration will be delivered in exchange therefor.
(iii) At the Effective Time, each outstanding share
of common stock of Acquisition shall be converted into one (1) fully paid and
non-assessable share of common stock of the Surviving Corporation and shall
constitute the only shares of capital stock of the Surviving Corporation
outstanding immediately after the Effective time.
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(iv) The initial purchase price per Share,
excluding Shares Subject to Repurchase and Dissenting Shares (and any Shares
with respect to which dissenters' rights have not terminated) (the "Initial
Purchase Price") shall be: (1) the amount set forth as the purchase price for
such Security in Section 1.8(a)(i) through (iii) (subject to reduction to the
extent any amounts in Clauses (i) through (iii) of Section 1.8(a) are reduced
pursuant to such Section), less (2)(i) Thirty Million Dollars ($30,000,000)
divided by (ii) the number of Shares outstanding as of the Effective Time less
the number of Shares Subject to Repurchase and Dissenting Shares (and other
Shares with respect to which dissenters' rights have not terminated) as of the
Effective Time, plus the number of Shares underlying Vested Non-Employee Options
and the number of Shares underlying Company Warrants. With respect to each Share
Subject to Repurchase, the Merger Consideration otherwise payable shall be
retained and held by parent until payment by parent shall be due upon lapse of
the Company's right of repurchase for such Shares Subject to Repurchase in
accordance with the 1997 Stock Option Plan and, the agreements entered into
thereunder. Subject to compliance with applicable securities and other laws
(including filing of the Registration Statement on Form S-8 by Parent referred
to in Section 1. 11), holders of Shares Subject to Repurchase may elect to apply
the Merger Consideration to which such holders are entitled to purchase shares
of Parent Common Stock at a price equal to the last sale price for a share of
Parent Common Stock on the trading day immediately preceding the Effective Time,
as reported on the NASDAQ National Market; PROVIDED, HOWEVER, that the shares so
purchased shall remain subject to the restrictions on the Shares held by such
Holders prior to the Effective Time.
(c) If between the date of this Agreement and the Effective
Time, the number of outstanding shares of Company Common Stock, Company
Preferred A Stock or Company Preferred B Stock is changed into a different
number of shares or a different class, by reason of any, stock dividend,
subdivision, reclassification, recapitalization, split-up, combination, exchange
of shares, or the like, the per share amounts set out in Sections 1.8(a) and (b)
will be correspondingly adjusted to reflect such change.
Section 1.9. DISSENTERS' RIGHTS. Shares that have not been
voted for approval of this Agreement and with respect to which a demand for
payment and appraisal have been properly made in accordance with Chapter 13 of
the California General Corporation Law ("California GCL") or Section 262 of the
DGCL, as applicable ("Dissenting Shares" ), will not be converted into the right
to receive the Merger Consideration otherwise payable with respect to such
Shares at or after the Effective Time but will be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the laws of the States of Delaware or California.
If a holder of Dissenting Shares ("Dissenting Stockholder") withdraws his or
her demand for such payment and appraisal or becomes ineligible for such payment
and appraisal, then, as of the Effective Time or the occurrence of such event of
withdrawal or ineligibility, whichever last occurs, such holder's Dissenting
Shares will cease to be Dissenting Shares and will be converted into the right
to receive, and will be exchangeable for, the Merger Consideration into which
such Dissenting Shares would have been converted pursuant to Section 1.8 hereof.
The Company will give Parent and Acquisition prompt notice of any demand
received by the Company from a holder of Dissenting Shares for appraisal of
Shares, and Parent shall have the right, at its sole
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expense, to participate in all negotiations and proceedings with respect to such
demand The Company agrees that, except with the prior written consent of Parent
and Acquisition, or as required under the California GCL or the DGCL, it will
not voluntarily make any payment with respect to, or settle or offer or agree to
settle, any such demand for appraisal. Each Dissenting Stockholder who, pursuant
to the provisions of Chapter 13 of the California GCL or Section 262 of the
DGCL, becomes entitled to payment of the value of the Dissenting Shares will
receive payment therefor but only after the value therefor has been agreed upon
or finally determined pursuant to such provisions. Any Merger Consideration that
would have been issuable with respect to Dissenting Shares will be retained by
Parent.
Section 1.10. PAYMENT FOR SHARES; ESCROW AMOUNT.
(a) On the Closing Date, Parent shall deposit with Citibank,
N.A., as paying agent (the "Paying Agent"), for the benefit of the holders of
Securities, cash in U.S. Dollars in an amount that is equal to the aggregate
Initial Purchase Price payable pursuant to Section 1.8(b)(iv) as of the
Effective Time, excluding (1) the aggregate amount that would be payable with
respect to Dissenting Shares and other Shares with respect to which dissenters'
rights have not terminated and (2) the aggregate amount payable for Shares
Subject to Repurchase. From time to time after the Closing Date, Parent shall
promptly deposit with the Paying Agent the amounts that equal the Initial
Purchase Price multiplied by Shares as to which remaining outstanding
dissenter's rights have permanently terminated for the benefit of the holders of
such Shares.
(i) After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of shares of
capital stock of the Company that were outstanding immediately prior to the
Effective Time.
(ii) Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each person who was, at the
Effective Time, a holder of record of Securities of the Company a form of letter
of transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the certificates shall pass only upon delivery of the
certificates to the Paying Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and instructions
for use in effecting the surrender of the certificates or agreements that,
immediately prior to the Effective Time, represented any of such Securities in
exchange for payment therefor. Upon surrender to the Paying Agent of such
certificates or agreements (or affidavit of loss or destruction in lieu thereof,
including any suitable bond or indemnity that may be required by Parent or the
Paying Agent in their sole discretion), together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, the Paying Agent shall promptly make payment to the persons entitled
thereto by check or wire transfer, as the case may be, in the amount equal to
the price to which such person is entitled pursuant to Section 1.8 less any
required tax withholdings. No interest will be paid or will accrue on the amount
payable upon the surrender of any such certificate or agreements. If payment is
to be made to a person other than the registered holder of the certificate or
agreement surrendered, it shall be a condition of such payment that the
certificate or agreement so surrendered shall be properly endorsed or
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CONFIDENTIAL
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the certificate or agreement
surrendered or establish to the reasonable satisfaction of the Surviving
Corporation or the Paying Agent that such tax has been paid or is not
applicable.
(iii) One hundred and eighty (180) days following
the Effective Time, Parent shall be entitled to cause the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
made available to the Paying Agent that have not been disbursed to holders of
certificates or agreements formerly representing securities of the Company
outstanding on the Effective Time, and thereafter such holders shall be entitled
to look to the Surviving Corporation only as general creditors thereof with
respect to the cash payable upon due surrender of their certificates or
agreements.
(iv) Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to any holder of certificates
or agreements formerly representing securities of the Company for any amount
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law. The Surviving Corporation shall pay all charges and expenses,
including those of the Paying Agent, in connection with the exchange of cash for
securities of the Company.
(b) At the Closing, Parent shall deposit Thirty Million
Dollars ($30,000,000) (the "Escrow Amount") payable by it to the holders of the
Shares (other than Shares Subject to Repurchase, Dissenting Stockholders and
other holders with respect to which dissenters' rights have not terminated) and
the Vested Non-Employee Options and the Company Warrants (collectively, the
"Escrow Securityholders"), with Citibank, N.A. or another third person mutually
satisfactory to Parent and the Company, as escrow agent (the "Escrow Agent"), to
provide for the payment of any obligations relating to or arising out of
breaches of representations, warranties or covenants of the Company contained
herein, pursuant to the provisions of an escrow agreement (the "Escrow
Agreement") in substantially the form of Exhibit B. The parties acknowledge that
any securities of the Company held by Parent shall be canceled pursuant to the
terms of the Merger and that therefore the term Merger Consideration does not
include payment for any securities of the Company held by Parent or held in
treasury by the Company.
Section 1.11. COMPANY'S STOCK OPTIONS. For the purpose of this
Agreement, "Stock Option Plans" means the 1997 Stock Option/Stock Issuance Plan
(the "1997 Stock Option Plan") and the Stock Option Plan of ServNOW! Net
Technologies, Inc. At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (a "Company Stock Option") under the Stock Option
Plans, whether vested or unvested, other than Vested Non-Employee Options and
invested Non-Employee Options, will be assumed by Parent. Section 2.2(b) of the
Company Disclosure Schedule sets forth a true and complete list as of the date
hereof of all holders of outstanding Company Stock Options, the exercise or
vesting schedule, the exercise price per share, the term of each such Company
Stock Option, whether such option is a nonqualified stock option or incentive
stock option and any
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restrictions on exercise or sale of the option or underlying shares. At the
Effective Time, the Company shall deliver to Parent an updated Section 2.2(b) of
the Company Disclosure Schedule. Each such option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in such option and, if applicable, in the Stock Option
Plans, immediately prior to the Effective Time, including provisions with
respect to vesting, except that (i) such option will be exercisable for that
number of whole shares of Parent common stock, par value $.001 per share
("Parent Common Stock"), equal to the product (rounded down to the nearest whole
share) of the number of shares of Company Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Exchange Ratio (as hereinafter defined), and (11) the per share exercise
price under each such Company Stock Option shall be adjusted by dividing the per
share exercise price of each such Company Stock Option by the Exchange Ratio,
and rounding up to the nearest cent. The terms of each Company Stock Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction with respect to Parent Common Stock on or subsequent
to the Effective Time. The "Exchange Ratio" is the Common Amount divided by the
last sale price for a share of Parent Common Stock on the trading day
immediately preceding the Effective Time, as reported on the Nasdaq National
Market. Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon the
exercise of the options assumed by Parent. Parent will file no later than thirty
(30) days following the Closing Date, a registration statement on Form S-8 (or
any successor to Form S-8) so as to register the Parent Common Stock subject to
the options assumed by Parent pursuant to this Section 1.11 and shall use its
reasonable efforts to effect such registration and to maintain the effectiveness
of such registration statement (and the current status of the prospectus
contained therein) for so long as such options remain outstanding. At or before
the Effective Time, the Company shall cause to be effected, in a manner
reasonably satisfactory to Parent, amendments to the Stock Option Plans to give
effect to the foregoing provisions of this Section 1.11. Options to purchase
Parent Company Stock assumed under this Section 1.11 are referred to as the
"Assumed Options."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Schedule (the
"Company Disclosure Schedule") delivered by the Company to Parent in accordance
with Section 4.7 (which exceptions shall specifically identify a Section or
Subsection, as applicable, to which such exception relates) that:
Section 2. 1. ORGANIZATION AND QUALIFICATION: SUBSIDIARIES:
INVESTMENTS.
(a) The Company does not have any subsidiaries and is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation
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and has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted. The Company
has heretofore delivered to Parent accurate and complete copies of its
Certificate of Incorporation and bylaws as currently in full force and effect
(b) The Company is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary.
(c) The Company does not own any equity investment or other
ownership interest in any person.
Section 2.2. CAPITALIZATION OF THE COMPANY.
(a) The authorized capital stock of the Company consists
solely of (i) Twenty-Four Million Six Hundred Fifty Thousand (24,650,000) shares
of authorized Company Common Stock, Six Million Six Hundred Seventy-Five
Thousand One Hundred Thirty-Six (6,675,136) shares of which are issued and
outstanding on the date hereof, and (ii) Seven Million One Hundred Thousand
(7,100,000) shares of authorized preferred stock, of which (x) Four Million Two
Hundred Twenty-Five Thousand (4,225,000) shares have been authorized and
designated as the Series A Preferred Stock, all of which are issued and
outstanding on the date hereof (and such shares are convertible into 8,450,000
shares of Company Common Stock), (y) Two Million Eight Hundred Seventy-Five
Thousand (2,875,000) shares have been authorized and designated as the Series B
Prefer-red Stock, Two Million Eight Hundred Thousand (2,800,000) shares of which
are issued and outstanding on the date hereof (and such shares are convertible
into 5,600,000 shares of Company Common Stock), and (z) no other shares have
been authorized or designated as a series or are issued and outstanding as of
the date hereof. On the date hereof, the Company Common Stock, the Company A
Preferred Stock and the Company B Preferred Stock are held of record and
beneficially by the persons with the addresses of record and in the amounts with
the corresponding certificate numbers set forth in Section 2.2(a) of the Company
Disclosure Schedule. All outstanding Shares are duly authorized, validly issued,
fully paid and nonassessable, and except as set forth in Section 2.2(a) of the
Company Disclosure Schedule, not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company, any,
agreement to which the Company is a party or by which it is bound or otherwise.
(b) Except as set forth in Section 2.2(b) of the Company
Disclosure Schedule, there are not outstanding (i) any options, warrants or
other rights to purchase from the Company any capital stock or other securities
of the Company, (ii) any securities convertible into or exchangeable for shares
of such capital stock or securities, (iii) any other commitments or rights of
any kind for the Company to issue additional shares of capital stock,
options, warrants or other securities or (iv) any equity equivalent or other
ownership interests in the Company or similar rights. Such Section 2.2(b) sets
forth a correct and complete list of each of the foregoing as of the date
hereof, including the record and beneficial holder thereof,
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a description of the nature of such security, the amount of securities held, the
exercise, conversion or exchange rights relating thereto, including a schedule
of vesting, and the type and amount of securities into which such securities are
exercisable, convertible or exchangeable. Except as set forth in Section 2.2(b)
of the Company Disclosure Schedule, no Company Stock Option shall accelerate
solely as a consequence of the Merger or the other transactions contemplated by
this Agreement.
(c) Except as set forth in Section 2.2(c) of. the Company
Disclosure Schedule, as of the date hereof, there are no outstanding rights or
obligations of the Company to repurchase, redeem or otherwise acquire any
securities of the Company or other securities referred to in Section 2.2(b)
above. Except as set forth in Section 2.2(c) of the Company Disclosure Schedule
there are no stockholder agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound relating
to the voting or registration of any shares of capital stock of the Company.
Section 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT;
RECOMMENDATION.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement, the Escrow Agreement, the
Employment Agreements and the Non-Competition Agreements (the "Other
Agreements"), to perform its obligations under this Agreement and the Other
Agreements, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Other Agreements, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by the Board of Directors of the Company (the "Company
Board"), and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the Other Agreements, or to consummate
the transactions contemplated hereby or thereby, except the approval of this
Agreement by (i) the holders of a majority of the outstanding shares of Company
Common Stock, (ii) the holders of a majority of the outstanding shares' of
Company Common Stock, Company Preferred A Stock and the Company Preferred B
Stock voting together as a single class and (iii) the holders of sixty-six and
two-thirds percent (66-2/3%) of the outstanding shares of Company Preferred A
Stock arid Company Preferred B Stock voting together as a single class. This
Agreement and the Other Agreements have been duly and validly executed and
delivered by the Company and constitute, assuming the due authorization,
execution and delivery hereof and thereof by Parent and/or Acquisition, the
valid, legal and binding agreements of the Company, enforceable against the
Company in accordance with their terms, subject to any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally or to general principles of
equity.
(b) Without limiting the generality of the foregoing, the
Company Board has unanimously (i) approved and declared advisable this
Agreement, the Merger and the other transactions contemplated hereby, (ii)
resolved to recommend approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby by the Company's stockholders and
(iii) has not withdrawn or modified such approval or resolution to recommend.
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Section 2.4. FINANCIAL STATEMENTS. The Company has delivered to
Parent copies of financial statements (hereinafter collectively called the
"Financial Statements"), which have been prepared in accordance with generally
accepted accounting principles consistently applied and maintained throughout
the periods indicated and fairly present the financial condition of the Company
as at their respective dates and the results of its operations for the periods
covered thereby (subject to normal year-end adjustments and except that any
unaudited financial statements do not contain all required footnotes) as
follows: consolidated balance sheets of the Company at August 31, 1999 and
September 30, 1997 and 1998, and the related statements of earnings for the
eleven (11) months ended August 31, 1999, the five (5) months ended September
30, 1997, and the fiscal year ended September 30, 1998. The balance sheet of the
Company at August 31, 1999 is referred to herein as the "Company Balance Sheet."
Such statements of earnings do not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of business except
as expressly specified therein, and such interim financial statements include
all adjustments, which consist only of normal recurring accruals, necessary for
a fair presentation. Except as set forth in Section 2.4 of the Company
Disclosure Schedule, all receivables identified in the Company Balance Sheet are
collectible in full in the ordinary course of business, consistent with past
practice, subject to any reserve therefor set forth on the Company Balance
Sheet. Except as set forth in Schedule 2.4 of the Company Disclosure Schedule,
all inventories of raw materials, work-in-process and finished goods set forth
and reflected in the Company Balance Sheet, as well as any inventory the Company
has directed any of its manufacturing subcontractors to procure and manufacture
on the Company's behalf, were acquired in the ordinary course of business
consistent with past practice. Except as set forth in Schedule 2.4 of the
Company Disclosure Schedule, all such inventories consist of a quality and
quantity usable and saleable (free of any material defect or deficiency) in the
ordinary course of business, consistent with past practice, except for
slow-moving, damaged or obsolete items and materials of below standard quality,
all of which have been written down to net realizable value or in respect of
which adequate reserves have been provided, in each case as fully reflected in
the Company Balance Sheet.
Section 2.5. CONSENTS AND APPROVALS, NO VIOLATIONS. Except for
the filing of the Certificate of Merger as required by the DGCL and, if
applicable, compliance with the HSR Act (as hereinafter defined), no filing with
or notice to and no permit, authorization, consent or approval of any United
States (federal, state or local) or foreign court or tribunal, or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the Merger or
the other transactions contemplated hereby. Neither the execution, delivery and
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the Company's Certificate of Incorporation or bylaws
(or similar governing documents), (ii) except as set forth in Section 2.5 of the
Company Disclosure Schedule, result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien) or
require the consent of the other party(ies) thereto under any of the terms,
conditions or provisions of any note, bond, mortgage,
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indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company is a party or by which it or any of its properties or
assets may be bound or (iii) except as set forth in Section 2.5 of the Company
Disclosure Schedule, violate any order, writ, injunction,. decree, law, statute,
rule or regulation applicable to the Company or any of its properties or assets.
Section 2.6. NO DEFAULT. Except as set forth in Section 2.6 of
the Company Disclosure Schedule, the Company is not in breach, default or
violation (and no event has occurred that with notice or the lapse of time or
both would constitute a breach, default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or bylaws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract (including any Supply Contract), agreement or other instrument or
obligation to which the Company is now a party or by which it or any of its
properties or assets may be bound or (iii) any order, writ, injunction, decree,
law, statute, rule or regulation applicable to the company or any of its
properties or assets.
Section 2.7. NO UNDISCLOSED LIABILITIES, ABSENCE OF CHANGES.
Except as set forth in Section 2.7 of the Company Disclosure schedule or the
Company Balance Sheet, the Company does not have any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of the Company (including the notes thereto). Except
as set forth in Section 2.7 of the Company Disclosure Schedule, since the
Company Balance Sheet Date, there have been no events or changes with respect to
the Company that, individually or in the aggregate, have had or reasonably would
be expected to have a Material Adverse Effect on the Company. Without limiting
the generality of the foregoing, except as set forth in Section 2.7 of the
Company Disclosure Schedule, since the Company Balance Sheet Date, the Company
has conducted its business only in, and has not engaged in any transaction other
than according to, the ordinary and usual course of such businesses consistent
with past practices, and there has not been any (i) damage, destruction or other
casualty loss with respect to any material asset or property owned, leased or
otherwise used by the Company, whether or not covered by insurance; (ii)
declaration, setting aside or payment of any dividend or other distribution in
respect of the capital stock of the Company or any repurchase, redemption or
other acquisition by the Company of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company; (iii)
amendment of any term. of any outstanding security of the Company; (iv)
incurrence, assumption or guarantee by the Company of any indebtedness for
borrowed money in excess of Fifty Thousand Dollars ($50,000); (v) creation or
assumption by the Company of any Lien on any asset other than in the ordinary
course. of business consistent with past practices; (vi) loan, advance or
capital contributions made by the Company, or investment in, any person; (vii)
transaction or commitment made, or any contract or agreement entered into, by
the Company relating to its assets or business (including the acquisition (by
sale, license or otherwise) or disposition (by sale, license or otherwise) of
any assets) or any relinquishment by the Company of any contract, agreement or
other right where the consideration or other value involved therein exceeded
Fifty Thousand Dollars ($50,000) or where such transaction, commitment,
contract, agreement or other right was material; (viii) labor dispute, other
than
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routine individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; (x) any exclusive license, distribution, marketing,
sales or other agreement entered into or any agreement to enter into any
exclusive license, distribution, marketing, sales or other agreement; or (xi)
change by the Company in its accounting principles, practices or methods. Since
the Company Balance Sheet Date, there has not been (a) any increase in the
compensation payable or that could become payable by the Company to any officers
of the Company or (b) increases in the compensation payable to employees of the
Company that exceed in the aggregate Fifty Thousand Dollars ($50,000) for all
employees or Ten Thousand Dollars ($10,000) for any single employee,
Section 18. LITIGATION. Except as set forth in Section 2.8 of
the Company Disclosure Schedule, there is no suit, claim, action, arbitration,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any of its properties or assets before any
Governmental Entity or brought by any person. The Company is not subject to any
outstanding order, writ, injunction or decree.
Section 2.9. COMPLIANCE WITH APPLICABLE LAW. The Company holds
all permits, licenses, variances;, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"). The Company is in compliance with the terms
of the Company Permits. The businesses of the Company have been and are being
conducted in compliance with all Applicable Laws. No investigation or review by
any Governmental Entity with respect to the Company is pending or, to the
Company's knowledge, threatened, nor has any Governmental Entity indicated an
intention to conduct the same.
Section 2.10. EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, "Compensation and Benefit
Plans" means, collectively, each written bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment, termination,
severance, compensation, medical, health, or the other plan, agreement, policy
or arrangement, that covers employees or directors of the Company, or pursuant
to which former employees or directors of the Company are entitled to current or
future benefits. Excepts as otherwise provided in Section 2.10(a) of the
Company Disclosure Schedule, there are no oral Compensation and Benefit Plans to
which the Company is a party. The Company has made available to Parent copies of
all "employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans,"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other Compensation and Benefit Plans
maintained, or contributed to, by the Company or any person or entity that,
together with the Company, is treated as a single employer under Section 414(b),
(c),(m) or (o) of the Code (the Company and each such other person or entity, a
"Commonly Controlled Entity") for the benefit of any current employees, of
officers or
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directors of the Company. The Company has also made available to Parent true,
complete and correct copies of (1) the most recent annual report on Form 5500
filed with the Internal Revenue Service ("IRS") with respect to each
Compensation and Benefit Plan (if any such report was required), (2) the most
recent summary plan description for each Compensation and Benefit Plan for which
such summary plan description is required and (3) each trust agreement and group
annuity contract related to any Compensation and Benefit Plan. Each Compensation
and Benefit Plan has been administered in accordance with its terms.
(b) Except as otherwise provided in Section 2.10(b) of the
Company Disclosure Schedule, the Company has performed its obligations under
each Compensation and Benefit Plan; each Compensation and Benefit Plan and each
trust or other funding medium, if any, established in connection therewith has
at all times been established, maintained and operated in compliance with its
terms and the requirements prescribed by Applicable Law, including ERISA and the
code.
(c) With respect to those Pension Plans that are intended to
be qualified under Section 401(a) of the Code, either (1) such Pension Plans
have been the subject of determination letters from the IRS to the effect that
such Pension Plans are qualified and exempt from federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, and no such determination
letter has been revoked nor has any event occurred since the date of its most
recent determination letter or application therefor that would adversely affect
its qualification or increase its costs, (2) timely applications for such
determination letters are now pending and the Company is not aware of any reason
why such Pension Plan is not so qualified, or (3) the time provided under
Section 401(b) of the Code and regulations or IRS pronouncements thereunder for
making retroactive amendments relating back to the effective dates of such
Pension Plans will not expire before the date that is ninety (90) days after the
Effective Time.
(d) Except as otherwise provided in Section 2.10(d) of the
Company Disclosure Schedule, with respect to each Pension Plan currently or
formerly maintained by the Company or any entity that is under "common control"
with the Company (within the meaning of Section 4001 of ERISA) that is
subject to Title IV of ERISA the Company has not incurred, nor does it
reasonably expect to incur, any liability to the Pension Plan or to the Pension
Benefit Guaranty Corporation ("PBGC") in connection with any Pension Plan,
including, without limitation, any liability under Section 4069 of ERISA or any
penalty imposed under Section 4071 of ERISA, or ceased operations at any
facility or withdrawn from any Pension Plan in a manner which could subject it
to liability under Section 4062, 4063 or 4064 of ERISA, or knows of any facts or
circumstances that might give rise to any liability of the Company to the
Pension Plan or to the PBGC under Title IV of ERISA that could reasonably be
anticipated to result in any claims being made against Parent or the Company by
the PBGC subsequent to the Closing Date.
(e) At all times on and after the effective date of ERMA
neither Company nor any entity that is under "common control" with the Company
(within the mea meaning of
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Section 4001 of ERISA) has maintained, contributed to or otherwise had any
obligation with respect to any "multiemployer plan" (as defined in Section 3(37)
of ERISA).
(f) Except as disclosed in Section 2.10(f) of the Company
Disclosure Schedule, there are no suits, actions, disputes, claims (other than
routine claims for benefits), arbitrations, administrative or other proceedings
pending or, to the knowledge of Company, threatened, anticipated or expected to
be asserted with respect to any Compensation and Benefits Plan or any related
trust or other funding medium thereunder or with respect to Company, as the
sponsor or fiduciary thereof or with respect to any other fiduciary thereof.
(g) No Compensation and Benefit Plan maintained by Company or
any related trust or other funding medium thereunder or any fiduciary thereof
is, to the knowledge of Company, the subject of an audit, investigation or
examination by an governmental or quasi-governmental agency.
(h) Except as provided in Section 2.10(h) of the Company
Disclosure Schedule,(1) no "reportable event" (as such term is used in Section
4043 of ERISA), "accumulated funding deficiency" (as such terms is used in
Section 412 or 4971 of the Code or Section 302 of ERISA), application for or
receipt of a waiver from the IRS of any minimum funding requirement under
Section 412 of the Code or "prohibited transaction" (as such term is used in
Section 4975 of the Code and/or Section 406 of ERISA and other than a
transaction that is exempt under a statutory or administrative exemption), has
occurred with respect to any Compensation and Benefit Plan established or
maintained by Company primarily for the benefit of participants employed within
the United States that could result in liability to the Company; (2) the Company
does not have any commitment, intention or understanding to create, terminate or
adopt any Compensation and Benefit Plan that would result in any additional
liability to Parent or the Company; and (3) since the beginning of the current
fiscal year of any Compensation and Benefit Plan, no event had occurred and no
condition or circumstance has existed that reasonably would be expected to
result in an increase in the benefits under or the expense of maintaining such
Compensation and Benefit Plan maintained by Company from the level of benefits
or expense incurred for the most recently completed fiscal year of such
Compensation and Benefit Plan.
(i) All contributions required to be made under the terms of
any Compensation and Benefit Plan as of the date hereof have been timely made.
(j) Except as provided by this Agreement or in Section
2.10(j) of the Company Disclosure Schedule, the execution of, and performance of
the transactions contemplated by, this Agreement will not (either along with or
upon the occurrence of any additional or subsequent events) constitute an event
under any Compensation and Benefit Plan or agreement that will or may reasonably
be expected to result in any payment (whether severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee,
former employee or director of the Company, whether or not any such payment
would be an "excess parachute payment" (within the meaning of Section 28OG of
the Code).
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(k) The Company is not required to maintain or contribute to
any Compensation and Benefit Plan by the law or applicable custom or rule of any
jurisdiction outside of the United States.
(l) Each Compensation and Benefit Plan complies with all
applicable requirements of (i) the Age Discrimination in Employment Act of 1967,
as amended, and the regulations thereunder and (ii) Title VII of the Civil
Rights Act of 1964, as amended, and the regulations thereunder and all other
Applicable Laws. All amendments and actions required to bring each of the
Compensation and Benefit Plans into conformity with all of the applicable
provisions of ERISA and other Applicable Laws have been made or taken except to
the extent that such amendments or actions are not required by law to be made or
taken until a date after the Effective Time and are disclosed in Section 2.
10(l) of the Company Disclosure Schedule.
(m) Each group medical plan sponsored by the Company complies
with the Medicare Secondary Payor Provisions of Section 1826(b) of the Social
Security Act, and the regulations promulgated thereunder.
(n) The Company is not and does not expect to be, subject to
(1) a security interest pursuant to Section 412(f) of the Code or (2) a lien
pursuant to Section 412(n) of the Code or Section 4068 or 302(f) of ERISA.
(o) Except as set forth in Section 2.10(o) of the Company
Disclosure Schedule, Parent and the Company may terminate any Compensation and
Benefit Plan maintained by the Company or may cease contributions to any such
Compensation and Benefit Plans without incurring any liability other than a
benefit liability accrued in accordance with the terms of such Compensation and
Benefit Plan immediately prior to such termination or ceasing of contributions.
(p) The Company does not maintain any Compensation and Benefit
Plan which is a "group health plan" (as such term is defined in Section
5000(b)(1) of the Code) that has not been administered and operated in all
respects in compliance with the applicable requirements of Section 601 of ERISA
and Section 498OB(b) of the Code, and the Company is not subject to any
liability, including without limitation, additional contributions, fines,
penalties or loss of tax deduction as a result of such administration and
operation.
(q) The Company has not incurred, nor does the Company
reasonably expect to incur, any liability for any tax imposed under Sections
4971 through 4980B of the Code or civil liability under Section 501 (i) or (1)
of ERISA.
(r) The Company has not incurred any liability for any tax,
excise tax, penalty or fee with respect to any Compensation and Benefit Plan,
including, but not limited to, taxes arising under Section 4971, 4977, 4978,
4878B, 4979, 4980 or 4980B of the Code, and no event has occurred and no
circumstance has existed that reasonably would be expected to give rise to any
such liability.
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(s) Except as provided in Section 2.10(s) of the Company
Disclosure Schedule, no insurance policy nor any other contract or agreement
affecting any Compensation and Benefit Plan requires or permits a retroactive
increase in premiums or payments due thereunder.
Section 2.11. LABOR AND EMPLOYMENT MATTERS. Except as set forth
on Section 2.11 of the Company Disclosure Schedule:
(a) No collective bargaining agreement exists that is binding
on the Company, and to the Company's knowledge, no petition has been filed or
proceeding instituted, or any action taken in contemplation of any such filing
or institution, by an employee or group of employees of the Company, with the
National Labor Relations Board seeking recognition of a bargaining
representative.
(b) (i) To the Company's knowledge, there is no labor
strike, dispute, slow down or stoppage pending or threatened against the
Company; and
(ii) The Company has not received any demand letters,
civil rights charges, suits or drafts of suits with respect to claims made by
any of its employees.
(c) All individuals who are or were performing consulting or
other services for the Company are or were correctly classified by the Company
as either "independent contractors" or "employees" as the case may be, and, at
the Closing Date, will qualify for such classification.
(d) Section 2.11 of the Company Disclosure Schedule contains a
list of the name of each officer, employee and consultant of the Company,
together with such person's position or function, annual base salary or wages
and any incentives or bonus arrangement with respect to such person. As of the
date hereof, to the Company's knowledge, no such person will or may cease to be
engaged by the Company for any reason, including because of the consummation of
the transactions contemplated by this Agreement.
(e) The Company is in compliance with all applicable foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to employees.
(f) The Company has withheld and reported all amounts required
by law or by agreement to be withheld and reported with respect to wages,
salaries and other payments to employees.
(g) There are no pending or, to the knowledge of the Company,
threatened claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
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Section 2.12. ENVIRONMENTAL LAWS AND REGULATIONS.
(a) The term "Environmental Laws" means any applicable
federal, state, local or foreign law, statute, treaty, ordinance, rule,
regulation, policy, permit, consent, approval, license, judgment, order, decree
or injunction relating to: (a) "Releases" (as defined in 42 U.S.C. sec.
9601(22)) or threatened Releases of Hazardous Material (as hereinafter defined)
into the environment, (b) the generation, treatment, storage, disposal, use,
handling, manufacturing, transportation or shipment of Hazardous Material, (c)
the health or safety of employees in the workplace, (d) protecting or restoring
natural resources or (e) the environment. The term "Hazardous Material" means
(i) hazardous substances (as defined in 42 U.S.C. sec. 9601(14)), including
"hazardous waste" as defined in 42 U.S.C. sec. 6903, (ii) petroleum, including
crude oil and any fractions thereof, (iii) natural gas, synthetic gas and any
mixtures thereof, (iv) asbestos and/or asbestos containing materials, (v) PCBs
or materials containing PCBs, (vi) any material regulated as a medical waste,
(vii) lead containing paint, (viii) radioactive materials and (ix) "Hazardous
Substance"" or "Hazardous Material" as those terms are defined in any
indemnification provision in any contract, lease, or agreement to which the
Company is a party.
(b) During the period of ownership or operation by the
Company of any of its current or previously owned or leased properties, there
have been no Releases of Hazardous Material by the Company in, on, under or
affecting such properties or any surrounding site, and the Company has not
disposed of any Hazardous Material in a manner that has led, or could reasonably
be anticipated to lead to a Release. There have been no Releases of Hazardous
Material by the Company in, on, under or affecting their current or previously
owned or leased properties or any surrounding site at times outside of such
periods of ownership, operation or lease. Since January 1, 1996, the Company has
not received any written notice of, or entered into any order, settlement or
decree relating to: (i) any violation of any Environmental Laws or the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any alleged
violation of Environmental Laws or (ii) the response to or remediation of
Hazardous Material at or arising from any of the Company's properties. There
have been no violations of any Environmental Laws by the Company.
(c) There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
that constitute a violation by the Company of, or are reasonably likely to
prevent or interfere with the Company's future compliance with, any current or
past Environmental Laws.
Section 2.13. TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means (A) all federal,
state, local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits,
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customs, duties or other taxes, fees, assessment or charges of any kind
whatsoever, whether disputed or not, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto, (B) any
liability for payment of amounts described in clause (A) whether as a result of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of law, and (C)
any liability for the payment of amounts described in clauses (A) or (B) as a
result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return,
declaration, report, statement, information statement and other document filed
or required to be filed with respect to Taxes.
(b) Except as set forth in Section 2.13(b) of the Company
Disclosure Schedule, the Company has duly and timely filed all material Tax
Returns required to be filed; and such Tax Realms are complete and accurate and
correctly reflect the Tax liability required to be reported thereon. Such Tax
Returns do not contain a disclosure statement under Section 6662 of the Code (or
any predecessor provision or comparable provision of state, local or foreign
law).
(c) Except as set forth in Section 2.13(c) of the Company
Disclosure Schedule, the Company has paid or adequately provided in the
Financial Statements for all material Taxes (whether or not shown on any Tax
Return) accrued through the date of such Financial Statements; all Taxes the
Company accrued following the end of the most recent period covered by the
Financial Statements have been accrued in the ordinary course of business of the
Company, and have been paid when due in the ordinary course of business, and no
election has been made with respect to Taxes of the Company in any Tax Returns
that has not been provided to Parent.
(d) Except as set forth in Section 2.13(d) of the Company
Disclosure Schedule, no claim for assessment or collection of Taxes is presently
being asserted against the Company, and the Company is not a party to any
action, proceeding, or investigation by any governmental taxing authority nor
does the Company have knowledge of any such threatened action, proceeding or
investigation.
(e) Except as set forth in Section 2.13(e) of the Company
Disclosure Schedule, the Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, individually or in the
aggregate, in connection with this Agreement or any change of control of the
Company, in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code.
(f) Except as set forth in Section 2.13(f) of the Company
Disclosure Schedule, the Company is not a party to or bound by any obligation
under any Tax sharing, Tax allocation, Tax indemnity or similar agreement or
arrangement.
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(g) Except as set forth in Section 2.13(g) of the Company
Disclosure Schedule, there is currently no limitation on the utilization of net
operating losses, built in losses, tax credits or similar items of the Company
under Section 382, 383, 384 or 1502 of the Code and the Treasury Regulations
thereunder.
(h) Except as set forth in Section 2.13(h) of the Company
Disclosure Schedule, the Company has not agreed to, or is required to make, any
adjustment under Section 481 of the Code by reason of a change in accounting
method.
(i) The Company is not a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code.
Section 2.14. INTELLECTUAL PROPERTY.
(a) GENERALLY. Section 2.14(a) of the Company Disclosure
Schedule sets forth, for the Intellectual Property owned, in whole or in part,
including jointly with others (such schedule specifies if such Intellectual
Property is owned jointly), by the Company, a complete and accurate list of all
United States and foreign (a) patents and patent applications; (b) Trademark
registrations and applications and unregistered Trademarks; and (c) copyright
registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number) and date issued (or
date filed). For purposes of this Agreement, "Intellectual Property" means:
trademarks and service marks (whether registered or unregistered), trade names,
designs and general intangibles of like nature, together with all goodwill
related to the foregoing (collectively, "Trademarks"); patents and patent
applications (including any continuations, continuations-in-part, divisionals,
reissues, renewals and applications for any of the foregoing) (collectively
"Patents"); copyrights and mask works (including any registrations and
applications therefor and whether registered or unregistered) (collectively
"Copyrights"); and information, including a formula, pattern, compilation,
program, device, method, technique, or process, that: (1) derives independent
economic value, actual or potential, from not being generally known to the
public or to other persons who can obtain economic value from its disclosure or
use; and (2) is the subject of efforts to maintain its secrecy (collectively,
"Trade Secrets"). "Trade Secrets" include computer software; databases; works of
authorship; mask works; technology; trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, discoveries, concepts, ideas,
techniques, methods, source codes, object codes, methodologies and, with respect
to all of the foregoing, related confidential data or information.
(b) TRADEMARKS
(i) Except as described on Section 2.14(b)(i) of the
Company Disclosure Schedule, all Trademarks are currently in compliance with all
legal requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications) other than any requirement
that, if not satisfied, would not result in a cancellation of any such
registration or otherwise affect the priority and enforceability of the
Trademark in questions.
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(ii) No registered Trademark has been within the last
three (3) years or is now involved in any opposition or cancellation proceeding
in the United States Patent and Trademark Office. To the Company's knowledge, no
such action has been threatened in writing within the one (I)-year period prior
to the date of this Agreement.
(iii) To the Company's knowledge, after reasonable
inquiry, there has been no prior use of any Trademark by any third party that
confers upon said third party superior rights in any such Trademark.
(iv) The Trademarks registered in the United States
have been continuously used in the form appearing in, and in connection with the
goods and services listed in, their respective registration certificates or
renewal certificates, as the case may be.
(c) PATENTS.
(i) All Patents are currently in compliance with
legal requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use) other than any requirement that, if not
satisfied, would not result in a revocation or lapse or otherwise affect the
enforceability of the Patent in question.
(ii) No Patent has been or is now involved in any
interference, reissue, reexamination or opposing proceeding in the United States
Patent and Trademark Office or any foreign patent office. To the Company's
knowledge, no such action has been threatened in writing within the one (1)-year
period prior to the date of this Agreement.
(iii) There is no Patent of any person that claims
the same subject matter as any Patent of the Company or invalidates any claim of
any Patent of the Company.
(d) TRADE SECRETS.
(i) The Company has taken all reasonable steps in
accordance with normal industry practice to protect its rights in confidential
information and its Trade Secrets.
(ii) Without limiting the generality of Section
2.14(d)(i), the Company enforces a policy of requiring each relevant employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms that
assign to the Company all rights to any Intellectual Property rights relating to
the Company's business that are developed by the employee, consultant or
contractor, as applicable, and that otherwise appropriately protect the
Intellectual Property of the Company, and, except under confidentiality
obligations, there has been no disclosure by the Company of confidential
information or Trade Secrets.
(e) LICENSE AGREEMENTS.
Section 2.14(e)(1) of the Company Disclosure Schedule sets
forth a complete and accurate list of all license agreements granting to the
Company any right to use
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or practice any rights under any Intellectual Property other than software
commercially available on reasonable terms to any person for
a license fee of no more than Twenty-Five Thousand Dollars ($25,000) but
including all such agreements that are otherwise material to the Company
(collectively, the "Inbound License Agreements"), indicating for each the title
and the parties thereto. Section 2.14(e)(2) of the Company Disclosure Schedule
sets forth a complete and accurate list of all license agreements under which
the Company grants licenses of software or grants other rights in or to use or
practice any rights under any intellectual Property, excluding licenses with
customers that in the twelve-month period prior to the date hereof have
purchased or licensed products for which the total payments to the Company did
not exceed Fifty Thousand Dollars ($50,000) and are not otherwise material to
the Company (collectively, the "Outbound License Agreements"), indicating for
each the title and the parties thereto. There is no outstanding or, to the
Company's knowledge, threatened dispute or disagreement with respect to any
Inbound License Agreement or any Outbound License Agreement.
(f) OWNERSHIP: SUFFICIENCY OF INTELLECTUAL PROPERTY ASSETS.
The Company owns or possesses adequate licenses or other rights to use, free
and clear of Liens, orders and arbitration awards, all of its Intellectual
Property used in its business. The Intellectual Property identified in
Section 2.14(a) of the Company Disclosure Schedule, together with Trade
Secrets and the Company's unregistered copyrights and the rights granted to
the Company under the Inbound License Agreements, constitute all the
Intellectual Property rights and Inbound License Agreements used in the
operation of the Company's business as it is currently conducted and are all
such Intellectual Property rights and Inbound License Agreements necessary to
operate such business after the Effective Time in substantially the same
manner as such business have been operated by the Company prior thereto.
(g) PROTECTION OF INTELLECTUAL PROPERTY. The Company has taken
commercially reasonable steps in accordance with normal industry practice to
protect the Intellectual Property of the Company.
(h) NO INFRINGEMENT BY THE COMPANY. The products used,
manufactured, marketed, sold or licensed by the Company, and all Intellectual
Property used in the conduct of the Company's business as currently conducted,
do not infringe upon, violate or constitute the unauthorized use of any rights
owned or controlled by any third party, including any Intellectual Property of
any third party.
(i) NO PENDING OR THREATENED INFRINGEMENT CLAIMS. No
litigation is now or, within the three (3) years prior to the date of this
Agreement, was pending and no notice or other claim in writing has been received
by the Company within the one (1) year prior to the date of this Agreement, (A)
alleging that the Company has engaged in any activity or conduct that infringes
upon, violates or constitutes the unauthorized use of the Intellectual Property
rights of any third party or (B) challenging the ownership, use, validity or
enforceability of any Intellectual Property owned or exclusively licensed by or
to the Company. Except as specifically disclosed in one or more Sections of the
Company Disclosure Schedule pursuant to this Section 2.14, no Intellectual
Property that is owned or licensed by the Company is
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subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Company or, in the case of Intellectual
Property licensed by the Company to others, restricting the sale, transfer,
assignment or licensing thereof by the Company to any person.
(j) NO INFRINGEMENT BY THIRD PARTIES. Except as set forth in
Section 2.14(j) of the Company Disclosure Schedule, to the knowledge of the
Company, no third party is misappropriating, infringing, diluting or violating
any Intellectual Property owned or exclusively licensed by the Company, and no
such claims have been brought against any third party by the Company.
(k) ASSIGNMENT CHANGE OF CONTROL. Except as set forth in
Section 2.14(k) of the Company Disclosure Schedule, the execution, delivery and
performance by the Company of this agreement, and the consummation of the
transactions contemplated hereby, will not result in the loss or impairment of,
or give rise to any right of any third party to terminate, any of the Company's
rights to own any of its Intellectual Property or rights under any Inbound
License Agreement or Outbound License Agreement, nor require the consent of any
Governmental Authority or third party in respect of any such Intellectual
Property.
(l) SOFTWARE. The Software owned or purported to be owned
by the Company, was either (i) developed by employees of the Company within
the scope of their employment; (ii) developed by independent contractors who
have assigned their rights to the Company pursuant to written agreements; or
(iii) otherwise acquired by the Company from a third party. Except as set
forth in Section 2.14(l) of the Company Disclosure Schedule, such Software
does not contain any programming code, documentation or other materials or
development environments that embody Intellectual Property rights of any
person other than the Company, except for such materials or development
environments obtained by the Company from other persons who make such
materials or development environments generally available to all interested
purchasers or end-users on standard commercial terms. For purposes of this
Section 2.14(l), "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, schematics, flow-charts
and other work product used to design, plan, organize and develop any of the
foregoing, and (iv) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(m) PERFORMANCE OF EXISTING SOFTWARE PRODUCTS. The Company's
existing and currently manufactured and marketed Software products listed and
described on Section 2.14(m) of the Company Disclosure Schedule perform, free of
material bugs, viruses or programming errors, the functions described in any
agreed specifications or end user documentation or other information provided to
customers of the Company on which such customers relied when licensing or
otherwise acquiring such products.
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(n) DOCUMENTATION. The Company has taken all reasonable
actions customary in the software industry to document the Software and its
operation, such that the materials comprising the Software, including the source
code and documentation, have been written in a clear and professional manner so
that they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(o) YEAR 2000 COMPLIANCE.
(i) Except as set forth in Section 2.14(o) of the
Company Disclosure Schedule, all of the Company's products (including products
currently under development) will record, store, process and calculate and
present calendar dates falling on and after December 31, 1998, and will
calculate any information dependent on or relating to such dates in the same
manner and with the same functionality, data integrity and performance as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1998, or calculate any information dependent on or relating
to such dates (collectively "Year 2000 Compliant"). Except as set forth in
Section 2.14(o) of the Company Disclosure Schedule, all of the Company's
products will lose no significant functionality with respect to the introduction
of records containing dates falling on or after December 31, 1998 and are
otherwise Year 2000 Compliant. Except as set forth on Section 2.14(o) of the
Company Disclosure Schedule, the current versions of the Company's software and
all other Intellectual Property may be used prior to, during and after December
31, 1998, such that such Software and Intellectual Property will operate prior
to, during and after such time period without error caused by date data that
represents or references different centuries or more than one century.
(ii) The Company's products and the conduct of the
Company's business with its customers and suppliers will not be adversely
affected by the advent of the year 2000, the advent of the twenty-first century
or the transition from the twentieth century through the year 2000 and into the
twenty-first century. Except as set forth on Section 2.14(o) of the Company
Disclosure Schedule, the Company is not reasonably likely to incur expenses
exceeding One Hundred Thousand Dollars ($100,000) in the aggregate arising from
or relating to the failure of any of its products (including all products sold
on or prior to the date hereof) as a result of the advent of the year 2000, the
advent of the twenty-first century or the transition from the twentieth century
through the year 2000.
(p) MANUFACTURING RELATIONSHIPS. Section 2.14(p) of the
Company Disclosure Schedule sets forth a complete and correct description of
each and every (1) foundry relationship, wafer and circuit board manufacturing
and fabricating agreement, understanding or commitment, (2) purchase, supply or
service agreement, understanding or commitment, whether written or oral, for
integrated circuit dies, circuit boards or devices used by or in connection with
the Company's business, in whole or in part, and (3) any other agreements or
contracts, whether written or oral, under which the Company obtains services or
products for use in producing the Company's finished products involving payments
over a twelve (12) month period in excess of Fifty Thousand Dollars ($50,000) or
which otherwise is material (collectively with (1) and (2) "Supply Contracts").
The Company has delivered to
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Parent a correct and complete copy of each Supply Contract and provided a
written summary of each oral Supply Contract. There are no fees, penalties,
price uplifts, shortfall payments, bill backs or other amounts outstanding under
such Supply Contracts. The quantities available for purchase and the prices
required to be paid under each written Supply Contract described in clauses (1)
and (2) above are as stated in such Supply Contract or is summarized in Section
2.14(p) of the Company Disclosure Schedule. Each manufacturing or service site
that requires qualification under the terms of a Supply Contract is qualified,
and no unresolved differences with respect to product or process specifications
remains outstanding. All manufacturing or service terms and conditions are as
they appear to be on the face of the Supply Contracts. The Company has not
received any written or oral notice from the other party to any Supply Contract,
or from any other supplier to the Company, to the effect that such party will
not accept purchase orders from the Company on such terms, conditions and
quantities consistent with past practices. To the knowledge of the Company, no
condition exists that would permit a termination or a change of such Supply
Contracts by the other party under such Supply Contract. Section 2.14(p) of the
Company Disclosure Schedule sets forth correct manufacturing information since
July 30, 1999 regarding yields under the Supply Contracts.
Section 2.15. TITLE TO PERSONAL PROPERTY; LEASES; ABSENCE OF
LIENS.
(a) The Company owns no real property, nor has it ever owned
any real property. Section 2.15 of the Company Disclosure Schedule sets forth a
list of all real property currently leased by the Company, the name of the
lessor and the date of the lease and each amendment thereto. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) by the Company or, to the Company's knowledge,
by the other party to such lease. Complete and correct copies of such leases
have been delivered to Parent and Acquisition.
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
properties and assets, tangible and intangible, real, personal and mixed, used
or held for use in its business, free and clear of any Liens.
Section 2.16. INSURANCE. Except as set forth in Section 2.16 of
the Company Disclosure Schedule, the Company maintains insurance policies (the
"Insurance Policies") against all risks of a character and in such amounts as
are customarily insured against by similarly situated companies in the same or
similar businesses. Each Insurance Policy is in full force and effect and is
valid, outstanding and enforceable, and all premiums due thereon have been paid
in full. Except as set forth in Section 2.16 of the Company Disclosure Schedule,
none of the Insurance Policies will terminate or lapse (or be affected in any
other adverse manner) by reason of the transactions contemplated by this
Agreement. The Company has complied with the material provisions of each
Insurance Policy under which it is the insured party. No insurer under any
Insurance Policy has canceled or generally
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disclaimed liability under any such policy or, to the Company's knowledge,
indicated any intent to do so or not to renew any such policy. All known claims
under the Insurance Policies have been filed by the Company in a timely fashion.
Section 2.17. CERTAIN BUSINESS PRACTICES. None of the Company,
or any directors, officers, agents or employees of the Company, has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
Section 2.18. PRODUCT WARRANTIES. Section 2.18 of the Company
Disclosure Schedule sets forth complete and accurate copies of the written
warranties and guaranties by the Company currently in effect with respect to its
products. There have not been any deviations from such warranties and
guaranties, and neither the Company, nor any of its salesmen, employees,
distributors and agents is authorized to undertake obligations to any customer
or to other third parties in excess of such warranties or guaranties. The
Company has not made any oral warranty or guaranty with respect to its products
not described on such schedule.
Section 2.19 MATERIAL CONTRACTS.
(a) Section 2.19 of the Company Disclosure Schedule sets forth
a list of all of the following written contracts, agreements, options, leases,
licenses, sales and purchase orders, warranties, commitments and other
instruments of any kind (each a "Contract") to which the Company is a party or
is otherwise bound (each a "Material Contract" and collectively the "Material
Contracts"): (i) each sales Contract relating to the Company's business pursuant
to which the dollar volume of sales exceeded Fifty Thousand Dollars ($50,000) in
the 12-month period ended September 30, 1998, or Fifty Thousand Dollars
($50,000) in the eleven-month period ended August 31, 1999; (ii) each Contract
that requires payment by or to the Company in respect of its business subsequent
to the date of this Agreement of more than Fifty Thousand Dollars ($50,000);
(iii) all Contracts in respect of the Company's business relating to, and
evidences of, indebtedness for borrowed money or the deferred purchase price of
property (whether incurred, assumed, guaranteed or secured by any asset); (iv)
all partnership, joint venture or other similar Contracts, arrangements or
agreements, directly affecting the Company's business or assets; and (v) all
other Contracts that are material to the Company.
(b) Each Material Contract is a legal, valid and binding
obligation of the Company and, to the knowledge of the Company, each other
Person who is a party thereto, enforceable against the Company and each such
Person in accordance with its terms, and neither the Company nor, to the
knowledge of the Company, any other party thereto is in default thereunder.
Section 2.20. SUPPLIERS AND CUSTOMERS. The documents and
information supplied by the Company to Parent or any of its representatives with
respect to relationships
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and volumes of business done with its significant suppliers and customers are
accurate and complete. During the last twelve (12) months, the Company has not
received notices of termination or written threats of termination from any of
the ten (10) largest suppliers or the twenty-five (25) largest customers of the
Company.
Section 2.21. VOTE REQUIRED. The approval of the holders of (i)
a majority of the outstanding shares of Company Common Stock, (ii) a majority of
the voting power of the Company Common Stock, Company Preferred A Stock and
Company Preferred B Stock voting together as a single class and (iii) sixty-six
and two-thirds percent (66-2/3%) of the outstanding shares of Company Preferred
A Stock and Company Preferred B Stock voting together as a single class, are the
only stockholder votes necessary to approve and adopt this Agreement and the
Merger.
Section 2.22. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
Section 2.23. REPRESENTATIONS COMPLETE. The representations or
warranties made by the Company in this Agreement, and any statements made in any
schedules or certificates required to be furnished by the Company pursuant to
this Agreement, do not contain, and will not contain at the Effective Time, any
untrue statement of a material fact, and do not omit, and will not omit at the
Effective Time, to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company
as follows:
Section 3.1. ORGANIZATION. Each of Parent and Acquisition is
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being
conducted. Parent has heretofore made available to the Company accurate and
complete copies of the Certificates of Incorporation and bylaws, as currently
in full force and effect, of Parent and Acquisition.
Section 3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Parent and Acquisition has all necessary corporate power and authority to
execute and deliver this Agreement and the Other Agreements, to perform its
obligations under this Agreement and the Other Agreements, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Other Agreements and the
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consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the boards of directors of Parent and Acquisition and
by Parent as the sole stockholder of Acquisition, and no other corporate
proceedings on the part of Parent or Acquisition are necessary to authorize this
Agreement and the Other Agreements or to consummate the transactions
contemplated hereby and thereby. Thiss Agreement and the Other Agreements have
been duly and validly executed and delivered by each of Parent and Acquisition
and constitute, assuming the due authorization, execution and delivery hereof by
the Company, valid, legal and binding agreements of each of Parent and
Acquisition, as applicable, enforceable against each of Parent and Acquisition,
as applicable, in accordance with their terms, subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally or to general
principles of equity.
Section 3.3. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
the filing of the Certificate of Merger as required by the DGCL and, if
applicable, compliance with the HSR Act, no filing with or notice to, and no
permit, authorization, consent or approval of any Governmental Entity is
necessary for the execution and delivery by Parent or Acquisition of this
Agreement or the consummation by Parent or Acquisition of the Merger or the
other transactions contemplated hereby. Neither the execution, delivery and
performance of this Agreement by Parent or Acquisition nor the consummation by
Parent or Acquisition of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or bylaws of Parent or Acquisition, (ii) result in a violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent or Acquisition or
any of Parent's other subsidiaries or any of their respective properties or
assets.
Section 3.4. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Acquisition.
Section 3.5. LITIGATION. There is no action, suit, proceeding,
claim, arbitration or investigation pending, or as to which Parent or
Acquisition has received any notice of assertion nor, to the Parent's or
Acquisition's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Parent or Acquisition that in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
Section 3.6. INTERIM OPERATION OF ACQUISITION. Acquisition was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has
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engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE 4
COVENANTS
Section 4.1. OPERATION OF BUSINESS PRIOR TO EFFECTIVE TIME.
Between the date hereof and the Effective Time, the Company will operate its
business in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, use all commercially reasonable
efforts to seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business dealings with it with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, prior to the Effective Time:
(a) The Company shall not do any of the following without the
prior written consent of Parent:
(i) amend its Certificate of Incorporation or bylaws
(or other similar governing instrument);
(ii) except as set forth in the Company Disclosure
Schedule, authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other debt or equity securities or equity equivalents
(including any stock options or stock appreciation rights) except for (1) the
issuance and sale of Shares pursuant to Company Stock Options granted under the
Stock Option Plans prior to the date hereof or Company Warrants existing on the
date of this Agreement, (2) issuance of Company Common Stock upon any conversion
of Company Preferred A Stock or Company Preferred B Stock existing on the date
hereof and (3) grants of options that are expressly set forth in Section 4.1
(a) of the Company Disclosure Schedule;
(iii) except as set forth in the Company Disclosure
Schedule, split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, make any
other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities or any securities other
than shares repurchased from employees at their original cost;
(iv) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company (other than the Merger) or otherwise permit the
corporate existence of the Company or the
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rights or franchises or any license, permit or authorization under which its
business operates to be suspended, lapsed or revoked;
(v) create or form any subsidiary;
(vi) (A) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business, or modify or agree to any amendment
of the terms of any of the foregoing; (B) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; (C) make any loans, advances
or capital contributions to or investments in any other person (other than
customary loans or advances to employees in the ordinary course of business
consistent with past practice, not exceeding Twenty-Five Thousand Dollars
($25,000) in the aggregate); (D) pledge or otherwise encumber shares of capital
stock of the Company; or (E) mortgage or pledge any of its assets, tangible or
intangible, or create or suffer to exist any material Lien thereupon;
(vii) except as may be required by Applicable Law,
or except as contemplated by Section 4.9(a) of this Agreement, enter into, adopt
or amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, health, life, or disability
insurance, dependent care, severance or other employee benefit plan agreement,
trust, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including the granting of stock appreciation rights or performance units);
(viii) except as set forth in the Company Disclosure
Schedule, hire additional employees of the Company, increase the compensation of
employees, or enter into employment agreements or contracts;
(ix) (A) acquire, sell, lease, license, transfer or
otherwise dispose of any assets in any single transaction or series of related
transactions having a fair market value in excess of Fifty Thousand Dollars
($50,000) in the aggregate or that are otherwise material to the Company, other
than sales of its products and licenses of software (other than exclusive
licenses) in the ordinary course of business consistent with past practices, or
(B) enter into any exclusive license, distribution, marketing, sales or other
agreement;
(x) except as may be required as a result of a
change in law or in generally accepted accounting principles, change any of the
accounting principles, practices or methods used by it;
(xi) revalue any of its assets, including writing
down the value of inventory or writing-off notes or accounts receivable, other
than in the ordinary course of business or as a result of normal year end audit
adjustments;
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(xii) (A) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other entity
or division thereof or any equity interest therein; (B) enter into any contract
or agreement that would be material to the Company, (C) amend, modify, waive or
terminate any right under any Material Contract in any way or any right under
any other Contract in any material way; (D) modify its standard Company
warranty terms for its products or amend or modify any product warranties in
effect as of the date hereof in any manner that is adverse to the Company; or
(E) authorize any new capital expenditure or expenditures that individually is
in excess of Fifty Thousand Dollars ($50,000) or in the aggregate are in excess
of One Hundred Thousand Dollars ($100,000);
(xiii) make any tax election or settle or compromise any
income tax liability or permit any insurance policy naming it as a beneficiary
or loss payee to expire, or to be canceled or terminated, unless a comparable
insurance policy reasonably acceptable to Parent is obtained and in effect;
(xiv) settle or compromise any pending or threatened
suit, action or claim that (A) relates to the transactions contemplated hereby
or (B) the settlement or compromise of which would be for more than Seventy-Five
Thousand Dollars ($75,000) in any single case, or One Hundred Thousand Dollars
($100,000) in the aggregate, or that would otherwise be material to the Company;
(xv) enter into any settlement or compromise that
relates (A) to the Company's dispute with Jay Kunin regarding the Kunin
Repurchase (as defined in the Company Disclosure Schedule) or (B) to the
Company's dispute with Kenneth Liu regarding the termination of his employment
with the Company and the Liu Release (as defined in the Company Disclosure
Schedule);
(xvi) make any payment to any stockholder, officer,
director or employee of the Company or any affiliate or relative of any of them
except for senior staff bonuses earned for the year ended September 30, 1999 and
payment for services rendered by any such person as an employee or independent
contractor of the Company in the ordinary course of business consistent with
past practice;
(xvii) commence any software, hardware or other
technology development project or terminate any software, hardware or other
technology development project that is currently ongoing;
(xviii) allow the Company's rights in the Intellectual
Property to be abandoned or otherwise lost;
(xix) sell or license to any third party any
Intellectual Property other than non-exclusive licenses in the ordinary course
of business; and
(xx) take or agree in writing or otherwise to take
any of the actions described in Sections 4.1(i) through 4.1(xix) (and it
shall use all reasonable efforts not to take
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any action that would make any of the representations or warranties of the
Company contained in this Agreement untrue or incorrect).
(b) The Company Shall:
(i) maintain the assets and properties of the Company
in the ordinary course of business in the manner historically maintained by the
Company, reasonable wear and tear, damage by fire and other casualty excepted;
(ii) promptly repair, restore or replace any assets or
properties of the Company in the ordinary course of business consistent with
past practice;
(iii) upon any damage, destruction or loss to any of the
assets or properties of the Company, apply any and all insurance proceeds
received with respect thereto to the prompt repair, replacement and restoration
thereof;
(iv) comply with all Applicable Laws;
(v) subject to Section 4.1(a)(xiii), file all
foreign, federal, state and local Tax Returns required to be filed and make
timely payment of all applicable Taxes when due and pay the expenses of
preparation therefor (other than where the Company is disputing any such
obligation in good faith);
(vi) comply with all Material Contracts and maintain
the effectiveness of all Company Permits;
(vii) notify Parent of any action, event, condition or
circumstance, or group of actions, events, conditions or circumstances, relating
to the Company or any other Person that results in, or would reasonably be
expected to result in, a Material Adverse Effect on the Company;
(viii) notify Parent in writing of the commencement of
any proceeding by or against the Company; and
(ix) pay accounts payable and pursue collection of its
accounts receivable in the ordinary course of business, consistent with past
practices.
Section 4.2. NO SOLICITATION OR NEGOTIATION; NON-SOLICITATION
OF EMPLOYEES.
(a) Between the date hereof and the earlier of the termination
of this Agreement and the Closing Date, the Company will not (nor will the
Company permit any of the Company's officers, directors, employees, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any person other than Parent and Acquisition: (i)
solicit, initiate, entertain or encourage any proposals or offers from, or
conduct discussions with or engage in negotiations with any person relating to
any possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or assets or any equity interest in
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the Company; (ii) provide information with respect to it to any person, other
than Parent and Acquisition, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard to,
any possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any portion of its capital
stock or assets or any equity interest in the Company; or (iii) enter into any
agreement with any person providing for the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any portion of its capital stock or assets or any equity interest in
the Company. In addition, the Company also agrees that, unless and until this
Agreement is terminated in accordance with its terms, it will not commence, be
involved in, or take any actions in furtherance of, the process of becoming a
public company through an initial public offering. Without limiting the
generality of the foregoing, the Company agrees that until this Agreement is so
terminated it will not, and will not permit any of its representatives to,
participate in the process of drafting any registration statement for filing
with the Securities and Exchange Commission in connection with an initial public
offering. The Company also agrees that until this Agreement is so terminated it
will not engage any investment bankers for an initial public offering or, to the
extent previously engaged, will suspend any activities with such bankers
intended to facilitate an initial public offering.
(b) Parent's Communication Product Group (the "Communication
Product Group") agrees that between the date hereof and ninety (90) days after
termination of this Agreement, it will not directly or indirectly solicit for
employment any employee of the Company who became known to the Communication
Product Group in connection with its consideration of the Merger; PROVIDED,
HOWEVER, that the Communication Product Group will be permitted to hire
employees of the Company (i) who are not engineers, directors or executives, or
(ii) who are contacted as a result of the Communication Product Group's use of
general newspaper advertisement and other general non-targeted recruitment
techniques in the ordinary course of business and consistent with past practices
as opposed to targeted solicitations of any one or more of the Company's
employees. In no event will this Section 4.2(b) apply to any division or
operation within Parent except for the Communication Product Group. This Section
4.2(b) shall terminate upon consummation of the Merger.
Section 4.3. ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, the
Company shall give Parent and its authorized representatives (including, without
limitation, its attorneys and accountants), upon reasonable notice from Parent,
reasonable access to all employees, plants, offices, warehouses and other
facilities, to (and where necessary, provide copies of) all books and records,
contracts and all personnel files of current employees of the Company as Parent
may reasonably require, and will cause its officers to furnish Parent with such
financial and operating data and other information with respect to the business
and properties of the Company as Parent may from time to time reasonably
request.
(b) Between the date hereof and the Effective Time, the
Company shall furnish to Parent and Acquisition (i) within five (5) business
days following preparation
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thereof (and in any event within thirty (30) business days after the end of each
month) an unaudited balance sheet as of the end of such month and the related
statements of earnings, stockholders' equity (deficit) and cash flows for the
month then ended, and (ii) within five (5) business days following preparation
thereof (and in any event within forty-five (45) calendar days after the end of
each fiscal quarter) an unaudited balance sheet as of the end of such quarter
and the related statements of earnings, stockholders' equity (deficit) and cash
flows for the quarter then ended, and (iii) within five (5) business days
following preparation thereof (and in any event within ninety (90) calendar days
after the end of each fiscal year) an audited balance sheet as of the end of
such year and the related statements of earnings, stockholders' equity (deficit)
and cash flows, all of such financial statements referred to in clauses (i),
(it) and (iii) to be prepared in accordance with generally accepted accounting
principles in conformity with the practices consistently applied by the Company
with respect to such financial statements. All the foregoing shall be in
accordance with the books and records of THE Company and shall fairly present
its financial position (taking into account the differences between the monthly,
quarterly and annual financial statements prepared by the Company in conformity
with its past practices) as of the last day of the period then ended.
(c) Each of the parties hereto will hold, and will cause its
consultants and advisers to hold, in confidence all documents and information
furnished to it by or on behalf of another party to this Agreement in connection
with the transactions contemplated by this Agreement pursuant to the terms of
that certain Corporate Nondisclosure Agreement Number 123398 entered into
between the Company and Parent dated as of April 29, 1999 (the "CNDA").
Section 4.4. CERTAIN FILINGS; REASONABLE EFFORTS; MEETING OF
STOCKHOLDERS.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable efforts to take or cause to
be taken all action and to do or cause to be done all things reasonably
necessary, proper or advisable under Applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts to do the following, (i) if applicable, cooperate in the
preparation and filing of the Notification and Report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and any filings under similar merger notification laws or regulations of
foreign Governmental Entities; (ii) obtain consents of all third parties and
Governmental Entities necessary, proper, advisable or reasonably requested by
Parent or the Company, for the consummation of the transactions contemplated by
this Agreement; (iii) contest any legal proceeding relating to the Merger; and
(iv) execute any additional instruments reasonably necessary to consummate the
transactions contemplated hereby. The Company agrees to use all commercially
reasonable efforts to encourage its employees to accept any offers of employment
extended by Parent. If at any time after the Effective Time any further action
is necessary to carry out the purposes of this Agreement the proper officers and
directors of each party hereto shall take all such necessary action.
(b) Parent and the Company will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses,
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appearances, presentations, letters, white papers, memoranda, briefs, arguments,
opinions or proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to any foreign, federal, or state
antitrust, competition, or fair trade law. In this regard but without
limitation, each party hereto shall promptly inform the other of any material
communication between such party and the Federal Trade Commission, the Antitrust
Division of the United States Department of Justice, or any other federal,
foreign or state antitrust or competition Governmental Entity regarding the
transactions contemplated herein.
(c) Nothing in this Agreement, however, shall require or be
construed to require any party hereto to sell or divest any assets or business
or to restrict any business operations in order to obtain the consent or
successful termination of any review of any such Governmental Entity regarding
the transactions contemplated hereby.
(d) The Company shall take all actions necessary in accordance
with the DGCL and its Certificate of Incorporation and bylaws to (i) duly call,
give notice of, convene and hold meetings of the holders of the Company Common
Stock, and the holders of the Company Preferred A Stock and Company Preferred B
Stock, as promptly as practicable to consider and vote upon the adoption and
approval of this Agreement and the transactions contemplated hereby (the
"Meeting") or (ii) obtain, as promptly as practicable, by written consent, the
adoption and approval of this Agreement and the transactions contemplated hereby
by the holders of (A) a majority of the voting power of the Company Common
Stock, (B) a majority of the voting power of the Company Common Stock, Company
Preferred A Stock and Company Preferred B Stock voting together as a single
class, and (C) sixty-six and two-thirds percent (66-2/3%) of the outstanding
shares of the Company Preferred A Stock and Company Preferred B Stock voting
together as a single class. The Company Board will recommend to its stockholders
approval of the Merger and the transactions contemplated by this Agreement. The
Company shall promptly prepare materials reasonably acceptable to Parent for
purposes of soliciting the votes of the holders of Shares approving the Merger,
which shall include the recommendation of the Company Board that stockholders of
the Company vote in favor of the approval and adoption of this Agreement, and
shall promptly mail such materials to the Company's stockholders after approval
by Parent.
Section 4.5. PUBLIC ANNOUNCEMENTS. Neither Parent, Acquisition
nor the Company shall issue any press release or otherwise make any public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, without the prior consent of Parent and Acquisition (in
the case of the Company) or the Company (in the case of Parent or Acquisition),
except as may be required by Applicable Law, or by the rules and regulations of,
or pursuant to any agreement with, the Nasdaq National Market. If any party
determines, with the advice of counsel, that it is required by Applicable Law to
make this Agreement or any terms thereof public, it shall, a reasonable time
before making any public disclosure, consult with the other parties regarding
such disclosure and seek confidential treatment for such terms or portions of
this Agreement as may be requested by the other parties. The parties agree there
shall be no public announcement of this Agreement or the consummation of the
Merger except as may be required by Applicable Law. The parties agree
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to announce this Agreement or the consummation of the Merger to the Company's
employees, customers, vendors and strategic partners at such time and in such
form as is mutually agreed upon by all parties to this Agreement.
Section 4.6. NOTIFICATION OF CERTAIN MATTERS. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to
the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which has caused or would be likely to cause
any representation or warranty contained in this Agreement by such first
party to be untrue or inaccurate at or prior to the Effective Time and (ii)
any failure by such first party to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
by it hereunder; PROVIDED, HOWEVER, that, except as provided in Section 4.7,
the delivery of any notice pursuant to this Section 4.6 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 4.7. ADDITIONS TO AND MODIFICATION OF COMPANY
DISCLOSURE SCHEDULE. Concurrently with the execution and delivery of this
Agreement, the Company has delivered a Company Disclosure Schedule that includes
all of the information required by the relevant provisions of this Agreement.
The Company represents and warrants that it has used reasonable good faith
efforts to prepare such Company Disclosure Schedule. In addition, the Company
shall deliver to Parent and Acquisition such additions to or modifications of
any Sections of the Company Disclosure Schedule necessary to make the
information set forth therein correct and complete as soon as practicable after
such information is available to the Company after the date of execution and
delivery of this Agreement (each, an "Addition" and collectively, "Additions").
Any such disclosure of an Addition shall not be deemed to constitute an
exception to its representations and warranties under Article 2, nor limit the
rights and remedies of Parent and Acquisition under this Agreement for any
breach by the Company of such representation and warranties; PROVIDED, HOWEVER,
that in the event that the Merger is consummated, no Parent Indemnitee shall
have any claim arising under Article 7 with respect to the breach of any
representation or warranty in Article 2 that any such Addition is identified as
being specifically related to, if (1) such Addition arises from facts AND
circumstances existing on the date hereof, or (2) such Addition arises from
facts and circumstances arising after the date hereof, so long as none of the
facts and circumstances arising after the date hereof giving rise to such
Addition constitutes or arises from a breach of any covenant of the Company in
this Agreement. Nothing set forth herein shall obligate Parent or Acquisition to
consummate the Merger in the event any such Addition or Additions causes any of
the conditions in Article 5 to fail to be satisfied.
Section 4.8. ACCESS TO COMPANY EMPLOYEES. The Company agrees to
provide Parent with reasonable access to its employees during normal working
hours following the date of this Agreement, to among other things, deliver
offers of continued employment (if Parent so elects) and to provide information
to such employees about Parent. All communications by Parent with Company
employees shall be conducted in a mariner that does not disrupt or interfere
with the Company's efficient and orderly operation of its business.
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Section 4.9. DEFERRED CONTRIBUTION PENSION PLANS.
(a) Prior to the Effective Time, the Company will take such
action as is necessary to terminate its 401(k) Plan (the "Company 401(k) Plan")
and also will take all necessary action to ensure that each Company employee is
fully vested in his or her account balance under the Company 401(k) Plan.
(b) As soon as practicable following IRS approval of the
termination of the Company 401(k) Plan, the assets thereof shall be distributed
and Parent shall permit the employees of the Company employed by the Surviving
Corporation to roll such distributions over into Parent's 401 (k)/Profit
Sharing Plan.
Section 4.10. SERVICE CREDIT; EMPLOYMENT.
(a) Company employees shall be given credit for service
performed for the Company ("Service Credit") for purposes of the following
Parent benefits:
(i) 401(k)/Profit Sharing Plan (participation and
vesting only, not benefit accrual);
(ii) Vacation;
(iii) Short Term Disability Plan;
(iv) Service Awards,
(v) Service component of any retirement definition
(early retirement, rule of 75);
(vi) Defined Benefit Plan (participation and vesting
only); and
(vii) Supplemental Employee Medical Account Plan
("SERMA") (participation only).
(b) Company employees shall not be given Service Credit for
the following Parent benefits:
(i) Sabbatical;
(ii) Parent Stock Option Plans (acceleration of vesting
upon retirement);
(iii) Benefit accrual under Parent's Defined Benefit
Plan;
(iv) Benefit accrual under Parent's SERMA; and
(v) Benefit accrual under Parent's 401 (k)/Profit
Sharing Plan;
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With respect to the foregoing Parent benefits, Service Credit shall be counted
as of the Effective Time.
(c) Parent will cause the Surviving Corporation to continue
the employment of those employees employed by the Company prior to the Effective
Time on an "at will" basis at compensation to be substantially similar to
compensation received by similarly situated employees of Parent.
(d) (1) Employees of the Surviving Corporation will be
eligible for grants of options to purchase Parent Common Stock in the discretion
of Parent in accordance with Parent's regular compensation review, and will be
eligible to participate in Parent's employee stock purchase plan at the next
entry date following the Closing.
(2) In exchange for each individual described in Section
5.3(f) executing the written instrument referred to in such Section, Parent
would grant to such individual, on or promptly following the Closing, an option
to purchase shares of Parent Common Stock. The number of shares subject to such
option would be determined by Parent in its sole discretion. The exercise price
per share for each such grant shall be the fair market value of one share of
Parent Common Stock on the date of grant determined in accordance with the plan
under which Parent makes such grant.
(e) The Company shall take such action as is necessary to
assign and transfer to Parent any repurchase rights held by the Company with
respect to Shares Subject to Repurchase.
Section 4.11. INDEMNIFICATION AND DIRECTORS' AND OFFICERS'
INSURANCE.
(a) After the Effective Time, the Company shall indemnify and
hold harmless (and shall also advance expenses as incurred to the fullest extent
permitted under Applicable Law to), to the extent not covered by insurance, each
person who is now or has been prior to the date hereof or who becomes prior to
the Effective Time an officer or director of the Company (the "Indemnified
Persons") against (i) all losses, claims, damages, costs, expenses (including
counsel fees and expenses), settlement, payments or liabilities arising out of
or in connection with any claim, demand, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was an officer or director of the Company,
whether or not pertaining to any matter existing or occurring at or prior to the
Effective Time and whether or not asserted or claimed prior to or at or after
the Effective Time ("Indemnified Liabilities"); and (ii) all Indemnified
Liabilities based in whole or in part on or arising in whole or in part out of
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the fullest extent required or permitted under Applicable Law. Nothing
contained herein shall make Parent, Acquisition, the Company or the Surviving
Corporation, an insurer, a co-insurer or an excess insurer in respect of any
insurance policies which may provide coverage for Indemnified Liabilities, nor
shall this Section 4.11 relieve the obligations of any insurer in respect
thereto. The parties hereto intend, to the extent not prohibited by Applicable
Law, that the indemnification provided for in this Section 4.11 shall apply
without limitation to negligent acts or omissions
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by an Indemnified Person. Each Indemnified Person is intended to be a third
party beneficiary of this Section 4.11 and may specifically enforce its terms.
This Section 4.11 shall not limit or otherwise adversely affect any rights any
Indemnified Person may have under any agreement with the Company or under the
Company's Certificate of Incorporation or bylaws as presently in effect. This
Section 4.11 shall not limit any liability an Indemnified Person may have under
the Escrow Agreement or Article 7 of this Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, from and after the Effective Time, Parent shall cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its directors
and officers as of or prior to the date hereof (or indemnification agreements in
the Company's customary form for directors joining the Company's Board of
Directors prior to the Effective Time) and any indemnification provisions under
the Company's Certificate of Incorporation or bylaws as in effect immediately
prior to the Effective Time.
(c) Neither Parent nor any of its affiliates shall be
obligated to guarantee the payment or performance of the Company's obligations
under Clauses (a) or (b) of this Section 4.11 so long as the Company honors
such obligations to the extent of its net worth at the Effective Time, and
neither Parent nor any such affiliate shall have any liability or obligation to
any Indemnified Person arising from the Company's breach of, or inability to
perform its obligations under, such Clauses in excess of the difference between
the net worth of the Company at the Effective Time and the aggregate of all
amounts paid by the Company in satisfaction of such obligations. The provisions
of this Section 4.11 are intended to be for the benefit of, and will be
enforceable by, each person entitled to indemnification hereunder and the heirs
and representatives of such person. Parent will not permit the Company to merge
or consolidate with any other Person unless the Company will ensure that the
surviving or resulting entity assumes the obligations imposed by this Section
4.11.
(d) The provisions of this Section 4.11 may not be amended as
to any Indemnified Person without such Indemnified Person's prior written
consent, which consent will not be unreasonably withheld.
Section 4.12. FEES AND EXPENSES. Whether or not the Merger is
consummated, all out-of-pocket fees and expenses incurred in connection with the
Merger, this Agreement and the other agreements and transactions contemplated
hereby and thereby, including all legal, accounting, financial advisory,
consulting and other fees and expenses of third parties incurred by a party in
connection with the negotiation, documentation and effectuation of the terms and
conditions of the Merger, this Agreement and the other agreements and
transactions contemplated hereby and thereby ("THIRD PARTY EXPENSES"), shall be
the obligation of the respective party incurring such fees and expenses;
PROVIDED, HOWEVER, that if the Merger is consummated, the Company shall cause
its Third Party Expenses, and any Third Party Expenses incurred on behalf of any
directors, officers and stockholders that the Company has any obligation to pay,
to be invoiced at or before Closing and not to exceed
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(whether or not so invoiced) Five Hundred Fifty Thousand Dollars ($550,000) in
the aggregate.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT
THE MERGER. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or enforced
by any United States federal or state court or United States federal or state
Governmental Entity that prohibits, restrains, enjoins or restricts the
consummation of the Merger; and
(b) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby shall
have been given, obtained or complied with, as applicable.
Section 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and
Acquisition contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time with the same effect as if
made at and as of the Effective Time (except to the extent such representations
specifically relate to an earlier date, in which case such representations shall
be true and correct in all material respects as of such earlier date, and in any
event, subject to the foregoing materiality qualification) and, at the Closing,
Parent and Acquisition shall have delivered to the Company a certificate to that
effect, executed by an officer of Parent and Acquisition;
(b) each of the covenants and obligations of Parent and
Acquisition to be performed at or before the Effective Time pursuant to the
terms of this Agreement shall have been duly performed in all material respects
at or before the Effective Time and, at the Closing, Parent and Acquisition
shall have delivered to the Company a certificate to that effect, executed by an
officer of Parent and Acquisition;
(c) (1) the Company shall have obtained all requisite
approvals of the holders of the Shares, the Preferred A Stock and the Preferred
B Stock for this Agreement and the Merger, (2) a waiver of any notice
requirements with respect to the Preferred A Stock and Preferred B Stock
pursuant to Article IV(B)(2)(c)(iii) of the Company's Certificate of
Incorporation shall have been obtained or the Company's Certificate of
Incorporation shall have been amended to eliminate such notice requirements, and
(3) any notice requirements under any Company Warrant shall have been waived or
complied with;
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(d) Parent and Acquisition, as the case may be, shall have
entered into all of the Other Agreements;
(e) The Company shall have received the opinion of legal
counsel to Parent and Acquisition as to the matters set forth in Exhibit C.
Section 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND
ACQUISITION. The respective obligations of Parent and Acquisition to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
at and as of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations specifically relate to
an earlier date, in which case such representations shall be true and correct in
all material respects as of such earlier date) and, at the Closing, the Company
shall have delivered to Parent and Acquisition a certificate to that effect,
executed by two (2) executive officers of the Company;
(b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shah have been duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company shall have delivered to
Parent and Acquisition a certificate to that effect, executed by two (2)
executive officers of the Company;
(c) (1) the Company shall have obtained all requisite
approvals of the holders of the Shares, the Preferred A Stock and the Preferred
B Stock for this Agreement and the Merger, (2) a waiver of any notice
requirements with respect to the Preferred A Stock and Preferred B Stock
pursuant to Article IV(B)(2)(c)(iii) of the Company's Certificate of
Incorporation shall have been obtained or the Company's Certificate of
Incorporation shall have been amended to eliminate such notice requirements, and
(3) any notice requirements under any Company Warrant shall have been waived or
complied with;
(d) the consents specified on Section 5.3(d) of the Company
Disclosure Schedule and any other material third party consents necessary to
consummate the transactions contemplated hereby shall have been given, obtained
or complied with as applicable;
(e) there shall have been no events, changes or effects,
individually or in the aggregate, with respect to the Company having, or that
would reasonably be expected to have, a Material Adverse Effect on the Company;
(f) none of the employees listed in a memorandum initialed as
of the date hereof by the Company and Parent (the "Designated Employees") shall
have terminated their employment with the Company or expressed their intention
to do so; no more than 10% of the engineering employees of the Company as of the
date hereof as listed in Section 5.3(f) of the Company Disclosure Schedule (the
"Engineers") shall have terminated their employment with
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the Company or expressed their intention to do so; and no more than 15% of the
employees OF the Company as of the date hereof as listed in Section 5.3(f) of
the Company Disclosure Schedule (the "Employees") shall have terminated their
employment with the Company or expressed their intention to do so. In addition,
each Designated Employee, at least ninety percent (90%) of the Engineers, and at
least eighty-five percent (85%) of the Employees shall have executed and
delivered to Parent a written instrument, in form and substance reasonably
acceptable to Parent, (1) acknowledging and agreeing that the position offered
to each such person following the Merger does not constitute a material
reduction in such employee's level of responsibility and does not otherwise
result in an "Involuntary Termination," in either case within the meaning of
Section L of the 1997 Stock Option Plan, and (2) agreeing that the terms of any
options that have been granted to such person under the 1997 Stock Option Plan
shall be amended such that the 24-month period during which such options would
accelerate upon an "Involuntary Termination" within the meaning of Section L of
the 1997 Stock Option Plan shall be amended to reduce such period to twelve (12)
months with respect to such employee's options;
(g) no more than 5% of the outstanding Shares (excluding any
stockholder listed on Section 5.3(g) of the Company Disclosure Schedule) shall
be Dissenting Shares or other Shares with respect to which dissenters' rights
have not terminated;
(h) the Employment Agreement and Non-Competition Agreement
executed by the Company, Parent and each of the individuals set forth in a
separate memorandum between Parent and the Company shall remain in full force
and effect;
(i) the Company shall have taken such action as is necessary
to assign and transfer to Parent any repurchase rights held by the Company with
respect to Shares Subject to Repurchase;
(j) the Company and Parent shall have agreed on the position
to be offered to each employee of the Company following the Merger, and the
Board of Directors of the Company shall have reviewed each such position and
determined by resolutions unanimously adopted by such Board (which resolutions
shall remain in full force and effect as of the Closing) that no such position
offered to any employee of the Company would constitute a material reduction in
such employee's level of responsibility or would otherwise result in an
"Involuntary Termination," in either case within the meaning of Section L of the
1997 Stock Option Plan. The Board of Directors of the Company shall also have
determined by resolutions unanimously adopted by such Board (which resolutions
shall remain in full force and effect as of the Closing) that the grounds for
dismissal that would constitute "Misconduct" within the meaning of Section M of
the 1997 Stock Option Plan shall not be limited to the matters set forth
therein;
(k) the Company shall have obtained a waiver from the
participants in the Company's intellectual property bonus plan in consideration
of such participants becoming participants in Parent's comparable patent
compensation plan; and
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(l) Parent shall have received the opinion of legal counsel to
the Company as to the matters set forth in EXHIBIT D.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
Section 6.1. TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time whether
before or after approval and adoption of this Agreement by the Company's
stockholders:
(a) by mutual written consent of Parent, Acquisition and the
Company;
(b) by Parent and Acquisition or the Company if (1) any court
of competent jurisdiction in the United States or other United States federal or
state Governmental Entity shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become nonappealable or (2) the Merger has not been consummated by November 30,
1999, subject to extension by Parent or the Company upon written notice to the
other, to obtain any Governmental Approval (including compliance with the HSR
Act, if applicable) (the "Final Date"); provided that no party may terminate
this Agreement pursuant to this clause (2) if such party's failure to Fulfill
any of its obligations under this Agreement shall have been a principal reason
that the Effective Time shall not have occurred on or before said date;
(c) by the Company if (1) there shall have been a material
breach of any representations or warranties on the part of Parent or Acquisition
set forth in this Agreement or if any representations or warranties of Parent or
Acquisition shall have become untrue in any material respect, such that the
conditions set forth in Section 5.2(a) would be incapable of being satisfied by
the Final Date, PROVIDED that the Company has not breached any of its
obligations hereunder in any material respect; or (2) there shall have been a
breach by Parent or Acquisition of any of their respective covenants or
agreements hereunder in any material respect or materially adversely affecting
(or materially delaying) the ability of Parent, Acquisition or the Company to
consummate the Merger, and Parent or Acquisition, as the case may be, has not
cured such breach within ten (10) business days after notice by the Company
thereof, PROVIDED that the Company has not breached any of its obligations
hereunder in any material respect; or
(d) by Parent and Acquisition if (1) there shall have been a
material breach of any representations or warranties on the part of the Company
set forth in this Agreement or if any representations or warranties of the
Company shall have become untrue in any material respect, such that the
conditions set forth in Section 5.3(a) would be incapable of being satisfied by
the Final Date, PROVIDED that neither Parent nor Acquisition has breached any of
their respective obligations hereunder in any material respect; or (2) there
shall have been a breach by the Company of one or more of its covenants or
agreements hereunder in any material respect or materially adversely affecting
(or materially delaying) the ability of Parent,
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Acquisition or the Company to consummate the Merger, and the Company has not
cured such breach within ten (10) business days after notice by Parent or
Acquisition thereof, PROVIDED that neither Parent nor Acquisition has breached
any of their respective obligations hereunder in any material respect.
(e) By Parent and Acquisition if there shall have been an
Addition that constitutes a Material Adverse Effect on the Company or such that
any of the conditions set forth in Sections 5.1 or 5.3 would be incapable of
being satisfied.
Section 6.2. EFFECT OF TERMINATION. In the event of the
termination and abandonment of this Agreement pursuant to Section 6.1, this
Agreement shall forthwith become void and have no effect without any liability
on the part of any party hereto or its affiliates, directors, officers or
stockholders other than the provisions of this Section 6.2 and Sections 4.3(c),
4.12, 8.4 and 8.5 hereof. Nothing contained in this Section 6.2 or Article 7
shall relieve any party from liability for any breach of this Agreement prior to
such termination and in such event the breaching party shall be liable for the
consequences of such breach.
Section 6.3. AMENDMENT. This Agreement may be amended by action
taken by the Company, Parent and Acquisition at any time before or after
approval of the Merger by the stockholders of the Company but after any such
approval no amendment shall be made that requires the approval of such
stockholders under Applicable Law without such approval. This Agreement
(including, subject to Section 4.7, the Company Disclosure Schedule) may be
amended only by an instrument in writing signed on behalf of the parties hereto.
Section 6.4. EXTENSION; WAIVER. At any time prior to the
Effective Time, each party hereto may, only by action taken in writing, (i)
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of any party hereto to any such extension or waiver shall be valid
only if set forth in an instrument, in writing, signed on behalf of such party.
The failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
ARTICLE 7
SURVIVAL; INDEMNIFICATION
Section 7.1. GENERAL SURVIVAL. The parties agree that,
regardless of any investigation made by the parties, the representations,
warranties, covenants and agreements (in the case of covenants and agreements,
to the extent of performance or non-performance prior to the Closing Date) of
the parties contained in this Agreement shall survive the execution and delivery
of this Agreement for a period beginning on the date hereof and ending at 5:00
p.m., California time, on the first anniversary of the Effective Time.
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Section 7.2. INDEMNIFICATION.
(a) INDEMNIFICATION PROVISIONS FOR PARENT AND ACQUISITION.
Subject to the provisions of Section 7. 1, from and after the Effective Time,
Parent, Acquisition and the Surviving Corporation and their respective
affiliates, officers, directors, stockholders, representatives and agents
(collectively the "Parent Indemnitees") shall be indemnified and held harmless
by each Escrow Securityholder, based upon such Escrow Securityholder's pro rata
portion of the Escrow Amount, up to and solely to the extent of the Escrow
Amount, from and against and in respect of any and all Losses (as defined below)
incurred by, resulting from, arising out of, relating to, imposed upon or
incurred by Parent, Acquisition or any other Parent Indemnitee by reason of:
(i) any inaccuracy in or breach of any of the Company's
representations, warranties, covenants or agreements (to the extent of
performance or non-performance prior to the Closing Date) contained in
this Agreement; and
(ii) any misrepresentation contained in written any statement
or certificate furnished to Parent, Acquisition or any other Parent
Indemnitee by or on behalf of the Company in connection with the
transactions contemplated by this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR ESCROW SECURITYHOLDERS.
Subject to the provisions of Section 7.1, from and after the Effective Time,
Escrow Securityholders and their respective affiliates, officers, directors,
stockholders, representatives and agents (collectively, the "Securityholder
Indemnitees") shall be indemnified and held harmless by Parent, based upon such
Escrow Securityholder's pro rata portion of the Escrow Amount, up to and solely
to the extent of the Escrow Amount, from and against and in respect of any and
all Losses (as defined below) incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by the Securityholder Indemnitee by reason
of:
(i) any inaccuracy in or breach of any of Parent's or
Acquisition's representations, warranties, covenants or agreements (to
the extent of performance or non-performance prior to the Closing Date)
contained in this Agreement; and
(ii) any misrepresentation contained in any written statement
or certificate furnished to the Company and/or the Securityholder
Representative by or on behalf of Parent or Acquisition in connection
with the transactions contemplated by this Agreement.
For purposes of this Agreement, the term "Indemnitee"" shall mean
either a Parent Indemnitee or a Securityholder Indemnitee, as the case may be.
(c) For purposes of this Agreement, the term, "Losses" means
any and all deficiencies, judgments, settlements, demands, claims, suits,
actions or causes of action, assessments, liabilities, losses, damages
(excluding indirect, incidental or consequential damages), interest, fines,
penalties, costs and expenses (including reasonable legal, accounting and other
costs and expenses) incurred in connection with investigating, defending,
settling or
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satisfying any and all demands, claims, actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor, and interest on any of the foregoing from the date a claim is made
until paid at the rate earned on funds held on the Escrow Amount.
Notwithstanding the above, Losses shall not include (i) expenses incurred in
connection with investigations unless a claim is made; (ii) Losses specifically
identified (as to scope and amount) in the Company Disclosure Schedules; (iii)
liabilities disclosed on the Company Balance Sheet; and (iv) Losses with respect
to which Parent Indemnitees are not entitled to make claims under Section 4.7.
(d) No Indemnitee shall be entitled to indemnification for any
Losses arising from the breach of any representations and warranties until the
aggregate amount of all Losses under all claims of all Indemnities for all such
breaches shall exceed One Million Dollars ($1,000,000) (the "Floor"), at which
time all Losses incurred shall be subject to indemnification hereunder in full
including the amount of the Floor. The Floor does not apply to Parent's
obligations under Section 4.11.
(e) The amount of any Losses otherwise recoverable under this
Section 7.2 by the Parent Indemnitees shall be reduced by any amounts actually
received by the Parent Indemnitees under insurance policies (net of any costs
incurred in connection with the collection thereof).
Section 7.3. MANNER OF INDEMNIFICATION.
(a) To provide a fund (i) against which a Parent Indemnitee
may assert claims of indemnification under this Article 7 (an "Indemnification
Claim") and (ii) of not to exceed Five Hundred Thousand Dollars ($500,000) in
the aggregate which the Securityholder Representative may use in defense of any
claim that could result in an indemnity claim, the Escrow Amount shall be
withheld and deposited into escrow pursuant to the Escrow Agreement in
accordance with the provisions of Section 1.10 hereof. The Escrow Amount so
deposited and interest payable thereon shall be held and distributed in
accordance with the Escrow Agreement.
(b) Each Indemnification Claim shall be made only in
accordance with this Article 7 and the Escrow Agreement.
Section 7.4. SECURITYHOLDER REPRESENTATIVE. For purposes of
this Agreement, the Escrow Securityholders, without any further action on the
part of any such Escrow Securityholder, shall be deemed to have consented to
the appointment of a committee consisting of Brett Helm and William Stensrud,
acting only jointly, as the representative of such Escrow Securityholders (the
"Securityholder Representative"), as the attorney-in-fact for and on behalf of
each such Escrow Securityholder, and the taking by the Securityholder
Representative of any and all actions and the making of any decisions required
or permitted to be taken by them under this Agreement, including the exercise of
the power to (i) execute the Escrow Agreement, (ii) authorize delivery to Parent
and Acquisition of the Escrow Amount, or any portion thereof, in satisfaction of
Indemnification Claims, (iii) authorize the use of up to an aggregate of Five
Hundred Thousand Dollars ($500,000) of the Escrow Amount to
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defend any claims, (iv) agree to, negotiate, enter Into settlements and
compromises of and comply with orders of courts and awards of arbitrators with
respect to such Indemnification Claims, (v) resolve any Indemnification Claims
and (vi) take all actions necessary in the judgment of the Securityholder
Representative for the accomplishment of the foregoing and all of the other
terms, conditions and limitations of this Agreement and the Escrow Agreement.
Accordingly, the Securityholder Representative has unlimited authority and power
to act on behalf of each Escrow Securityholder with respect to this Agreement
and the Escrow Agreement and the disposition, settlement or other handling of
all Indemnification Claims, rights or obligations arising from and taken
pursuant to this Agreement. The Escrow Securityholders will be bound by all
actions taken by the Securityholder Representative in connection with this
Agreement, and Parent and Acquisition shall be entitled to rely on any action or
decision of the Securityholder Representative. The Securityholder Representative
will incur no liability with respect to any action taken or suffered by them in
reliance upon any notice, direction, instruction, consent, statement or other
document believed by them to be genuine and to have been signed by the proper
person (and shall have no responsibility to determine the authenticity thereof),
nor for any other action or inaction, except their own willful misconduct or
gross negligence. In all questions arising under this Agreement or the Escrow
Agreement, the Securityholder Representative may rely on the advice of counsel,
and the Securityholder Representative will not be liable to anyone for anything
done, omitted or suffered in good faith by the Securityholder Representative
based on such advice. The Securityholder Representative will not be required to
take any action involving any expense unless the payment of such expense is made
or provided for in a manner satisfactory to them. So long as the Securityholder
Representative shall at all times be comprised of at least one (1) and no more
than three (3) individuals, at any time during the term of the Escrow Agreement,
holders of a majority in interest of the Escrow Amount can remove and replace
one or all of the individuals serving as the Securityholder Representatives by
written consent by sending notice and a copy of the written consent appointing
such new individual or individuals signed by holders of a majority in interest
of the Escrow Amount to Parent and the Escrow Agent. Such appointment will be
effective upon the later of the date indicated in the consent or the date such
consent is received by Parent and the Escrow Agent. Any such new individual
shall serve in such capacity subject to the terms and conditions of the Escrow
Agreement and provide notice to the Escrow Agent of its identity and notice
information for purposes of Section 21 of the Escrow Agreement. If more than one
individual is serving as the Securityholder Representative, such individuals may
only take actions jointly.
Section 7.5. THIRD-PARTY CLAIMS. If Parent becomes aware of a
third-party claim that Parent believes, in good faith, may result in a demand by
it against the Escrow Amount, Parent shall notify the Securityholder
Representative of such claim and shall conduct the defense of such claim. The
reasonable costs of the defense of any third-party action or claim incurred by
the Securityholder Representative shall be paid by the Escrow Securityholders.
Parent shall conduct such defense in a commercially reasonable manner, but shall
not settle any such claim without the consent of the Securityholder
Representative, such consent not to be unreasonably withheld; PROVIDED, HOWEVER,
that, if the consent of the Securityholder Representative is so obtained, such
settlement of that portion of any such claim shall alone be determinative of the
amount of the claim against the Amount and
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neither the Securityholder Representative nor any person who has a beneficial
interest in the Escrow Amount shall have any power or authority to object under
any provision of this Article 7 to the amount of any demand by Parent against
the Escrow Amount with respect to such settlement. Parent shall provide the
Securityholder Representative copies of all pleadings and other non-proprietary
and non-confidential documents reasonably requested by the Securityholder
Representative, shall provide such other information as the Securityholder
Representative shall reasonably request, and shall inform the Securityholder
Representative of the general progress of the case; PROVIDED, HOWEVER, that
Parent shall not be required to disclose any information that Parent determines
in its good faith judgment, is confidential or proprietary.
Section 7.6. EXCLUSIVE REMEDY. Notwithstanding any other
provision of this Agreement to the contrary, the Escrow Amount shall be the sole
and exclusive remedy of the Indemnitees from and after the Effective Time for
any claims arising under this Agreement, including claims of breach of any
representation, warranty or covenant in this Agreement; PROVIDED, HOWEVER, that
the foregoing clause of this sentence shall not be deemed a waiver by any party
of any right to specific performance or injunctive relief, or any remedy arising
by reason of any claim of fraud with the respect to this Agreement. In that
regard, other than claims arising out of fraud, the total liability to
Indemnitees shall be limited to the Escrow Amount.
ARTICLE 8
MISCELLANEOUS
Section 8.1. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(including the Company Disclosure Schedule), the Escrow Agreement, the CNDA, as
amended, the Commitment Letter dated September 21, 1999 and the Letter dated
October 5, 1999 (a) constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all other prior and
contemporaneous agreements and understandings both written and oral between the
parties with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise; PROVIDED, HOWEVER, that Acquisition, Parent
and the Surviving Corporation may assign any or all of its respective rights and
obligations under this Agreement to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent or Acquisition
of its obligations hereunder if such assignee does not perform such obligations.
Section 8.2. VALIDITY. If any provision of this Agreement or
the application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and
to such end the provisions of this Agreement are agreed to be severable.
Section 8.3. NOTICES. All notices and other communications
pursuant to this Agreement shall be in writing and shall be deemed given if
delivered personally, telecopied,
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sent by nationally-recognized overnight courier or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth below or to such other address as the party to whom
notice is to be given may have furnished to the other parties hereto in writing
in accordance herewith. Any such notice or communication shall be deemed to have
been delivered and received (A) in the case of personal delivery, on the date of
such delivery, (B) in the case of telecopier, on the date sent if confirmation
of receipt is received and such notice is also promptly mailed by registered or
certified mail (return receipt requested), (C) in the case of a
nationally-recognized overnight courier in circumstances under which such
courier guarantees next business day delivery, on the next business day after
the date when sent and (D) in the case of mailing, on the third business day
following that on which the piece of mail containing such communication is
posted:
if to Parent or Acquisition: Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95054
Telecopier: (408) 765-1859
Attention: General Counsel
and
Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95054
Telecopier: (408) 765-1859
Attention: Treasurer
with a copy to: Gibson, Dunn & Crutcher LLP
(which shall not constitute One Montgomery Street
notice) Telesis Tower
San Francisco, California 94104
Telecopier: (415) 374-8427
Attention: Kenneth R. Lamb
if to the Company to: Ipivot, Inc.
12568 Kirkham Court
Poway, California 92064
Telecopier: (858) 679-6966
Attention: Brett Helm
with a copy to: Brobeck, Phleger & Harrison LLP
(which shall not constitute 550 West C Street
notice) Suite 1300
San Diego, California 92101-3532
Telecopier: (619) 234-3848
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Attention: Craig S. Andrews
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 8.4. DISPUTE RESOLUTION.
(a) All disputes arising directly under the express terms of
this Agreement or the grounds for termination thereof shall be resolved as
follows: The representatives of the parties shall meet to attempt to resolve
such disputes. If the disputes cannot be resolved by the parties'
representatives, either party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. Within thirty (30) days
after such written notification, the parties agree to meet for one day with an
impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within thirty (30) days after the one-day mediation, either party may begin
litigation proceedings.
(b) Notwithstanding the provisions of Section 8.4(a) above,
each party shall have the right, without the requirement of first seeking a
remedy through arbitration, to seek preliminary injunctive or other equitable
relief in any proper court in the event that such party determines that eventual
redress through arbitration will not provide a sufficient remedy for any
violation of this Agreement by the other party
Section 8.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of
the courts of the State of Delaware and the federal courts of the United States
of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware state or federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.3 or in such other manner as may
be permitted by Applicable Law, shall be valid and sufficient service thereof.
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(b) The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any federal court located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which they are
entitled at law or in equity.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.5.
Section 8.6. DESCRIPTIVE HEADINGS. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 8.7. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, nothing in this
Agreement is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 8.8. CERTAIN DEFINITIONS. For the purposes of this
Agreement the term:
(a) "affiliate" means a person that, directly or indirectly,
through one or more intermediaries controls, is controlled by or is under common
control with the first-mentioned person.
(b) "Applicable Law" means, with respect to any person, any
domestic or foreign, federal, state or local statute, law, ordinance, rule,
regulation, order, writ, injunction, judgment, decree or other requirement of
any Governmental Entity existing as of the date
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CONFIDENTIAL
hereof or as of the Effective Time applicable to such Person or any of its
respective properties, assets, officers, directors, employees, consultants or
agents.
(c) "business day" means any day other than a day on which the
Nasdaq National Market is closed.
(d) "capital stock" means common stock, preferred stock,
partnership interests, limited liability company interests or other ownership
interests entitling the holder thereof to vote with respect to matters involving
the issuer thereof.
(e) "Commitment Letter" means the written commitment from
Parent to the Company agreeing, in certain circumstances, to invest Ten
Million Dollars ($10,000,000) in the Company based upon a post-money
enterprise value of Three Hundred Million Dollars ($300,000,000).
(f) "knowledge" or "known" means, with respect to any
matter in question, the collective actual knowledge of such matter of the
members of the Company Board and the individuals listed on Schedule 8.8(f) of
the Company Disclosure Schedule, in the case of the Company, and the members
of the Board of Directors and the executive officers of Parent, in the case
of Parent, and the Company and Parent shall also be deemed to have actual
knowledge of all books and records of the Company, in the case of the
Company, and Parent, in the case of Parent.
(g) "Lien" means, with respect to any asset (including any
security), any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset; PROVIDED, HOWEVER, that the term "Lien"
shall not include (i) statutory liens for Taxes that are not yet due and payable
or are being contested in good faith by appropriate proceedings and are
disclosed in Section 2.15 of the Company Disclosure Schedule or that are
otherwise not material, (ii) statutory or common law liens to secure obligations
to landlords, lessors or renters under leases or rental agreements confined to
the premises rented, (iii) deposits or pledges made in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old age
pension or other social security programs mandated under Applicable Laws, (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen, to secure claims for labor, materials or supplies and other like
liens and (v) restrictions on transfer of securities imposed by applicable state
and federal securities laws.
(h) "include" or "including" means "include, without
limitation" or "including, without limitation," as the case may be, and the
language following "Include" or "including" shall not be deemed to set forth an
exhaustive list.
(i) "Material Adverse Effect on the Company" means any
circumstance, change in, or effect on (or circumstance, change in or effect
involving a prospective change on) the Company that is reasonably likely in the
future to be, materially adverse to the operations, assets or liabilities
(including contingent liabilities), earnings, prospects, or results of
operations or the business (financial or otherwise) of the Company.
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(j) "Maximum Merger Consideration" means (1) Five Hundred
Million Dollars ($500,000,000), minus (2) the amount by which all indebtedness
of the Company on the Closing Date, excluding the Saber Springs lease, exceeds
Five Million Dollars ($5,000,000).
(k) "person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other legal entity including any Governmental Entity.
(l) "Share Subject to Repurchase" means an outstanding Share
that is subject to a Company right of repurchase pursuant to the Stock Option
Plans or otherwise.
(m) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation, partnership,
limited liability company, association, trust, unincorporated association or
other legal entity of which the Company, Parent, the Surviving Corporation or
any such other person, as the case may be (either alone or through or together
with any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 8.9. PERSONAL LIABILITY. This Agreement shall not
create or be deemed to create or permit any personal liability or obligation on
the part of any direct or indirect stockholder of the Company or Parent or
Acquisition or any officer, director, employee, agent, representative or
investor of any party hereto.
Section 8.10. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be duly executed on its behalf as of the day and year first above written.
INTEL CORPORATION
By:
--------------------------------
Name: [INSERT NAME]
Title: Vice President and Treasurer
IPIVOT CORPORATION
By:
--------------------------------
Name: [INSERT NAME]
Title: President and
Chief Executive Officer
WCT ACQUISITION CORPORATION
By
--------------------------------
Name: [INSERT NAME]
Title: President
SECURITYHOLDER REPRESENTATIVE
By:
--------------------------------
Name: Brett Helm
By:
--------------------------------
Name: William Stensrud
53
[SIGNATURE PAGE TO MERGER AGREEMENT BETWEEN IPIVOT, INC., INTEL CORPORATION, WCT
ACQUISITION CORPORATION AND SECURITYHOLDER REPRESENTATIVE]
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
B-1
<PAGE>
ESCROW AGREEMENT
This ESCROW AGREEMENT dated as of October __, 1999 (this "Agreement"), is
by and among Intel Corporation, a Delaware corporation ("Parent"), WCT
Acquisition Corporation, a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Acquisition"), Ipivot, Inc., a Delaware corporation (the
"Company"), Citibank, N.A., as escrow agent (in such capacity, the "Escrow
Agent"), and Brett Helm and William Stensrud, both individual residents in the
State of California (collectively the "Securityholder Representative").
W I T N E S S E T H:
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of
October ___, 1999 (as amended from time to time, the "Merger Agreement"), by and
among Parent, Acquisition and the Company, the respective Boards of Directors of
Acquisition and the Company have each approved the merger of Acquisition with
and into the Company (the "Merger"), pursuant to which the separate corporate
existence of Acquisition shall cease, and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"), in each case
upon the terms and subject to the conditions set forth in the Merger Agreement.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Merger Agreement;
WHEREAS, in connection with the consummation of the Merger, on the
Closing Date, Parent is depositing with the Escrow Agent Thirty Million Dollars
($30,000,000), to be held in an escrow deposit which is mutually acceptable to
Parent and the Company (such deposit, including the Escrow Amount, as defined
below, the "Escrow Deposit") by the Escrow Agent as security and a source of
satisfaction for any Losses suffered by Parent, Acquisition and any other
Indemnitees for which any such person is entitled to indemnification pursuant to
the Merger Agreement;
WHEREAS, the Escrow Agent is willing to act as the escrow agent upon the
terms and subject to the conditions of this Agreement; and
WHEREAS, pursuant to the Merger Agreement, the Escrow Securityholders (as
defined in the Merger Agreement) have irrevocably appointed (without any further
action on the part of Parent, the Company, the Escrow Agent or any other Person)
the Securityholder Representative as their attorney-in-fact, to act on their
behalf with respect to all matters relating to the Escrow Amount and any claims
for Losses made against the Escrow Deposit.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereby agree as follows:
1. DEPOSIT OF ESCROW AMOUNT. Concurrent with the Closing, Thirty
Million Dollars ($30,000,000) payable by Parent to the Escrow Securityholders
(such amount, together with all interest earned thereon in the Escrow Deposit
and any additional cash, property and other amounts received is referred to as
the "Escrow Amount"), shall be deposited in the Escrow
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Deposit by Parent or a subsidiary of Parent as provided in Article 1 of the
Merger Agreement. In no event shall the Escrow Agent be charged with a duty to
solicit the Escrow Amount.
2. CLAIMS AGAINST THE ESCROW DEPOSIT
(a) The Escrow Deposit shall be held by the Escrow Agent as security
and a source of satisfaction for, as contemplated by Article 7 of the Merger
Agreement, any claims for Losses made by Parent, Acquisition, the Surviving
Corporation and the other Indemnitees, and for the reasonable, out-of-pocket
costs of the Securityholder Representative (not to exceed in the aggregate Five
Hundred Thousand Dollars ($500,000)) incurred in connection with the defense of
claims under Article 7 of the Merger Agreement.
(b) In the event that Parent wishes to make a claim for Losses under
Article 7 of the Merger Agreement, Parent shall deliver a written notice (a
"Notice of Claim") to the Securityholder Representative and the Escrow Agent.
The Notice of Claim shall (i) specify in reasonable detail the nature of the
claim being made, and (ii) state the aggregate dollar amount of such claim.
(c) If the Escrow Securityholders wish to object to the allowance of
the claim made in a Notice of Claim, the Securityholder Representative on behalf
of the Escrow Securityholders must deliver a written objection to the Escrow
Agent and Parent within twenty (20) calendar days after receipt of such Notice
of Claim by the Securityholder Representative expressing such objection and
explaining in reasonable detail and in good faith the basis therefor. Following
receipt by Parent of the Escrow Securityholders' written objection, if any,
Parent and the Securityholder Representative shall promptly meet to agree on the
rights of the respective parties with respect to each of such claims. If the
Securityholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to
conclusively rely on any such written memorandum and pay out amounts from the
Escrow Deposit in accordance with the terms thereof: Any dispute between Parent
and the Securityholder Representative on behalf of the Escrow Securityholders
shall be resolved in accordance with Section 8.4 and the other applicable
provisions of the Merger Agreement.
(d) If the Securityholder Representative on behalf of the Escrow
Securityholders fails to respond to a Notice of Claim within such twenty (20)
calendar day period, Parent may offset the aggregate dollar amount of such
pending claim as referenced in the Notice(s) of Claim against the Escrow Amount
then held in the Escrow Deposit. The Escrow Agent shall pay to Parent or the
payee indicated by Parent in wire instructions to be delivered by Parent to
Escrow Agent from the Escrow Deposit such amount so offset as referenced in the
Notice of Claim. Notwithstanding the foregoing, the Escrow Agent shall not make
any payment with respect to any Notice of Claim(s) until the amounts claimed in
such Notice of Claim, when aggregated with any amounts claimed in Notices of
Claim previously delivered to the Escrow Agent and the Securityholder
Representative (or lesser amount if any amount included in a previous Notice of
Claim has been reduced pursuant to Section 2(c) of this Agreement), exceed One
Million Dollars ($1,000,000) (the "Floor"), after such time all such amounts
(including the amount of the Floor) shall be payable in full up to the aggregate
Escrow Amount by the Escrow Agent.
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(e) Any offset by Parent against the Escrow Amount pursuant to the
Merger Agreement or this Agreement shall be borne by the Escrow Securityholders
pro rata in accordance with their interest in the aggregate Escrow Amount as set
forth on SCHEDULE 1 to this Agreement.
(f) Any Escrow Amount set aside and held by the Escrow Agent in
connection with any claim pending pursuant to this Section 2 shall continue to
be held until a final settlement of such claim has been reached (a "Final
Determination"), as determined by mutual agreement of Parent and the
Securityholder Representative as forwarded in writing to the Escrow Agent or
resolved between Parent and Securityholder Representative on behalf of the
Escrow Securityholders pursuant to Section 8.4 of the Merger Agreement. Within
five (5) business days following receipt by the Escrow Agent of a written
agreement executed by the Securityholder Representative and Parent regarding the
final settlement or resolution of a Notice of Claim, the Escrow Agent shall,
subject to the last sentence of Section 2(d), pay Parent any amount directed to
be paid in such written agreement. The remainder of any amount covered by a
Notice of Claim not required to be paid to Parent after a Final Determination
shall continue to be held in the Escrow Deposit, unless the Final Determination
occurs after any distribution to the Escrow Securityholders pursuant to Section
3, in which case such remainder shall be paid to the Escrow Securityholders by
check.
3. RELEASE OF ESCROW DEPOSIT. Within five (5) business days following
the first anniversary of the Closing Date, the Escrow Agent shall pay by check
to the Escrow Securityholders listed in Schedule 1 so entitled the balance of
the Escrow Amount MINUS an amount equal to the aggregate amount of all claims of
Parent and the other Indemnitees (as defined in the Merger Agreement) as set
forth in the Notice(s) of Claim then pending against the Escrow Securityholders
(which shall continue to be held pursuant to Section 2(f)). Any payment to the
Escrow Securityholders pursuant to this Section 3 or pursuant to the last
sentence of Section 2(f) shall be paid to the Escrow Securityholders pro rata in
accordance with their interests in the Escrow Amount as set forth on SCHEDULE 1
hereto.
4. INVESTMENT OF ESCROW DEPOSIT.
(a) The Escrow Agent shall hold the Escrow Amount subject to the terms
and conditions of this Agreement. The Escrow Agent shall invest all cash held in
the Escrow Deposit in any Permitted Investment (as defined below). The Escrow
Agent shall not be liable to any party for any Losses incurred in connection
with any investments made by it pursuant to this Section 4.
(b) All interest or other earnings or income earned with respect to
the investment of the Escrow Deposit in accordance with this Section 4 shall be
paid by the Escrow Agent on a pro rata basis to the Escrow Securityholders upon
release of the amount to be paid pursuant to Section 3 of this Agreement. The
Escrow Agent shall have the right to liquidate the Escrow Amount in order to
provide funds necessary to make any required payments under this Agreement, and
the Escrow Agent shall not be liable for any Losses incurred in connection with
such liquidation (except for those Losses arising out of the Escrow Agent's
willful misconduct or negligence). For purposes of this Agreement, the term
"Permitted Investment" shall mean
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interest bearing accounts (U.S. Treasury money market accounts) with a financial
institution rated A or higher by Standard and Poors and Moodys and having assets
in excess of $50 billion and such investments as the Parent and the
Securityholder Representative shall jointly direct in writing.
The Escrow Agent shall have no obligation to invest or reinvest the
Escrow Amount if deposited with the Escrow Agent after 11:00 a.m. (E.S.T.) on
such day of deposit. Instructions received after 11:00 am. will be treated as if
received on the following business day.
The Escrow Agent shall have the power to sell or liquidate the foregoing
investments whenever the Escrow Agent shall be required to release the Escrow
Amount pursuant to the terms hereof. Requests (or instructions) received after
11:00 a.m. (E.S.T.) by the Escrow Agent to liquidate the Escrow Amount will be
treated as if received on the following business day. The Escrow Agent shall
have no liability for any investment losses resulting from the investment,
reinvestment or liquidation of the Escrow Amount made in accordance with the
terms of this Agreement. Any interest or other income received on such
investment and reinvestment of the Escrow Amount shall become part of the Escrow
Amount. If a selection is not made, the Escrow Amount shall remain uninvested
with no liability for interest therein. It is agreed and understood that the
Escrow Agent may earn fees associated with the investments outlined above, as
set forth in Section 14 and in the attached fee schedule between Parent and the
Securityholder Representative on behalf of the Escrow Securityholders and the
Escrow Agent.
5. OWNERSHIP OF ESCROW AMOUNT. The Securityholder Representative on
behalf of the Escrow Securityholders shall not have the right to sell, transfer,
pledge, hypothecate or otherwise dispose of any of the Escrow Amount (or any
interest therein).
6. DUTIES OF ESCROW AGENT. The Escrow Agent shall treat the Escrow
Deposit, including without limitation, the Escrow Amount, with such degree of
care as it treats its own similar property. It is agreed that the duties and
obligations of the Escrow Agent are only such as are herein specifically
provided and no other. The Escrow Agent's duties are as a depository only, and
the Escrow Agent shall incur no liability whatsoever, except for its willful
misconduct or negligence. The Escrow Agent may consult with counsel of its
choice, and shall not be liable for any action taken, suffered or omitted to be
taken by it in good faith in accordance with the advice of such counsel (subject
to the exception set forth in the prior sentence). The Escrow Agent shall not be
bound in any way by any of the terms of the Merger Agreement or any other
agreement to which Parent, Acquisition, the Company, the Securityholder
Representative or the Escrow Securityholders are parties, whether or not the
Escrow Agent has knowledge thereof, and the Escrow Agent shall not in any way be
required to determine whether or not the Merger Agreement or any other agreement
has been complied with by Parent, Acquisition, the Company or the Escrow
Securityholders or any other party thereto. In the event that the Escrow Agent
shall be uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands which, in its opinion, are in conflict with any
of the provisions of this Agreement, it shall be entitled to refrain from taking
any action other than to keep safely all property held in escrow until it shall
be directed otherwise pursuant to a joint notice from Parent and the
Securityholder Representative or pursuant to a Final Determination. This
Agreement shall not create any fiduciary duty of the Escrow Agent to Parent, the
Surviving Corporation, the
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Company, the Securityholder Representative or the Escrow Securityholders nor
disqualify the Escrow Agent from representing any of such parties in any way
(other than as counsel in connection with this Agreement),
7. RELIANCE BY ESCROW AGENT ON WRITTEN NOTICES. The Escrow Agent may
conclusively rely and shall be fully protected in relying upon any written
notice,
demand, certificate or document which it, in good faith, believes to be genuine.
Set forth in SCHEDULE 2 hereto is a list of the names of the persons (together
with any persons named in accordance with the next sentence, the "Authorized
Officers") authorized to act for Parent under this Agreement. An Assistant
Secretary of Parent shall, from time to time, certify to the Escrow Agent the
names of any other persons authorized to act for Parent under this Agreement.
The Escrow Agent may rely on and shall be authorized and protected in acting or
failing to act upon the written, facsimile, or electronically delivered
instructions, with respect to any matter relating to the Escrow Agent acting as
Escrow Agent, of any Authorized Officers named on SCHEDULE 2 hereto, covered by
this Agreement (or supplementing or qualifying any such actions).
8. RISK TO ESCROW AGENT. None of the provisions of this Agreement
shall require the Escrow Agent to expend or risk its own funds or otherwise to
incur any liability, financial or otherwise, in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or indemnity
satisfactory to it against such risk or liability is not assured to it.
9. INVESTIGATION BY ESCROW AGENT. The Escrow Agent shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
entitlement order, approval or other paper or document.
10. ESCROW AGENT'S EXECUTION OF POWER. The Escrow Agent may execute
any of the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, attorneys, custodians, or nominees appointed
with due care, and shall not be responsible for any willful misconduct or gross
negligence on the part of any agent, attorney, custodian or nominee so
appointed.
11. SUCCESSOR TO ESCROW AGENT. Any corporation into which the Escrow
Agent may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Escrow Agent shall be a party, or any corporation succeeding to the business of
the Escrow Agent shall be the successor of the Escrow Agent hereunder without
the execution or filing of any paper with any party hereto except where an
instrument of transfer or assignment is required by law to effect such
succession, anything herein to the contrary notwithstanding.
12. LEGAL PROCEEDINGS. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
13. RESIGNATION OF ESCROW AGENT. If the Escrow Agent at any time, in
its sole discretion, deems it necessary or advisable to resign as Escrow Agent
hereunder, it may do so by
5
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giving prior written notice of such event to Parent, the Surviving Corporation
and the Securityholder Representative and thereafter delivering the Escrow
Amount to any other escrow agent mutually agreed upon by Parent and the
Securityholder Representative as notified to the Escrow Agent in writing, and
if no such escrow agent shall be designated by Parent and the Securityholder
Representative within sixty (60) calendar days of such written notice, then the
Escrow Agent may do so by delivering the Escrow Amount either (a) to any bank or
trust company located in the State of California which is willing to act as
escrow agent hereunder in its place, or (b) if no such bank or trust company can
be retained within a reasonable period after such sixty (60) calendar day period
after the delivery by the Escrow Agent of its written notice, to the clerk or
other proper officer of a court of competent jurisdiction located within the
State of California to the extent permitted by law (any such successor to the
Escrow Agent, whether designated by Parent and Securityholder Representative or
pursuant to clause (a) or (b) above or otherwise, hereinafter referred to as the
"Successor Agent"). Parent and the Securityholder Representative may, at any
time after the date hereof, agree in writing to substitute a Successor Agent for
the Escrow Agent, whereupon the Escrow Agent shall deliver the Escrow Amount to
such Successor Agent. The fees of any Successor Agent shall be borne one-half by
Parent and one-half by the Securityholder Representative on behalf of the Escrow
Securityholders. Upon delivery of the Escrow Amount to the Successor Agent, (i)
the Escrow Agent shall be discharged from any and all responsibility or
liability with respect to the Escrow Amount (except as otherwise provided
herein) and (ii) all references herein to the "Escrow Agent" shall, where
applicable, be deemed to include such Successor Agent and such Successor Agent
shall thereafter become the Escrow Agent for all purposes of this Agreement.
14. FEES OF THE ESCROW AGENT. Parent covenants and agrees to pay to
the Escrow Agent from time to time, and the Escrow Agent shall be entitled to,
the fees and expenses agreed to in writing between Parent and the Escrow Agent,
and will further pay or reimburse the Escrow Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Escrow
Agent in accordance with any of the provisions hereof or any other documents
executed in connection herewith (including the reasonable compensation and the
reasonable expenses and disbursements of its counsel and of all persons not
regularly in its employ). The Securityholder Representative shall have no
obligation with respect to the foregoing. The obligations of Parent under this
Section 14 to compensate the Escrow Agent and to pay or reimburse the Escrow
Agent for reasonable expenses, disbursements and advances shall survive the
satisfaction and discharge of this Agreement or the earlier resignation or
removal of the Escrow Agent.
15. [Intentionally omitted.)
16. INDEMNIFICATION OF THE ESCROW AGENT. Parent and the Securityholder
Representative on behalf of each of the Escrow Securityholders, jointly and
severally, agree to assume any and all obligations imposed now or hereafter by
any applicable Tax law with respect to the payment of the Escrow Amount under
this Agreement, and to indemnify and hold the Escrow Agent harmless from and
against any claims, Taxes, additions for late payment, interest, penalties and
other expenses (including reasonable attorney's fees and expenses) arising from
or in connection with this Agreement, that may be assessed against the Escrow
Agent on any such
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payment or other activities under this Agreement. Parent and the Securityholder
Representative on behalf of the Escrow Securityholders undertake to instruct the
Escrow Agent in writing or orally with a confirmation in writing with respect to
the Escrow Agent's responsibility for withholding and other Taxes, assessments
or other governmental charges, certifications and governmental reporting in
connection with its acting as Escrow Agent under this Agreement. Parent and the
Securityholder Representative on behalf of the Escrow Securityholders, jointly
and severally, agree to indemnify and hold the Escrow Agent harmless from any
liability on account of Taxes, assessments or other governmental charges,
including the withholding or deduction or the failure to withhold or deduct
same, and any liability for failure to obtain proper certifications or to
properly report to governmental entities, to which the Escrow Agent may be or
become subject in connection with or which arises out of this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties.
17. ESCROW AGENT REPORTING. Notwithstanding anything to the contrary
herein, except as required by law, in no event shall the Escrow Agent be under a
duty to file any reports or withhold or deduct any amounts in respect of taxes
due for payments made pursuant to this Agreement.
18. APPOINTMENT OF SUCCESSOR TO SECURITYHOLDER REPRESENTATIVE. So long
as the Securityholder Representative shall at all times be comprised of at least
one (1) and no more than three (3) individuals, at any time during the term of
this Agreement, holders of a majority in interest of the Escrow Amount can
remove and replace one or all of the individuals serving as the Securityholder
Representative by written consent by sending notice and a copy of the written
consent appointing such new individual or individuals, signed by holders of a
majority in interest of the Escrow Amount to Parent and the Escrow Agent. Such
appointment will be effective upon the later of the date indicated in the
consent or the date such consent is received by Parent and the Escrow Agent. Any
such new individual shall serve in such capacity subject to the terms and
conditions of this Agreement and provide notice to the Escrow Agent of its
identity and notice information for the purposes of Section 21. If more than one
individual is serving as the Securityholder Representative, such individuals may
only take actions jointly.
19. TERMINATION OF AGREEMENT. Upon disbursement by the Escrow Agent
(including any Successor Agent) of all of the Escrow Amount pursuant to the
terms of this Agreement, this Agreement shall terminate (PROVIDED that the
provisions of Sections 14, 15 and 16 hereof shall survive such termination).
20. AMENDMENTS AND MODIFICATIONS. The Escrow Agent shall not be bound
by any modification, amendment, termination, cancellation, rescission or
suppression of this Agreement unless the same shall be in writing and signed by
Parent, the Surviving Corporation, the Escrow Agent and the Securityholder
Representative, on behalf of the Escrow Securityholders.
21. Notices. All notices and other communications hereunder shall be
in writing and, shall be effective if it *is delivered personally, couriered,
telecopied or mailed (United States registered or certified mail, postage
prepaid), and shall be deemed to have been duly given (a) when received, if
delivered personally, (b) when sent by telecopier upon receipt of
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confirmation (c) when sent by express courier service (receipt requested) or (d)
five calendar (5) days after being so mailed and received, as follows:
(a) if to Parent or Acquisition, to: WITH COPIES TO:
(which shall not constitute notice)
Intel Corporation Gibson, Dunn & Crutcher LLP
2200 Mission College Boulevard One Montgomery Street
Santa Clara, California 95054 Telesis Tower
Telecopier: (408) 765-1859 San Francisco, CA 94104
Attention: General Counsel Telephone: (415) 393-8200
Facsimile: (415) 374-8427
Attention: Kenneth R. Lamb
and
Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95054
Telecopier: (408) 765-1859
Attention: Treasurer
(b) if to the Company, to: WITH COPIES TO:
(which shall not constitute notice)
Ipivot, Inc. Brobeck, Phleger & Harrison LLP
12568 Kirkharn Court 550 West C Street
Poway, California 92064 Suite 1300
Telecopier: (858) 679-6966 San Diego, California 92101-3532
Attention: President and Chief Telephone: (619) 234-1966
Executive Officer Facsimile: (619) 234-3848
Attention: Craig S. Andrews
(c) if to the Securityholder
Representative, to:
Brett Helm
Ipivot, Inc.
12568 Kirkham Court Poway,
California 92064
Telecopier: (858) 679-6966
and
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William Stensrud
Telecopier:
--------------
(d) if to the Escrow Agent, to
Citibank, N.A.
Global Trust and Agency Service
111 Wall Street; 5th Floor
New York, New York 10005
Telecopier: (212) 657-3866
Attention: Kerry Monaghan
McDonough
or at such other address as any of the parties to this Agreement may hereafter
designate by written notice to the other parties.
22. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party (whether by
operation of law or otherwise) without the prior written consent of the other
parties; PROVIDED that Parent may assign its rights and obligations to any
affiliate, but no such assignment shall relieve Parent of its obligations
hereunder if such assignee does not perform such obligations. This Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
23. CONSTRUCTION; INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Article, section, schedule,
exhibit, recital and party references are to this Agreement unless otherwise
stated. No party, nor its counsel, shall be deemed the drafter of this Agreement
for purposes of construing the provisions of this Agreement, and all provisions
of this Agreement shall be construed in accordance with their fair meaning, and
not strictly for or against any party.
24. OTHER MISCELLANEOUS PROVISIONS. This Agreement shall be governed
and construed in accordance with the laws of the State of New York, without
giving effect to the principles of conflicts of law thereof. This Agreement may
be executed simultaneously in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
PARENT
INTEL CORPORATION,
a Delaware corporation
By:
-----------------------------------------
Name: [INSERT NAME]
Its: Vice President and Treasurer
ACQUISITION
WCT ACQUISITION CORPORATION,
a Delaware corporation
By:
-----------------------------------------
Name: [INSERT NAME]
Its: [INSERT TITLE]
COMPANY
IPIVOT, INC.,
a Delaware corporation
By:
-----------------------------------------
Name: [INSERT NAME]
Its: President and Chief Executive Officer
ESCROW AGENT
CITIBANK, N.A.,
as escrow agent
By:
-----------------------------------------
Name:
Its:
SECURITYHOLDER REPRESENTATIVE
--------------------------------------------
Name: Brett Helm
--------------------------------------------
Name: William Stensrud
10
<PAGE>
CONFIDENTIAL
[SIGNATURE PAGE TO ESCROW AGREEMENT AMONG INTEL CORPORATION, WCT
ACQUISITION CORPORATION, IPIVOT, INC., THE ESCROW AGENT AND THE
SECURITYHOLDER REPRESENTATIVE]
11
<PAGE>
State of California )
)ss.
)
County of__________
On __________, 1999 before me, ____________, a notary public in and for said
County and State, personally appeared [INSERT NAME OF SPARTA SIGNATORY],
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature(s) on the instrument the person, or the entity upon behalf
of which the person acted, executed the instrument.
<PAGE>
SCHEDULE 1
ESCROW SECURITY HOLDERS
(SEE ATTACHED)
<PAGE>
SCHEDULE 2
AUTHORIZED SIGNATORIES
FOR PARENT:
FOR THE SURVIVING CORPORATION:
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY AND VOTING AGREEMENT
C-1
<PAGE>
IRREVOCABLE PROXY
AND
VOTING AGREEMENT
THIS IRREVOCABLE PROXY AND VOTING AGREEMENT, dated as of October ___,
1999 (this "Agreement"), is entered into by and between INTEL CORPORATION, a
Delaware corporation ("Parent"), on the one hand, and ________ ("Stockholder"),
on the other hand.
W I T N E S S E T H:
WHEREAS, concurrently herewith, WCT Acquisition Corporation, an indirect
wholly owned subsidiary of Parent ("Acquisition Corporation"), and Ipivot, Inc.,
a Delaware corporation (the "Company"), have entered into an Agreement and Plan
of Merger, of even date herewith (as such agreement may hereafter be amended
from time to time, the "Merger Agreement"; initially capitalized and other terms
used but not defined herein shall have the meanings ascribed to them in the
Merger Agreement), pursuant to which Acquisition Corporation will merge with and
into the Company, with the Company as the surviving corporation and wholly-owned
subsidiary of Parent (the "Merger");
WHEREAS, Stockholder Beneficially Owns (as defined herein) ________
shares of common stock of the Company ("Company Common Stock"), ________ shares
of Series A Preferred Stock of the Company ("Company Preferred A Stock"), and
________ shares of Series B Preferred Stock of the Company ("Company Preferred
B Stock") (such shares of Company Common Stock, Company Preferred A Stock and
Company Preferred B Stock are collectively referred to herein as the "Shares").
WHEREAS, as an essential inducement and condition to entering into the
Merger Agreement, Parent and Acquisition Corporation have requested that
Stockholder agree, and Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. VOTING AGREEMENT. Stockholder hereby agrees with Parent that, at
any meeting of the Company's stockholders, however called, or in connection with
any written consent of the Company's stockholders, Stockholder shall vote the
Shares Beneficially Owned (as defined below) by Stockholder, whether heretofore
owned or hereafter acquired, (i) in favor of approval of the Merger, the Merger
Agreement and any actions in furtherance of the transactions contemplated
thereby; (ii) against any action or agreement that would result in a breach in
any respect of any representation, warranty, covenant, agreement or obligation
of the
<PAGE>
Company under the Merger Agreement; and (iii) against: (A) any Third Party
Acquisition (as defined below), (B) any change in the individuals who, as of the
date hereof, constitute the Board of Directors of the Company (C) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company and any Third Party (as defined
below), (D) a sale, lease, transfer or disposition of any assets of the
Company's business outside the ordinary course of business, or any assets that
are material to its business whether or not in the ordinary course of business,
or a reorganization, recapitalization, dissolution or liquidation of the
Company, (E) other than the two-for-one stock split approved by the Board of
Directors of the Company on September 29, 1999, any change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation or bylaws, (F) any other material change in the Company's
corporate structure or affecting its business, or (G) any other action that is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone or adversely affect the Merger or any of the other transactions
contemplated by the Merger Agreement, or any of the transactions contemplated by
this Agreement.
For purposes of this Agreement, "Third Party Acquisition" means
the occurrence of any of the following events: (i) the acquisition of the
Company by merger or otherwise by any person (which includes a "person" as such
term is defined in Section 13(d)(3) of the Exchange Act) other than Parent,
Acquisition Corporation or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of any material portion (which shall include,
without limitation, ten percent (10%) or more) of the assets of the Company,
other than the sale of its products in the ordinary course of business
consistent with past practices; (iii) the acquisition by a Third Party of ten
percent (10%) or more of the outstanding Shares; (iv) the adoption by the
Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by the Company of more than ten
percent (10%) of the outstanding Shares; or (vi) the acquisition (or any group
of acquisitions) by the Company by merger, purchase of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or investment in
any business (or businesses) whose annual revenues, net income or assets is
equal to or greater than five percent (5%) of the annual revenues, net income or
assets of the Company, respectively.
For purposes of this Agreement, "Beneficially Own" or "Beneficial
Ownership" with respect to any securities shall mean Stockholder's having
ownership, control or power to direct the voting with respect to, or otherwise
enables Stockholder to legally act with respect to, such securities as
contemplated hereby, including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Securities Beneficially Owned by
Stockholder shall include securities Beneficially Owned by all other persons
with whom Stockholder would constitute a "group" as within the meaning of
Section 13(d)(3) of the Exchange Act of 1934, as amended (the "Exchange Act").
2. IRREVOCABLE PROXY.
(a) Stockholder hereby constitutes and appoints Acquisition
Corporation, which shall act by and through Cary L. Klafter and Tiffany Doon
Silva (each, a "Proxy Holder'), individually or jointly, with full power of
substitution, its true and lawful proxy and attorney-in-fact to vote at any
meeting (and any adjournment or postponement thereof) of the Company's
2
<PAGE>
5. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES. Stockholder
hereby represents and warrants to Parent as follows:
(a) OWNERSHIP OF SHARES. Stockholder is the Beneficial Owner of
all the Shares. On the date hereof, the Shares constitute all of the Shares
Beneficially Owned by Stockholder. Stockholder has voting power with respect to
the matters set forth in Section 1 hereof with respect to all of the Shares,
with no limitations, qualifications or restrictions on such rights.
(b) POWER; BINDING AGREEMENT. Stockholder has the legal
capacity, power and authority to enter into and perform all of such
Stockholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by Stockholder will not violate any applicable law
or any agreement or any court order to which Stockholder is a party or is
subject including, without limitation, any voting agreement or voting trust.
this agreement has been duly and validly executed and delivered by Stockholder
and constitutes the legal, valid and binding obligation of Stockholder,
enforceable against Stockholder in accordance with its terms.
(c) RESTRICTION ON TRANSFER; PROXIES AND NON-INTERFERENCE.
Except as expressly. permitted by this Agreement, Stockholder shall not,
directly or indirectly: (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Shares or any interest therein; (ii) grant any proxies or
powers of attorney or deposit any Shares into a voting trust or enter into a
voting agreement with respect to any Shares; or (iii) take any action that would
make any representation or warranty of Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling Stockholder from
performing any of Stockholder's obligations under this Agreement.
(d) OTHER POTENTIAL ACQUIRORS. Stockholder (i) shall
immediately cease any existing discussions or negotiations, if any, with any
persons conducted heretofore with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company, or
any business combination with the Company; (ii) from and after the date hereof
until the earlier of the termination of the Merger Agreement in accordance with
its terms and the Effective Time, shall not, directly or indirectly, initiate,
solicit or knowingly encourage (including, without limitation, by way of
furnishing any information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any Third Party
Acquisition; and (iii) shall promptly notify Parent of any proposals for, or
inquiries with respect to, a potential Third Party Acquisition received by
Stockholder or of which Stockholder otherwise has knowledge.
(e) RELIANCE BY PARENT AND ACQUISITION CORPORATION. Stockholder
understands and acknowledges that Parent and Acquisition Corporation are
entering into the Merger Agreement in reliance upon Stockholder's execution and
delivery of this Agreement and performance of Stockholder's of Stockholder's
obligations hereunder.
4
<PAGE>
6. STOP TRANSFER. Stockholder agrees with, and covenants to, Parent
that Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any Shares, unless such transfer is made pursuant to and in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
7. TERMINATION. The proxy granted pursuant to Section 2 hereof and
Stockholder's covenants and agreements contained herein with respect to the
Shares shall terminate upon the earliest to occur of: (a) the termination of the
Merger Agreement in accordance with its terms and (b) the Effective Time.
Nothing set forth herein shall relieve Stockholder of any liability for any
breach of any representation, warranty, covenant, agreement or obligation set
forth in this Agreement arising prior to such termination of this Agreement.
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. Stockholder agrees that this Agreement and
the obligations hereunder shall attach to the Shares and shall be binding upon
any person to whom legal or beneficial ownership of any Shares shall pass,
whether by operation of law or otherwise. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
party; provided, however, that Parent may, in its sole discretion, assign its
rights and obligations hereunder to any direct or indirect wholly owned
subsidiary of Parent.
(d) AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telecopy, or by
mail (registered or certified mail, postage prepaid, return receipt requested)
or by any nationally-recognized overnight courier service, such as Federal
Express, providing proof of delivery. Any such notice or communication shall be
deemed to have been delivered and received (i) in the case of hand delivery, on
the date of such delivery, (ii) in the case of telecopy, on the date sent if
confirmation of receipt is received and such notice is also promptly mailed by
registered or certified mail (return receipt requested), (iii)
5
<PAGE>
in the case of a nationally-recognized overnight courier service, in
circumstances under which such courier guarantees next business day delivery, on
the next business day after the date when sent, and (iv) the case of mailing on
the third business day following that on which the piece of mail containing such
communication is posted. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Stockholder:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Telephone:
Telecopier:
Attention:
with a copy to: Ipivot, Inc.
12568 Kirkham Court
Poway, CA 92064
Telecopier: (619) 676-6966
Attention: President and Chief Executive
Officer
If to Parent: Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Telecopier: (408) 765-6284
Attention: General Counsel
and
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Telecopier: (408) 765-6284
Attention: Treasurer
with a copy to: Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, California 94104
Telephone: (415) 393-8200
Telecopier: (415) 374-8427
Attention: Kenneth R. Lamb, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the matter set forth above.
6
<PAGE>
(f) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
(g) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes
and acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(i) GOVERNING LAW.
(1) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN
ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF: The parties hereby irrevocably submit to the jurisdiction of
the courts of the State of Delaware and the Federal courts of the United States
of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8(e) in such other manner as may be
permitted by Applicable Law, shall be valid and sufficient service thereof.
7
<PAGE>
(2) The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity.
(3) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 8(i).
(j) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
8
<PAGE>
IN WITNESS WHEREOF, Parent and Stockholder have caused this Agreement to
be duly executed as of the day and year first above written.
INTEL CORPORATION,
a Delaware corporation
By:
----------------------------
Name:
Title:
STOCKHOLDER:
By:
----------------------------
Name:
[SIGNATURE PAGE FOR IPIVOT/INTEL STOCKHOLDER
IRREVOCABLE PROXY AND VOTING AGREEMENT]
<PAGE>
EXHIBIT D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
--------------------------------------
<PAGE>
EXHIBIT D
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
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 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;
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
Exhibit D-1
<PAGE>
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 subsections (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 such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder'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 stockholder's 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 253 of 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 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
Exhibit D-2
<PAGE>
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 such stockholder's 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 such stockholder's 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.
(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 such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder 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
Exhibit D-3
<PAGE>
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.
(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 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 such stockholder's 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.
Exhibit D-4
<PAGE>
EXHIBIT E
CORPORATIONS CODE TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTER'S RIGHTS
<PAGE>
EXHIBIT E
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTER'S RIGHTS
SECTION 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES;
CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of
a corporation is required for a reorganization under subdivisions (a) and (b)
or subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b). The
fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares
which come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (O) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Section 1301, 1302, 1303, and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to any
class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B)
of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
E-1
<PAGE>
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS;
DEMAND FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the
corporation to purchase their shares for cash, such corporation shall mail to
each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such
approval, accompanied by a copy of Sections 1300, 1303, 1304 and this section,
a statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes
an offer by the corporation to purchase at the price stated any dissenting
shares as defined in subdivision (b) of Section 1300, unless they lose their
status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation
to purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand
upon the corporation for the purchase of such shares and payment to the
shareholder in cash of their fair market value. The demand is not effective
for any purpose unless it is received by the corporation or any transfer
agent thereof (1) in the case of shares described in clause (i) or (ii) of
paragraph (1) of subdivision (b) of Section 1300 (without regard to the
provisos in that paragraph), not later than the date of the shareholders'
meeting to vote upon the reorganization, or (2) in any other case within 30 days
after the date on which the notice of the approval by the outstanding shares
pursuant to subdivision (a) or the notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares
held of record by the shareholder which the shareholder demands that the
corporation purchase and shall contain a statement of what such shareholder
claims to be the fair market value of those shares as of the day before the
announcement of the proposed reorganization or short-form merger. The
statement of fair market value constitutes an offer by the shareholder to
sell the shares at such price.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT;
UNCERTIFICATED SECURITIES
Within 30 days after the date on which notice of the approval
by the outstanding shares or the notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder, the shareholder shall submit to
the corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the
shares are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear
a like statement, together with the name of the original dissenting holder of
the shares.
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder is entitled to the agreed price with interest thereon
at the legal rate on judgements from the date of the agreement. Any
agreements fixing the fair market value of any dissenting shares as between
the corporation and the holders thereof shall be filed with the secretary of
the corporation.
(b) Subject to the provisions of Section 1306, payment of the
fair market value of dissenting shares shall be made within 30 days after the
amount thereof has been agreed or within 30 days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender of
the certificates therefor, unless provided otherwise by agreement.
E-2
<PAGE>
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR
FAIR MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION;
DETERMINATION OF ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, but not thereafter, may file a complaint in the
superior court of the proper county praying the court to determine whether
the shares are dissenting shares or the fair market value of the dissenting
shares or both or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs
or be joined as defendants in any such action and two or more such actions
may be consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the
court shall first determine that issue. If the fair market value of the
dissenting shares is in issue, the court shall determine, or shall appoint
one or more impartial appraisers to determine, the fair market value of the
shares.
E-3
<PAGE>
================================================================================
STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT
among:
CAYENTA.COM, INC.,
a Delaware corporation
CAYENTA OPERATING COMPANY.,
a Delaware corporation
THE TITAN CORPORATION,
a Delaware corporation
ASSIST CORNERSTONE TECHNOLOGIES, INC.,
a Utah corporation
and
SELLING SHAREHOLDERS
Dated as of December 7, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1.1 Exchange of Shares................................................1
1.2 No Fractional Shares..............................................2
1.3 Cayenta Shares....................................................2
1.4 Appraisal Rights..................................................2
1.5 Closing...........................................................3
2. SALE AND PURCHASE OF SHARES.............................................3
2.1 Sale and Purchase of Shares.......................................3
2.2 Purchase Price....................................................3
2.3 Post-Closing Adjustment...........................................5
3. REPRESENTATIONS AND WARRANTIES OF ASSIST AND SELLING SHAREHOLDERS.......6
3.1 Due Organization; No Subsidiaries; Etc............................6
3.2 Certificate of Incorporation and Bylaws; Records..................7
3.3 Capitalization, Etc...............................................7
3.4 Financial Statements..............................................9
3.5 Absence of Changes................................................9
3.6 Title to Assets..................................................11
3.7 Bank Accounts....................................................12
3.8 Receivables; Major Customers.....................................12
3.9 Inventory........................................................12
3.10 Equipment, Etc...................................................13
3.11 Real Property....................................................13
3.12 Proprietary Assets...............................................13
3.13 Contracts........................................................15
3.14 Liabilities; Major Suppliers.....................................16
3.15 Compliance With Legal Requirements...............................17
3.16 Governmental Authorizations......................................18
3.17 Tax Matters......................................................19
3.18 Employee and Labor Matters.......................................20
3.19 Benefit Plans; ERISA.............................................21
3.20 Environmental Matters............................................23
3.21 Sale of Products; Performance of Services........................24
i.
<PAGE>
TABLE OF CONTENTS
Continued
PAGE
3.22 Insurance........................................................25
3.23 Related Party Transactions.......................................26
3.24 Certain Payments, Etc............................................27
3.25 Proceedings; Orders..............................................27
3.26 Authority; Binding Nature of Agreements..........................28
3.27 Non-Contravention; Consents......................................29
3.28 Year 2000 Compliance.............................................30
(a) Brokers....................................................30
3.29 Full Disclosure..................................................30
3.30 No Other Representations or Warranties...........................31
4. REPRESENTATIONS AND WARRANTIES OF CAYENTA AND CAYENTA SUB..............31
4.1 Due Organization.................................................31
4.2 Authority; Binding Nature of Agreements..........................31
4.3 Non-Contravention; Consents......................................31
4.4 Capitalization, Etc..............................................32
4.5 Financial Statements.............................................33
4.6 No Adverse Change................................................33
(a) 34
4.8 Brokers..........................................................34
4.9 No Other Representations or Warranties...........................34
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.............34
5.1 Selling Shareholder Bears Economic Risk..........................34
5.2 Acquisition for Own Account......................................35
5.3 Selling Shareholder Can Protect Its Interest.....................35
5.4 Accredited Investor..............................................35
5.5 Company Information..............................................35
5.6 Rule 144.........................................................35
5.7 Residence........................................................35
5.8 Selling Shareholder..............................................36
6. PRE-CLOSING COVENANTS OF ASSIST AND SELLING SHAREHOLDERS...............36
ii.
<PAGE>
TABLE OF CONTENTS
Continued
PAGE
6.1 Access and Investigation.........................................36
6.2 Operation of Business............................................37
6.3 Filings and Consents.............................................38
6.4 Notification; Updates to Disclosure Schedule.....................39
6.5 Payment of Indebtedness by Related Parties.......................40
6.6 No Negotiation...................................................40
6.7 Best Efforts.....................................................40
6.8 Confidentiality..................................................40
7. PRE-CLOSING COVENANTS OF CAYENTA AND CAYENTA SUB.......................41
8. CONDITIONS PRECEDENT TO CAYENTA'S OR CAYENTA SUB'S OBLIGATION TO CLOSE.41
8.1 Satisfactory Completion of Pre-Acquisition Review................41
8.2 Accuracy of Representations......................................41
8.3 Performance of Obligations.......................................42
8.4 Approval of Cayenta's Board of Directors; Consents...............42
8.5 No Material Adverse Change.......................................42
8.6 Regulation D.....................................................42
8.7 Cash Out of Options..............................................42
8.8 Section 351 Plan.................................................42
8.9 Closing Documents................................................42
8.10 No Proceedings...................................................43
8.11 No Claim Regarding Stock Ownership or Sale Proceeds..............43
8.12 No Prohibition...................................................43
8.13 Confidential Information and Invention Assignment Agreements.....44
9. CONDITIONS PRECEDENT TO ASSIST'S AND SELLING SHAREHOLDERS'
OBLIGATION TO CLOSE ...................................................44
9.1 Accuracy of Representations......................................44
9.2 Cayenta's Performance............................................44
9.3 Closing Documents................................................44
10. TERMINATION............................................................45
10.1 Termination Events...............................................45
iii.
<PAGE>
TABLE OF CONTENTS
Continued
PAGE
10.2 Termination Procedures...........................................45
10.3 Effect of Termination............................................45
11. INDEMNIFICATION, ETC...................................................46
11.1 Survival of Representations and Covenants........................46
11.2 Indemnification by Selling Shareholders..........................46
11.3 Threshold........................................................47
11.4 Right to Require Cure of Breach..................................48
11.5 No Contribution..................................................48
11.6 Interest.........................................................48
11.7 Setoff/ Limited Recourse.........................................48
11.8 Defense of Third Party Claims....................................49
11.9 Exercise of Remedies by Indemnitees Other Than Cayenta
and Cayenta Sub..................................................49
11.10 Indemnification by Cayenta and Cayenta Sub.......................49
12. MISCELLANEOUS PROVISIONS...............................................50
12.1 Selling Shareholders' Agent......................................50
12.2 Further Assurances...............................................51
12.3 Retirement of Debt...............................................51
12.4 Stock Options....................................................52
12.5 Fees and Expenses................................................52
(i) 53
12.6 Attorneys' Fees..................................................53
12.7 Notices..........................................................53
12.8 Publicity........................................................54
12.9 Time of the Essence..............................................55
12.10 Headings.........................................................55
12.11 Counterparts.....................................................55
12.12 Governing Law; Venue.............................................55
12.13 Successors and Assigns...........................................56
12.14 Remedies Cumulative; Specific Performance........................56
12.15 Waiver...........................................................56
iv.
<PAGE>
TABLE OF CONTENTS
Continued
PAGE
12.16 Amendments.......................................................57
12.17 Severability.....................................................57
12.18 Parties in Interest..............................................57
12.19 Entire Agreement.................................................57
12.20 Construction.....................................................57
12.21 Negotiation of Disputes..........................................57
12.22 Ernst & Young LLP Consent........................................58
12.23 Titan as Signing Party...........................................58
12.24 Assist's Legal Counsel...........................................58
12.25 Directors' and Officers' Insurance...............................58
EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Amended and Restated Certificate of Incorporation
Exhibit C: Investor Rights Agreement
Exhibit D: Selling Shareholders Address List
Exhibit E: Section 351 Plan
Exhibit F: General Release
Exhibit G: Opinion Letter
Exhibit H: List of Key Employees
v.
<PAGE>
STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT
THIS STOCK EXCHANGE AND STOCK PURCHASE AGREEMENT (the "Agreement") is made
and entered into as of December 7, 1999, by and among CAYENTA.COM, INC., a
Delaware corporation ("Cayenta"), CAYENTA OPERATING COMPANY, a Delaware
corporation ("Cayenta Sub"), THE TITAN CORPORATION, a Delaware corporation
("Titan"), ASSIST CORNERSTONE TECHNOLOGIES, INC., a Utah corporation ("Assist"
or the "Company"), and the following parties (the "Selling Shareholders"): SCOTT
E. PYNES, JERRY L. MCMILLAN, KENNETH R. SAWYER, ANDREAS SEEMULLER, HENRY J.
EYRING, VERN R. CHRISTENSEN, GREGORY C. ESTY, BATCHELDER & PARTNERS, INC., E.
SCOTT ANDERSON, GUY M. CAMERON, MARNIE NUTTALL-MARTINEZ, RANDALL CROCKER, PAUL
SCHWEET, STUART CLIFTON, MARK S. HOWLETT, C. BURTON STOHL, MARLON R. BERRETT AND
PACIFIC MEZZANINE FUND, LP. Certain capitalized terms used in this Agreement are
defined on Exhibit A.
RECITALS
A. The Selling Shareholders own or will own as of the Closing 9,723,455 shares
of the Common Stock of Assist (the "Shares"), which will constitute all of the
outstanding common stock of Assist as of the Closing.
B. The Selling Shareholders wish to exchange with Cayenta a total of 2,015,838
of the Shares for a total of 516,458 shares of Class A common stock of Cayenta
(the "Exchange") pursuant to Cayenta's plan adopted pursuant to Section 351 of
the Code (the "351 Plan") and pursuant to the terms set forth in this Agreement
(which are a part of the 351 Plan).
C. Concurrently with the Closing of the Exchange, Titan and the other
stockholders of Cayenta Sub will exchange all of the outstanding shares of
capital stock of Cayenta Sub for shares of capital stock of Cayenta in
accordance with the 351 Plan.
D. Concurrently with the Closing of the Exchange, the Selling Shareholders wish
to sell to Cayenta Sub a total of 7,707,617 of the Shares pursuant to the terms
set forth in this Agreement.
AGREEMENT
The parties to this Agreement agree as follows:
1. EXCHANGE OF SHARES TRANSACTION
1.1 Exchange of Shares. At the Closing, the Selling Shareholders shall
exchange, assign, transfer and deliver to Cayenta a total of 2,015,838 of the
Shares (the "Exchanged Shares") to Cayenta, and Cayenta shall exchange and
deliver to the Selling Shareholders a total of 516,458 shares of Class A common
stock, $.001 par value, of Cayenta (the "Cayenta Shares"), on the terms and
subject to the conditions set forth in this Agreement. Each of the Selling
Shareholders will exchange with Cayenta 20.7% of the total Shares owned by such
Selling Shareholder.
1.
<PAGE>
1.2 No Fractional Shares. No fractional shares of Cayenta common stock
shall be issued in the exchange with Cayenta, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any
Selling Shareholder who would otherwise be entitled to receive a fraction of a
share of Cayenta common stock (after aggregating all fractional shares of
Cayenta Shares issuable to such holder) shall be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by $6.58.
1.3 Cayenta Shares. The Cayenta Shares shall have the voting and other
rights set forth in the form of Amended and Restated Certificate of
Incorporation attached as Exhibit B. Each Cayenta Share shall be entitled to the
appraisal rights set forth in Section 1.4 and the co-sale, participation and
registration rights set forth in the Investor Rights Agreement attached as
Exhibit C hereto. In addition, each Cayenta Share shall be subject to the
restrictions on transfer and right of first refusal set forth in the Investor
Rights Agreement.
1.4 Appraisal Rights. In the event that the Class A common stock of
Cayenta (or any class of common stock of Cayenta for which the Class A common
stock held by the Selling Shareholders are exchanged) is not traded on a
national securities exchange or Nasdaq Stock Market within four years from the
Closing Date, then the Selling Shareholders holding at least 50% of the Cayenta
Shares may require Cayenta to engage a nationally recognized investment banking
firm to determine the Fair Market Value of the Cayenta Class A Common Stock upon
terms usual for engagements of this type. The "Fair Market Value" shall mean the
fair market value of the business of Cayenta as determined by such investment
banking firm utilizing and weighing in its sole discretion applicable generally
accepted enterprise valuation methodologies which may include the market
multiple approach, earnings approach, net asset value approach and discounted
cash flow approach based upon the financial statements of Cayenta and
projections prepared by Cayenta using reasonable assumptions and without
reflecting any minority or restricted stock discounts. To the extent consistent
with generally accepted enterprise valuation methodologies, the investment
banking firm may consider the consideration that Cayenta would receive upon the
exercise of outstanding options or warrants included in the fully diluted
capitalization of Cayenta (on a discounted or other appropriate basis). The
"Fair Market Value per Share" shall be determined based upon the fully diluted
capitalization of Cayenta. If the Agent does not agree with the investment
banking firm's determination of the Fair Market Value per Share, then the Agent
may engage, at the Selling Shareholders' expense, a second nationally recognized
investment banking firm to determine the Fair Market Value per Share of the
Class A common stock of Cayenta upon terms usual for engagements of this type.
If the two investment banking firms cannot agree upon a Fair Market Value per
Share within 45 days after the engagement of the second investment banking firm,
then the two investment banking firms shall designate a third investment banking
firm to determine a Fair Market Value per Share within the range of the Fair
Market Value per Share determinations of the other two investment banking firms.
The third investment banking firm's determination shall be final and binding on
Cayenta and the Selling Shareholders. For a period of 90 days after the final
determination of the Fair Market Value per Share (the "Put Period"), each of the
Selling Shareholders who continue to hold Cayenta Shares shall have a right to
put the Cayenta Shares to Titan for purchase at the Fair Market Value per Share
(the "Put Right"). If the Put Right is not exercised within the Put Period, then
Titan shall have the right for a period of 90 days following the final day of
the Put Period to call the Cayenta Shares from any or all of the Selling
2.
<PAGE>
Shareholders (the "Call Right") at the Fair Market Value per Share. The closing
of each exercise of Put Right or the Call Right shall occur within 30 days after
the exercise of the applicable Put Right by each Selling Shareholder or the Call
Right by Titan. Titan may pay the purchase price in cash or in freely tradable
shares of common stock of Titan so long as Titan common stock is then traded on
the New York Stock Exchange or the Nasdaq Stock Market. If Titan elects to use
common stock of Titan, the number of shares of Titan common stock given for each
share of the Cayenta Shares sold will be determined by dividing the Fair Market
Value per Share by the average closing price of a share of Titan common stock on
the New York Stock Exchange (or its principal exchange or market, if not the New
York Stock Exchange) for the 20 trading days ending immediately prior to the
closing date for the put or the call transaction as reported in the Wall Street
Journal.
1.5 Closing. The closing of the Exchange and the closing of the purchase
and sale of the Purchased Shares (as defined in Section 2.1) in accordance with
Section 1.5 (the "Closing") shall take place at the offices of Cooley Godward,
LLP, 4365 Executive Drive, Suite 1100, San Diego, CA 92121 at 10:00 a.m.
(California time) on the later of December 13, 1999 or the date two business
days following the satisfaction of all conditions to the Closing (or at such
other place or time as Cayenta and the Agent may jointly designate). For
purposes of this Agreement: "Scheduled Closing Time" shall mean the time and
date as of which the Closing is required to take place pursuant to this Section
1.5; and "Closing Date" shall mean to the time and date as of which the Closing
actually takes place. At the Closing, the Selling Shareholders shall deliver to
Cayenta the stock certificates representing the Exchanged Shares, duly endorsed
(or accompanied by duly executed stock powers) and Cayenta shall deliver to each
Selling Shareholder stock certificates for the Cayenta Shares issuable to each
such Selling Shareholder.
2. SALE AND PURCHASE OF SHARES.
2.1 Sale and Purchase of Shares. At the Closing, the Selling Shareholders
shall sell, assign, transfer and deliver a total of 7,707,617 Shares (the
"Purchased Shares") to Cayenta Sub, and Cayenta Sub shall purchase the Purchased
Shares from the Selling Shareholders, on the terms and subject to the conditions
set forth in this Agreement. Each of the Selling Shareholders will sell to
Cayenta Sub 79.3% of the total Shares owned by such Selling Shareholder. At the
Closing, the Selling Shareholders shall deliver to Cayenta the stock
certificates representing the Purchased Shares, duly endorsed (or accompanied by
duly executed stock powers), and Cayenta shall deliver the First Installment of
the Purchase Price to the Agent.
2.2 Purchase Price.
(a) For purposes of this Agreement:
(i) The "Applicable Fraction" shall mean the fraction
determined by dividing one by 7,707,617, which is the total number of Purchased
Shares.
(ii) "Debt" means all debt of Assist, including without
limitation, bank indebtedness, related party debt, redeemable nonconvertible
preferred stock, subordinated debt, intercompany debt, the redemption price of
the Series A preferred stock, including accrued but unpaid dividends on Series A
preferred stock and the redemption price of the Series B preferred
3.
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stock, and capital leases, but excluding trade payables and other current
liabilities incurred or made in the ordinary course of business and consistent
with past practices (e.g. payroll and commissions). The current portion of any
principal or interest on any indebtedness shall constitute Debt regardless of
whether it is classified as a current liability under GAAP. "Net Debt" means
Debt as of the Closing Date minus $3,100,000.00.
(iii) The "First Installment" shall be the Purchase Price less
$3,000,000.00.
(iv) The "Second Installment" shall be the Purchase Price less
(a) the First Installment, (b) $1,300,000.00 and (c) any setoffs made in
accordance with Section 11.7 of this Agreement, with interest on the Second
Installment at the rate of 8% per annum accruing from the Closing Date to the
payment date of the Second Installment.
(v) The "Third Installment" shall be the Purchase Price less
(a) the First Installment, (b) the Second Installment and (c) any setoffs made
in accordance with Section 11.7 of this Agreement, with interest on the Third
Installment at the rate of 8% per annum accruing from the Closing Date to the
payment date of the Third Installment.
(vi) The "Purchase Price" shall be $13,000,000.00 less
(without duplication) (a) each dollar of Net Debt as of the Closing Date, (b)
each dollar of negative Working Capital as of the Closing Date, (c) each dollar
of Transaction Expenses as defined in Section 12.5 and (d) each dollar paid by
Assist for the termination of outstanding options or warrants to acquire Assist
common stock. The Purchase Price shall be increased by an amount equal to (x)
the aggregate cash received by Assist in connection with the exercise of vested
options or warrants to acquire Assist common stock and (y) the aggregate amount
of any Debt (excluding any Net Debt) cancelled in connection with the exercise
of any warrants to acquire Assist capital stock. The Purchase Price shall be
calculated at the Closing using an estimate of the Working Capital as of the
Closing Date. The final determination of the Purchase Price shall be determined
based upon the post-closing audit conducted in accordance with Section 2.3.
(b) The Purchase Price shall be payable by Cayenta Sub as follows:
(i) The First Installment shall be deliverable as of the
Closing against delivery of the stock certificates at the Closing in accordance
with Section 2.3. The First Installment shall be paid to the Agent for
distribution to the Selling Shareholders. Each Selling Shareholder will receive
the Applicable Fraction of the First Installment for each of the Purchased
Shares owned by such Selling Shareholder.
(ii) The Second Installment shall be paid on the second
business day following the completion of the audit and the determination of any
adjustments to the Purchase Price pursuant to Section 2.3. Each Selling
Shareholder will receive the Applicable Fraction of the Second Installment for
each of the Purchased Shares owned by such Selling Shareholder. The Second
Installment shall be paid to the Agent for distribution to the Selling
Shareholders. Cayenta Sub's obligation to make the payment contemplated by this
Section 2.2(b)(ii) shall be subject to any right of setoff that Cayenta Sub may
be entitled to exercise (pursuant to Section 11.7). In addition, if Cayenta Sub
shall have made in good faith any claim for
4.
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indemnification against any of the Selling Shareholders pursuant to this
Agreement and such claim shall not have been setoff in accordance with Section
11.7, then Cayenta Sub may withhold a good faith estimate of such claim (and the
associated interest) from the Second Installment and pay the remaining portion
of the Second Installment with interest on the portion paid.
(iii) The Third Installment shall be payable on the first
business day after the eighteen-month anniversary of the Closing Date (or on
such earlier date as Cayenta Sub may elect). Each Selling Shareholder will
receive the Applicable Fraction of the Third Installment for each of the
Purchased Shares owned by such Selling Shareholder. The Third Installment shall
be paid to the Agent for the distribution to the Selling Shareholders. Cayenta
Sub's obligation to make the payment contemplated by this Section 2.2(b)(iii)
shall be subject to any right of setoff that Cayenta Sub may be entitled to
exercise (pursuant to Section 11.7). In addition, if Cayenta Sub shall have made
in good faith any claim for indemnification against any of the Selling
Shareholders pursuant to this Agreement and such claim shall not have been
setoff in accordance with Section 11.7, then Cayenta Sub may withhold a good
faith estimate of such claim (and the associated interest) from the Third
Installment and pay the remaining portion of the Third Installment with interest
on the portion paid.
(c) Cayenta Sub shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder of
capital stock of Assist pursuant to this Agreement such amounts as Cayenta Sub
or Assist may be required to deduct or withhold therefrom under the Code or
under any provision of state, local or foreign tax law (or, in the alternative,
Cayenta Sub at its option may request tax information and other documentation so
no withholding is necessary). To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
2.3 Post-Closing Adjustment.
(a) The Purchase Price shall be subject to post-closing adjustment
as follows: the Purchase Price shall be reduced dollar for dollar to the extent
of any negative Working Capital as of the Closing Date as shown on the Audited
Balance Sheet that was not deducted in determining the Purchase Price on the
Closing Date and shall be reduced by any Net Debt, as shown on the Audited
Balance Sheet, that was not deducted in determining the Purchase Price on the
Closing Date. The foregoing adjustments shall be made without double counting
any single item of debt in both the calculation of Working Capital and the
determination of Debt.
(b) Within 90 days following the Closing, Arthur Andersen LLP
("Arthur Andersen") shall audit Assist's balance sheet as of the Closing Date
(the "Closing Balance Sheet") and Assist's statements of operations, changes in
shareholders' equity and cash flows for the period from January 1, 1999 to and
including the Closing Date for conformity to GAAP and issue a draft report
thereon. Cayenta Sub shall provide to Agent a copy of the draft report. Any
adjustment to the Closing Balance Sheet proposed by Arthur Andersen, including
adjustments to Working Capital, shall be subject to review by auditors retained
by the Selling Shareholders (the "Assist Auditors") which review shall be
completed no later than 30 days after the Agent receives the report from Arthur
Andersen. If the opinions of Arthur Andersen and the Assist
5.
<PAGE>
Auditors differ as to the necessity of the adjustment, a third auditing firm
mutually agreeable to Cayenta Sub and the Agent shall be selected to review the
disputed adjustments. The decision of the third independent auditing firm shall
be made no later than 30 days after the selection and engagement of such firm.
The decision of the third independent auditing firm regarding any such
adjustment shall be binding on the parties. The final determination of the
amounts payable hereunder shall be based on the final determination of the
Working Capital as set forth in the final audited Closing Balance Sheet (the
"Audited Balance Sheet") and each component in the calculation of such amounts
shall be made using the Audited Balance Sheet. Cayenta Sub shall be responsible
for the fees and expenses of Arthur Andersen and the Selling Shareholders shall
be responsible for the fees and expenses of the Assist Auditors. Notwithstanding
anything in this Agreement to the contrary, if the services of a third
independent auditing firm are required pursuant to this Section, Cayenta Sub and
the Agent (on behalf of the Selling Shareholders) shall each bear and pay 50% of
all fees and expenses of such auditing firm.
3. REPRESENTATIONS AND WARRANTIES OF ASSIST AND SELLING SHAREHOLDERS
Except as set forth in the disclosure schedules attached hereto (each a
"Schedule," and collectively, the "Disclosure Schedule"), as of the date of this
Agreement and as of the Closing, Assist and each of the Selling Shareholders
jointly but not severally represents and warrants, to and for the benefit of the
Indemnitees, as follows:
3.1 Due Organization; No Subsidiaries; Etc.
(a) Assist is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah and has all necessary power
and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted;
(ii) to own and use its assets in the manner in which its
assets are currently owned and used; and
(iii) to perform its obligations under all Assist Contracts.
(b) Assist has never conducted any business under or otherwise used,
for any purpose or in any jurisdiction, any fictitious name, assumed name, trade
name or other name, other than the names "Assist International Inc.",
"Interactive Systems, Inc.", "McMillan, Schow and Pynes, Inc."
(c) Assist is not required to be qualified, authorized, registered
or licensed to do business as a foreign corporation in any jurisdiction other
than the jurisdictions identified in Part 3.1 of the Disclosure Schedule. Assist
is in good standing as a foreign corporation in each of the jurisdictions
identified in Part 3.1 of the Disclosure Schedule.
(d) Part 3.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of Assist's board of directors, (ii) the names of the
members of each committee of Assist's board of directors, and (iii) the names
and titles of Assist's officers.
6.
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(e) Neither Assist nor any of its shareholders has ever approved, or
commenced any proceeding or made any election contemplating, the dissolution or
liquidation of Assist or the winding up or cessation of Assist's business or
affairs.
(f) Assist has no subsidiaries, and Assist has never owned,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect interest of any nature in, any Entity other than a shell subsidiary
that was dissolved. Assist has not agreed and is not obligated to make any
future investment in or capital contribution to any other Entity.
3.2 Certificate of Incorporation and Bylaws; Records.
(a) Assist has delivered to Cayenta accurate and complete copies of:
(i) Assist's certificate of incorporation and bylaws,
including all amendments thereto;
(ii) the stock records of Assist; and
(iii) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the shareholders of Assist, the board of directors of Assist and
all committees of the board of directors of Assist.
There have been no officially called and noticed meetings or other
proceedings of the shareholders of Assist, the board of directors of Assist or
any committee of the board of directors of any of Assist that are not fully
reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions of
Assist's certificate of incorporation or bylaws or of any resolution adopted by
Assist's shareholders, Assist's board of directors or any committee of Assist's
board of directors; and no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) constitute or
result directly or indirectly in such a violation.
(c) The books of account, stock records, minute books and other
records of Assist are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with sound and prudent business
practices. All of the records of Assist are in the actual possession and direct
control of Assist. Assist has in place an adequate and appropriate system of
internal controls which is at least as comprehensive and effective as the
systems of internal controls customarily maintained by Comparable Entities.
3.3 Capitalization, Etc.
(a) The authorized capital stock of Assist consists of:
(i) 20,000,000 shares of common stock having a par value of
$.001 per share, of which 4,661,645 shares have been issued and are outstanding
as of the date of this Agreement and of which 9,723,455 shares shall have been
issued and shall be outstanding as of
7.
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the Closing Date following the exercise of all then outstanding options and
warrants to acquire common stock of Assist;
(ii) 12,800 shares of preferred stock having a par value of
$.001 per share, of which 6,200 have been designated Series A preferred stock
and 6,600 have been designated Series B preferred stock. 6,200 shares of Series
A preferred are issued and outstanding and are convertible into 413,333 shares
of common stock of Assist. 5000 shares of Series B preferred stock are issued
and outstanding, none of which is convertible into common stock of Assist; and
(iii) Cayenta will acquire at the Closing, good and valid
title to the Exchanged Shares free and clear of any Encumbrances. Cayenta Sub
will acquire at the Closing, good and valid title to the Purchased Shares free
and clear of any Encumbrances. All of such Shares are owned by the Selling
Shareholders in the amounts indicated on the Schedule of Shareholders attached
as Part 3.3(a) and are being sold to Cayenta hereunder.
(b) All of the Exchanged Shares and all of the Purchased Shares (i)
have been duly authorized and validly issued, (ii) are fully paid and
non-assessable, (iii) were issued in compliance with any applicable preemptive
or similar rights and (iv) have been issued in full compliance with all
applicable securities laws and other applicable Legal Requirements and in
compliance with all applicable Contracts. The Selling Shareholders have
delivered or, at the Closing shall deliver, to Cayenta and Cayenta Sub,
respectively, accurate and complete copies of the stock certificates evidencing
the Exchanged Shares and the Cayenta Shares.
(c) Except as set forth in Part 3.3 of the Disclosure Schedule,
there is no:
(i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of Assist;
(ii) outstanding security, instrument or obligation that is or
may become convertible into or exchangeable for any shares of the capital stock
or other securities of Assist;
(iii) Contracts under which Assist is or may become obligated
to sell or otherwise issue any shares of its capital stock or any other
securities; or
(iv) condition or circumstance that may directly or indirectly
give rise to or provide a basis for the assertion of a claim by any Person to
the effect that such Person is entitled to acquire or receive any shares of
capital stock or other securities of Assist.
(d) Except as set forth in Part 3.3 of the Disclosure Schedule,
Assist has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities. All securities so reacquired by Assist were
reacquired in full compliance with the applicable provisions of the Utah Revised
Business Corporations Act and with all other applicable Legal Requirements.
8.
<PAGE>
3.4 Financial Statements.
(a) Assist has delivered to Cayenta the following financial
statements and notes (collectively, the "Assist Financial Statements"):
(i) the audited balance sheet of Assist as of December 31,
1998, and the related audited consolidated statements of operations, changes in
shareholders' equity and cash flows of Assist for the year then ended, together
with the notes thereto and the unqualified report and certification of Ernst &
Young LLP relating thereto;
(ii) the audited balance sheet of Assist as of December 31,
1997, and the related audited statements of operations, changes in shareholders'
equity and cash flows of Assist for the year then ended, together with the notes
thereto and the unqualified report and certification of Ernst & Young LLP
relating thereto; and
(iii) the unaudited balance sheet of Assist as of September
30, 1999 (the "Unaudited Interim Balance Sheet"), and the related unaudited
statements of operations, changes in shareholders' equity and cash flows of
Assist for the nine months then ended.
(b) All of the Assist Financial Statements are accurate and complete
in all material respects The financial statements and notes referred to in
Section 3.4(a)(i) present fairly the financial position of Assist as of December
31, 1998 and the results of operations, changes in shareholders' equity and cash
flows of Assist for the year then ended. The financial statements and notes
referred to in Sections 3.4(a)(ii) and 3.4(a)(iii) present fairly the financial
position of Assist as of the respective dates thereof and the results of
operations, changes in shareholders' equity and cash flows of Assist for the
periods covered thereby. The Assist Financial Statements have been prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis throughout the periods covered, except that the financial
statements referred to in Section 3.4(a)(iii) do not contain footnotes and are
subject to normal recurring year-end audit adjustment consistent with Assist
past practices.
3.5 Absence of Changes. Except as set forth in Part 3.5 of the Disclosure
Schedule, since December 31, 1998
(a) there has not been any material adverse change in Assist's
business, condition, assets, liabilities, operations, financial performance or
net income (or in any aspect or portion thereof), and no event has occurred that
might have a material adverse effect on Assist's business, condition, assets,
liabilities, operations, financial performance or net income (or on any aspect
or portion thereof);
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of Assist's assets (whether or
not covered by insurance);
(c) Assist has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
9.
<PAGE>
(d) Assist has not sold or otherwise issued any shares of capital
stock or any other securities;
(e) Assist has not amended its certificate of incorporation or
bylaws and has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) Assist has not purchased or otherwise acquired any asset from
any other Person, except for supplies and equipment acquired by Assist in the
Ordinary Course of Business;
(g) Assist has not leased or licensed any asset from any other
Person that is either incorporated in any product or service sold by Assist or
that had lease or license payments that exceeded $25,000 since December 31,
1998;
(h) Assist has not made any capital expenditure in excess of $20,000
per item and $200,000 in the aggregate;
(i) Assist has not sold or otherwise transferred, and has not leased
or licensed, any asset to any other Person except for products sold or licensed
by Assist from its inventory in the Ordinary Course of Business;
(j) Assist has not written off as uncollectible, or established any
extraordinary reserve with respect to, any individual account receivable in an
amount of more than $20,000 or other indebtedness owing to Assist or
collectively in an amount of more than $200,000;
(k) Assist has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance;
(l) Assist has not made any loan or advance to any other Person;
(m) Assist has not (i) established or adopted any Employee Benefit
Plan, or (ii) paid any bonus or made any profit-sharing or similar payment to
any directors, officers or employees other than pursuant to Employee Benefit
Plans that were established or adopted prior to December 31, 1998 and that were
not amended since December 31, 1998, in amounts consistent with prior bonus or
profit-sharing amounts, or increased the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees;
(n) Assist has not entered into, and neither Assist nor any of the
assets owned or used by Assist has become bound by, any Contract that is not an
Excluded Contract;
(o) no Contract by which Assist or any of the assets owned or used
by Assist is or was bound, or under which Assist has or had any rights or
interest (other than an Excluded Contract), has been amended or terminated;
(p) Assist has not incurred, assumed or otherwise become subject to
any Liability, other than accounts payable (of the type required to be reflected
as current liabilities in
10.
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the "liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred by Assist in the Ordinary Course of Business;
(q) Assist has not discharged any Encumbrance or discharged or paid
any indebtedness or other Liability, except for accounts payable that (i) are
reflected as current liabilities in the "liabilities" column of the Unaudited
Interim Balance Sheet or have been incurred by Assist since September 30, 1999
in the Ordinary Course of Business, and (ii) have been discharged or paid in the
Ordinary Course of Business;
(r) Assist has not forgiven any debt or otherwise released or waived
any material right or claim;
(s) Assist has not changed any of its methods of accounting or
accounting practices in any respect;
(t) Assist has not entered into any transactions or taken any other
action outside the Ordinary Course of Business; and
(u) Assist has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(c)" through "(t)"
above.
3.6 Title to Assets.
(a) Assist owns, and has good, valid and marketable title to, all
assets purported to be owned by it, including:
(i) all assets reflected on the Unaudited Interim Balance
Sheet (except for inventory sold by Assist since September 30, 1999 in the
Ordinary Course of Business);
(ii) all assets acquired by Assist since September 30, 1999
(except for inventory sold by Assist since September 30, 1999 in the Ordinary
Course of Business);
(iii) all assets referred to in Parts 3.8, 3.10 and 3.12 of
the Disclosure Schedule and all of Assist's rights under Assist Contracts; and
(iv) all other assets reflected in Assist's books and records
as being owned by Assist.
Except as set forth in Part 3.6 of the Disclosure Schedule, all of said
assets are owned by Assist free and clear of any Encumbrances except for any
lien for Taxes that are not yet due and payable.
(b) Part 3.6 of the Disclosure Schedule identifies all assets that
are being leased or licensed to Assist (except for any Proprietary Asset that is
licensed to Assist under any third party software license generally available to
the public at a cost of less than $1,000 per copy).
11.
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3.7 Bank Accounts. Part 3.7 of the Disclosure Schedule accurately sets
forth, with respect to each account maintained by or for the benefit of Assist
at any bank or other financial institution:
(a) the name and location of the institution at which such account
is maintained;
(b) the name in which such account is maintained and the account
number of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the current balance in such account;
(e) the rate of interest being earned on the funds in such account;
and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
Except as provided in Part 3.7 of the Disclosure Schedule, there are no
safe deposit boxes or similar arrangements maintained by or for the benefit of
Assist.
3.8 Receivables; Major Customers.
(a) Part 3.8 of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of Assist as of September 30, 1999.
(b) Except as set forth in Part 3.8 of the Disclosure Schedule, all
existing accounts receivable of Assist (including those accounts receivable
reflected on the Unaudited Interim Balance Sheet that have not yet been
collected and those accounts receivable that have arisen since September 30,
1999 and have not yet been collected):
(i) represent valid obligations of customers of Assist arising
from bona fide transactions entered into in the Ordinary Course of Business; and
(ii) are current and will be collected in full (without any
counterclaim or setoff, subject to write-offs for bad debt not to exceed the
reserve for bad debt on the Interim Balance Sheet) or in the Ordinary Course of
Business consistent with Assist's historical collection experience.
(c) No customer has accounted for more than 10% of Assist annual
revenues in each of its fiscal years ended December 31, 1997 and December 31,
1998 and on an annualized basis during the fiscal year ending December 31, 1999.
3.9 Inventory. Part 3.9 of the Disclosure Schedule provides an accurate
and complete breakdown of all inventory (including raw materials, work in
process and finished
12.
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goods) of Assist as of September 30, 1999. All of Assist's existing inventory
(including all inventory that is reflected on the Unaudited Interim Balance
Sheet and that has not been disposed of by Assist since September 30, 1999):
(a) is of such quality and quantity as to be usable and saleable by
Assist in the Ordinary Course of Business;
(b) has been priced at the lower of cost or market value; and
(c) is free of any material defect or deficiency that is not covered
through a third party manufacturer's warranty.
The inventory levels maintained by Assist (i) are not excessive in light
of Assist's normal operating requirements, and (ii) are adequate for the conduct
of Assist's operations in the Ordinary Course of Business.
3.10 Equipment, Etc.
(a) Part 3.10 of the Disclosure Schedule accurately identifies all
equipment, furniture, fixtures, improvements and other tangible assets (other
than inventory) owned by Assist. Part 3.10 also accurately identifies all
tangible assets leased to Assist.
(b) Each asset identified or required to be identified in Part 3.10
of the Disclosure Schedule:
(i) is structurally sound, free of material defects and
deficiencies and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all respects with, and is being operated and
otherwise used in full compliance with, all applicable Legal Requirements; and
(iii) is adequate for the uses to which it is being put.
The assets identified in Part 3.10 of the Disclosure Schedule are adequate
for the conduct of Assist's business in the manner in which such business is
currently being conducted.
3.11 Real Property. Assist does not own any real property or any interest
in real property, except for the leaseholds created under the real property
leases identified in Part 3.13 of the Disclosure Schedule. Part 3.11 of the
Disclosure Schedule provides an accurate description of the premises covered by
said leases and the facilities located on such premises. Assist enjoys peaceful
and undisturbed possession of such premises.
3.12 Proprietary Assets.
(a) Part 3.12(a) of the Disclosure Schedule sets forth, with respect
to each Proprietary Asset of Assist registered with any Governmental Body or for
which an application has been filed with any Governmental Body, (i) a brief
description of such Assist Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application.
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Part 3.12(a) of the Disclosure Schedule identifies and provides a brief
description of all other material Proprietary Assets owned by Assist. Part
3.12(a) of the Disclosure Schedule identifies and provides a brief description
of each Proprietary Asset licensed to Assist by any Person (except for any
Proprietary Asset that is licensed to Assist under any third party software
license generally available to the public at a cost of less than $1,000 per
copy), and identifies the license agreement under which such Proprietary Asset
is being licensed to Assist. Except as set forth in Part 3.12(a) of the
Disclosure Schedule, Assist has good, valid and marketable title to all of the
Proprietary Assets used in its business free and clear of all liens and other
Encumbrances, and has a valid right (contractual or otherwise) to use all
Proprietary Assets identified in Part 3.12(a) of the Disclosure Schedule. Except
as set forth in Part 3.12(a) of the Disclosure Schedule, Assist is not obligated
to make any payment to any Person for the use of any Proprietary Asset. Except
as set forth in Part 3.12(a) of the Disclosure Schedule, Assist has not
developed jointly with any other Person any Proprietary Asset with respect to
which such other Person has any rights.
(b) Assist has taken all commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Proprietary Assets (except Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all
Proprietary Assets. Except as set forth in Part 3.12(a) of the Disclosure
Schedule, Assist has not disclosed or delivered to any Person, or permitted the
disclosure or delivery to any Person of, (i) the source code, or any portion or
aspect of the source code, of any Proprietary Asset, or (ii) the object code, or
any portion or aspect of the object code, of any Proprietary Asset.
(c) None of the Proprietary Assets infringes or conflicts with any
Proprietary Asset owned or used by any other Person except for any inadvertent
infringement of which Assist is unaware that does not impose any material
liability on Assist or cause Assist to spend any material amount to replace any
Proprietary Assets. Assist is not infringing, misappropriating or making any
unlawful use of, and Assist has not at any time infringed, misappropriated or
made any unlawful use of, or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. To the Knowledge of Assist, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other Person infringes or conflicts with, any
Proprietary Asset.
(d) Except as set forth in Part 3.12(d) of the Disclosure Schedule:
(i) each Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of Assist; and (ii) during
the last 24 months, there has not been any material claim by any customer or
other Person alleging that any Proprietary Asset (including each version thereof
that has ever been licensed or otherwise made available by Assist to any Person)
does not conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of Assist other than reports of programming errors that (x) occur or are
experienced from time to time by customers using Assist's products in a unique
or custom fashion, (y) have been resolved or are resolvable through Assist's
help desk (without the devotion of material additional resources) and (z) are
consistent
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with the experience of Comparable Entities, and, to the knowledge of Assist,
there is no basis for any such claim.
(e) Proprietary Assets constitute all the Proprietary Assets
necessary to enable Assist to conduct its business in the manner in which such
business has been and is being conducted. Except as set forth in Part 3.12(e) of
the Disclosure Schedule, (i) Assist has not licensed any of its Proprietary
Assets to any Person on an exclusive basis, and (ii) Assist has not entered into
any covenant not to compete or Contract limiting its ability to exploit fully
any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person.
(f) Except as disclosed in Part 3.12 of the Disclosure Schedule, all
Proprietary Assets of Assist do not and will not contain any viruses, which
shall mean any computer code designed to disrupt, disable, harm, or otherwise
impede in any manner, the operation of the computer program, or any other
associated software, firmware, hardware, or network (including local area or
wide-area networks), in a manner not intended by the creator(s) of such
software, firmware, hardware, or network.
3.13 Contracts.
(a) Part 3.13 of the Disclosure Schedule identifies and provides an
accurate and complete description of each Assist Contract, except for any
Excluded Contract. Assist has delivered to Cayenta accurate and complete copies
of all Assist Contracts identified in Part 3.13 of the Disclosure Schedule,
including all amendments thereto.
(b) Each Assist Contract is valid and in full force and effect, and
is enforceable by Assist in accordance with its terms. No Assist Contract
contains any term or provision that is extraordinary for similar types of
commercial contracts or licenses.
(c) Except as set forth in Part 3.13 of the Disclosure Schedule:
(i) Assist has not violated or breached, or declared or
committed any default under, any Assist Contract and to Assist's Knowledge, no
other Person has violated, breached or committed any default under any Assist
Contract;
(ii) no event has occurred, and no circumstance or condition
exists, that reasonably might (with or without notice or lapse of time) (A)
result in a violation or breach of any of the provisions of any Assist Contract
by Assist or, to Assist's Knowledge by any Person other than Assist, (B) give
any Person (other than Assist) the right to declare a default or exercise any
remedy under any Assist Contract, (C) give any Person (other than Assist) the
right to accelerate the maturity or performance of any Assist Contract, or (D)
give any Person (other than Assist) the right to cancel, terminate or modify any
Assist Contract;
(iii) Assist has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Assist Contract; and
(iv) Assist has not waived any of its rights under any Assist
Contract.
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(d) To the Knowledge of Assist, none of its customers under existing
Assist Contracts is insolvent or unable to satisfy its current or future
monetary obligations and other obligations and Liabilities to Assist.
(e) Except as set forth in Part 3.13 of the Disclosure Schedule:
(i) Assist has never guaranteed or otherwise agreed to cause,
insure or become liable for, and Assist has never pledged any of its assets to
secure, the performance or payment of any obligation or other Liability of any
other Person; and
(ii) Assist has never been a party to or bound by (A) any
joint venture agreement, partnership agreement, profit-sharing agreement,
cost-sharing agreement, loss-sharing agreement or similar Contract, or (B) any
Contract that creates or grants to any Person, or provides for the creation or
grant of, any stock appreciation right, phantom stock right or similar right or
interest.
(f) The performance of the Assist Contracts will not result in any
violation of or failure to comply with any material Legal Requirement.
(g) No Person is renegotiating, or has the right to renegotiate, any
amount paid or payable to Assist under any Assist Contract or any other term or
provision of any Assist Contract.
(h) The Contracts identified in Part 3.13 of the Disclosure Schedule
and the Excluded Contracts collectively constitute all of the Contracts
necessary to enable Assist to conduct its business in the manner in which its
business is currently being conducted.
(i) Part 3.13 of the Disclosure Schedule identifies and provides an
accurate and complete description of each proposed Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by Assist since September 30, 1999.
3.14 Liabilities; Major Suppliers.
(a) Assist has no Liabilities, except for:
(i) liabilities identified as such in the "liabilities" column
of the Unaudited Interim Balance Sheet;
(ii) accounts payable (of the type required to be reflected as
current liabilities in the "liabilities" column of a balance sheet prepared in
accordance with GAAP) incurred by Assist in the Ordinary Course of Business
since September 30, 1999; and
(iii) Assist's obligations under the Contracts listed in Part
3.13 of the Disclosure Schedule and under Excluded Contracts, to the extent that
the existence of such obligations is ascertainable solely by reference to such
Contracts.
(b) Part 3.14 of the Disclosure Schedule:
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(i) provides an accurate and complete breakdown and aging of
Assist's accounts payable as of September 30, 1999;
(ii) provides an accurate and complete breakdown of all
customer deposits and other deposits held by Assist as of the date of this
Agreement; and
(iii) provides an accurate and complete breakdown of Assist's
long-term debt as of the date of this Agreement.
(c) Assist has not paid, and Assist is not and will not become
liable for the payment of, any fees, costs or expenses of the type referred to
in Section 12.5(a).
(d) Part of the Disclosure Schedule accurately identifies, and
provides an accurate and complete breakdown of the amounts paid to, each
supplier or other Person that received (i) more than $200,000 from Assist in
1997, (ii) more than $200,000 from Assist in 1998, or (iii) more than $150,000
from Assist in the first three quarters of 1999.
3.15 Compliance With Legal Requirements.
(a) Except as set forth in Part 3.15 of the Disclosure Schedule:
(i) Assist is in material compliance with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets;
(ii) Assist has at all times been in material compliance with
each Legal Requirement that is or was applicable to it or to the conduct of its
business or the ownership or use of any of its assets;
(iii) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) constitute or
result directly or indirectly in a violation by Assist of, or a failure on the
part of Assist to comply with, any material Legal Requirement; and
(iv) Assist has never received, at any time, any notice or
other communication (in writing or otherwise) from any Governmental Body or any
other Person regarding (i) any actual, alleged, possible or potential violation
of, or failure to comply with, any Legal Requirement, or (ii) any actual,
alleged, possible or potential obligation on the part of Assist to undertake, or
to bear all or any portion of the cost of, any cleanup or any remedial,
corrective or response action of any nature.
(b) Assist has delivered to Cayenta an accurate and complete copy of
each report, study, survey or other document in Assist's possession or if not in
Assist's possession of which it is aware and to which Assist has access that
addresses or otherwise relates to the compliance of Assist with, or the
applicability to Assist of, any Legal Requirement.
(c) To the Knowledge of Assist and the Selling Shareholders, no
Governmental Body has proposed or is considering any Legal Requirement that, if
adopted or otherwise put into effect, (i) may have an adverse effect on Assist's
business, condition, assets,
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liabilities, operations, financial performance, net income or prospects or on
the ability of Assist or any of the Selling Shareholders to comply with or
perform any covenant or obligation under any of the Transactional Agreements, or
(ii) may have the effect of preventing, delaying, making illegal or otherwise
precluding any of the Transactions.
3.16 Governmental Authorizations.
(a) Part 3.16 of the Disclosure Schedule identifies:
(i) each Governmental Authorization that is held by Assist;
and
(ii) each other Governmental Authorization that, to the
Knowledge of Assist and the Selling Shareholders, is held by any of Assist's
employees is necessary in connection with Assist's business.
Assist has delivered to Cayenta accurate and complete copies of all of the
Governmental Authorizations identified in Part 3.16 of the Disclosure Schedule,
including all renewals thereof and all amendments thereto. Each Governmental
Authorization identified or required to be identified in Part 3.16 of the
Disclosure Schedule is valid and in full force and effect.
(b) Except as set forth in Part 3.16 of the Disclosure Schedule:
(i) Assist and its employees are and have at all times been,
in material compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part 3.16
of the Disclosure Schedule;
(ii) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) (A) constitute or
result directly or indirectly in a violation of or a failure to comply with any
material term or requirement of any Governmental Authorization identified or
required to be identified in Part 3.16 of the Disclosure Schedule, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization identified or
required to be identified in Part 3.16 of the Disclosure Schedule;
(iii) Assist has never received, and, to the Knowledge of
Assist, no employee of Assist has ever received, any notice or other
communication (in writing or otherwise) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations required to be identified in Part
3.16 of the Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental Bodies, and each other notice or filing required to
have been given or made with respect to such Governmental Authorizations has
been duly given or made on a timely basis with the appropriate Governmental
Body.
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(c) The Governmental Authorizations identified in Part 3.16 of the
Disclosure Schedule constitute all of the Governmental Authorizations necessary
(i) to enable Assist to conduct its business in the manner in which its business
is currently being conducted, and (ii) to permit Assist to own and use its
assets in the manner in which they are currently owned and used.
3.17 Tax Matters.
(a) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by Assist (whether pursuant to any Tax Return
or otherwise) has been duly paid in full or on a timely basis. Any Tax required
to have been withheld or collected by Assist has been duly withheld and
collected; and (to the extent required) each such Tax has been paid to the
appropriate Governmental Body.
(b) Part 3.17 of the Disclosure Schedule accurately identifies all
Tax Returns required to be filed by or on behalf of Assist with any Governmental
Body with respect to any taxable period beginning January 1, 1993 and ending on
or before the Closing Date ("Assist Returns"). All Assist Returns (i) have been
or will be filed when due, and (ii) have been, or will be when filed, accurately
and completely prepared in compliance with all applicable Legal Requirements.
All amounts shown on the Assist Returns to be due on or before the Closing Date,
and all amounts otherwise payable in connection with the Assist Returns on or
before the Closing Date, have been or will be paid on or before the Closing
Date. Assist has delivered to Cayenta accurate and complete copies of all Assist
Returns filed since December 31, 1996.
(c) The Assist Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. Assist will establish, in the Ordinary Course
of Business, reserves adequate for the payment of all Taxes for the period from
September 30, 1999 through the Closing Date, and Assist will disclose the dollar
amount of such reserves to Cayenta on or prior to the Closing Date.
(d) Each Assist Return relating to income Taxes that has been filed
with respect to any period ended on or prior to December 31, 1995 has either (i)
been examined and audited by all relevant Governmental Bodies, or (ii) by virtue
of the expiration of the limitation period under applicable Legal Requirements,
is no longer subject to examination or audit by any Governmental Body. Part 3.17
of the Disclosure Schedule accurately identifies each examination or audit of
any Assist Return that has been conducted since January 1, 1997. Assist has
delivered to Cayenta accurate and complete copies of all audit reports and
similar documents (to which Assist has access) relating to Assist Returns.
Except as set forth in Part 3.17 of the Disclosure Schedule, no extension or
waiver of the limitation period applicable to any of the Assist Returns has been
granted (by Assist or any other Person), and no such extension or waiver has
been requested from Assist.
(e) From inception through June 30, 1997, the Company was an S
corporation for federal tax purposes within the meaning of Section 1361(a)(1) of
the Code and the Company was not and is not subjection to the imposition of any
tax under Section 1374 of the Code for any period prior to the Company's
termination of its S corporation status effective June 30, 1997.
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(f) Except as set forth in Part 3.17 of the Disclosure Schedule, no
claim or other Proceeding is pending or has been threatened against or with
respect to Assist in respect of any Tax. There are no unsatisfied Liabilities
for Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by Assist. Assist has not entered into or has become
bound by any agreement or consent pursuant to Section 341(f) of the Code. Assist
will not be, required to include any adjustment in taxable income for any tax
period (or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of transactions
or events occurring, or accounting methods employed, prior to the Closing.
(g) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of Assist that, individually or collectively, could give
rise directly or indirectly to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code. Assist is not,
and has never been, a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar Contract.
3.18 Employee and Labor Matters.
(a) Part 3.18 of the Disclosure Schedule accurately sets forth, with
respect to each employee of Assist (including any employee of Assist who is on a
leave of absence or on layoff status):
(i) the name of such employee and the date as of which such
employee was originally hired by Assist;
(ii) such employee's title, and a description of such
employee's duties and responsibilities;
(iii) the aggregate dollar amount of the compensation
(including wages, salary, commissions, director's fees, fringe benefits,
bonuses, profit-sharing payments and other payments or benefits of any type)
received by such employee from Assist with respect to services performed in
1998;
(iv) such employee's annualized compensation as of the date of
this Agreement;
(v) each Current Benefit Plan in which such employee
participates or is eligible to participate; and
(vi) any Governmental Authorization that is held by such
employee and that is necessary in connection with Assist's business.
(b) Part 3.18 of the Disclosure Schedule accurately identifies each
former employee of Assist who is receiving or is scheduled to receive (or whose
spouse or other dependent is receiving or is scheduled to receive) any benefits
(whether from Assist or
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otherwise) relating to such former employee's employment with Assist; and Part
3.18 of the Disclosure Schedule accurately describes such benefits.
(c) Except as set forth in Part 3.18 of the Disclosure Schedule,
Assist is not a party to or bound by, and Assist has never been a party to or
bound by, any employment agreement or any union contract, collective bargaining
agreement or similar Contract.
(d) The employment of each of Assist's employees is terminable by
Assist at will. Assist has delivered to Cayenta accurate and complete copies of
all employee manuals and handbooks, disclosure materials, policy statements and
other materials relating to the employment of the current and former employees
of Assist.
(e) To the Knowledge of Assist and the Selling Shareholders:
(i) no employee of Assist intends to terminate his employment
with Assist;
(ii) no employee of Assist has received an offer to join a
business that may be competitive with Assist's business; and
(iii) no employee of Assist is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other Contract (with any
Person) that may have a material adverse effect on (A) the performance by such
employee of any of his duties or responsibilities as an employee of Assist, or
(B) Assist's business or operations.
(f) Assist is not engaged, and has never been engaged, in any unfair
labor practice of any nature. There has never been any slowdown, work stoppage,
labor dispute or union organizing activity, or any similar activity or dispute,
affecting Assist or any of their employees. There is not now pending, and no
Person has threatened to commence, any such slowdown, work stoppage, labor
dispute or union organizing activity or any similar activity or dispute. No
event has occurred, and no condition or circumstance exists, that might directly
or indirectly give rise to or provide a basis for the commencement of any such
slowdown, work stoppage, labor dispute or union organizing activity or any
similar activity or dispute.
3.19 Benefit Plans; ERISA.
(a) Part 3.19 of the Disclosure Schedule identifies and provides an
accurate description of each Current Benefit Plan and each Past Benefit Plan.
Assist has never established, adopted, maintained, sponsored, contributed to,
participated in or incurred any Liability with respect to any Employee Benefit
Plan, except for Company Plans identified in Part 3.19 of the Disclosure
Schedule; and Assist has never provided or made available any fringe benefit or
other benefit of any nature to any of its employees, except as set forth in Part
3.19 of the Disclosure Schedule.
(b) No Company Plan:
(i) provides or provided any benefit guaranteed by the Pension
Benefit Guaranty Corporation;
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(ii) is or was a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA; or
(iii) is or was subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA.
There is no Person that (by reason of common control or otherwise) is or
has at any time been treated together with Assist as a single employer within
the meaning of Section 414 of the Code.
(c) Assist has delivered to Cayenta, with respect to each Company
Plan:
(i) an accurate and complete copy of such Company Plan and all
amendments thereto (including any amendment that is scheduled to take effect in
the future);
(ii) an accurate and complete copy of each Contract (including
any trust agreement, funding agreement, service provider agreement, insurance
agreement, investment management agreement or recordkeeping agreement) relating
to such Company Plan;
(iii) an accurate and complete copy of any description,
summary, notification, report or other document that has been furnished to any
employee of Assist with respect to such Company Plan;
(iv) an accurate and complete copy of any form, report,
registration statement or other document that has been filed with or submitted
to any Governmental Body with respect to such Company Plan; and
(v) an accurate and complete copy of any determination letter,
notice or other document that has been issued by, or that has been received by
Assist from, any Governmental Body with respect to such Company Plan.
(d) Each Current Benefit Plan is being operated and administered in
compliance in all material respects with the provisions thereof, and each
Company Plan has at all times been operated and administered in compliance in
all material respects with the provisions thereof. Each contribution or other
payment that is required to have been accrued or made under or with respect to
any Company Plan has been duly accrued and made on a timely basis.
(e) Each Current Benefit Plan complies and is being operated and
administered in compliance in all material respects with, and each Company Plan
has at all times complied and been operated and administered in full compliance
with, all applicable reporting, disclosure and other requirements of ERISA and
the Code and all other applicable Legal Requirements. Assist has never incurred
any Liability to the Internal Revenue Service or any other Governmental Body
with respect to any Company Plan; and no event has occurred, and no condition or
circumstance exists, that reasonably might (with or without notice or lapse of
time) give rise directly or indirectly to any such Liability. None of the
Companies, and no Person that is or was an administrator or fiduciary of any
Company Plan (or that Assists or has Assisted as an agent of Assist or any such
administrator or fiduciary), has engaged in any transaction or has otherwise
Assisted or failed to Assist in a manner that has subjected or may subject
Assist to any
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Liability for breach of any fiduciary duty or any other duty. No Company Plan,
and no Person that is or was an administrator or fiduciary of any Company Plan
(or that Assists or has Assisted as an agent of any such administrator or
fiduciary):
(i) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code;
(ii) has failed to perform any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA; or
(iii) has taken any action that (A) may subject such Company
Plan or such Person to any Tax, penalty or Liability relating to any "prohibited
transaction," or (B) may directly or indirectly give rise to or serve as a basis
for the assertion (by any employee or by any other Person) of any claim under,
on behalf of or with respect to such Company Plan.
(f) No inaccurate or misleading representation, statement or other
communication has been made or directed (in writing or otherwise) to any current
or former employee of Assist (i) with respect to such employee's participation,
eligibility for benefits, vesting, benefit accrual or coverage under any Company
Plan or with respect to any other matter relating to any Company Plan, or (ii)
with respect to any proposal or intention on the part of Assist to establish or
sponsor any Employee Benefit Plan or to provide or make available any fringe
benefit or other benefit of any nature.
(g) Except as set forth in Part 3.19 of the Disclosure Schedule,
Assist has not advised any of its employees (in writing or otherwise) that it
intends or expects to establish or sponsor any Employee Benefit Plan or to
provide or make available any fringe benefit or other benefit of any nature in
the future.
3.20 Environmental Matters.
(a) Assist is not liable or potentially liable for any response cost
or natural resource damages under Section 107(a) of CERCLA, or under any other
so-called "superfund" or "superlien" law or similar Legal Requirement, at or
with respect to any site.
(b) None of the Companies has ever received any notice or other
communication (in writing or otherwise) from any Governmental Body or other
Person regarding any actual alleged, possible or potential Liability arising
from or relating to the presence, generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing, handling,
storage, discharge, release, emission or disposal of any Hazardous Material. No
Person has ever commenced or threatened to commence any contribution action or
other Proceeding against Assist in connection with any such actual, alleged,
possible or potential Liability; and no event has occurred, and no condition or
circumstance exists, that may directly or indirectly give rise to, or result in
Assist becoming subject to, any such Liability.
(c) Except as set forth in Part 3.20 of the Disclosure Schedule,
none of the Companies has ever generated, manufactured, produced, transported,
imported, used, treated, refined, processed, handled, stored, discharged,
released or disposed of any Hazardous Material (whether lawfully or unlawfully).
Except as set forth in Part 3.20 of the Disclosure Schedule,
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none of the Companies has ever permitted (knowingly or otherwise) any Hazardous
Material to be generated, manufactured, produced, used, treated, refined,
processed, handled, stored, discharged, released or disposed of (whether
lawfully or unlawfully):
(i) on or beneath the surface of any real property that is, or
that has at any time been, owned by, leased to, controlled by or used by Assist;
(ii) in or into any surface water, groundwater, soil or air
associated with or adjacent to any such real property; or
(iii) in or into any well, pit, pond, lagoon, impoundment,
ditch, landfill, building, structure, facility, improvement, installation,
equipment, pipe, pipeline, vehicle or storage container that is or was located
on or beneath the surface of any such real property or that is or has at any
time been owned by, leased to, controlled by or used by Assist.
(d) All property that is owned by, leased to, controlled by or used
by Assist, and all surface water, groundwater, soil and air associated with such
property:
(i) is free of any Hazardous Material and any harmful chemical
or physical conditions; and
(ii) is free of any material environmental contamination of
any nature.
(e) Each storage tank or other storage container that is or has been
owned by, leased to, controlled by or used by Assist, or that is located on or
beneath the surface of any real property owned by, leased to, controlled by or
used by Assist:
(i) is in sound condition; and
(ii) has been demonstrated by accepted testing methodologies
to be free of any corrosion or leaks.
3.21 Sale of Products; Performance of Services.
(a) Each product that has been sold by Assist and each service that
has been performed by any Assist for any Person:
(i) conformed and complied in all in all material respects
with the terms and requirements of any applicable warranty or other Contract and
with all applicable Legal Requirements; and
(ii) was free of any design defects, programming errors,
construction defects or other defects or deficiencies at the time of sale other
than programming errors that (x) occur or are experienced from time to time by
customers using Assist's products in a unique or custom fashion, (y) have been
resolved or are resolvable through Assist's help desk (without the devotion of
material additional resources) and (z) are consistent with the experience of
Comparable Entities. All design integration services, repair services,
technical, maintenance and other services that have been performed by the
Companies were performed properly and in full
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conformity with the terms and requirements of all applicable warranties and
other Contracts and with all applicable Legal Requirements.
(b) Assist will not incur or otherwise become subject to any
Liability arising directly or indirectly from any product manufactured or sold,
or any services performed by Assist on or at any time prior to the Closing Date
except for claims made on warranties in any Contracts entered into prior to the
Closing Date which shall not in the aggregate exceed the warranty reserve on the
Closing Balance Sheet.
(c) No product manufactured or sold by Assist has been the subject
of any recall or other similar action; and no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for any such
recall or other similar action relating to any such product.
(d) Except as set forth in Part 3.21 of the Disclosure Schedule, no
customer or other Person has ever asserted or threatened to assert any material
claim against Assist (i) under or based upon any warranty provided by or on
behalf of Assist, or (ii) under or based upon any other warranty relating to any
product sold by Assist or any services performed by Assist. To the Knowledge of
Assist and the Selling Shareholders, no event has occurred, and no condition or
circumstance exists, that reasonably might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for the assertion
of any such claim.
(e) Assist has in place and at all times has had in place, an
adequate and appropriate quality control system that is at least as
comprehensive and effective as the quality control systems customarily
maintained by Comparable Entities.
3.22 Insurance.
(a) Part 3.22 of the Disclosure Schedule accurately sets forth, with
respect to each insurance policy maintained by or at the expense of, or for the
direct or indirect benefit of, Assist:
(i) the name of the insurance carrier that issued such policy
and the policy number of such policy;
(ii) whether such policy is a "claims made" or an
"occurrences" policy;
(iii) a description of the coverage provided by such policy
and the material terms and provisions of such policy (including all applicable
coverage limits, deductible amounts and co-insurance arrangements and any
non-customary exclusions from coverage);
(iv) the annual premium payable with respect to such policy,
and the cash value (if any) of such policy; and
(v) a description of any claims pending, and any claims that
have been asserted in the past, with respect to such policy.
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Part 3.22 also identifies (1) each pending application for insurance that
has been submitted by or on behalf of Assist, and (2) each self-insurance or
risk-sharing arrangement affecting Assist or any of its assets. Assist has
delivered to Cayenta accurate and complete copies of all of the insurance
policies identified in Part 3.22 of the Disclosure Schedule (including all
renewals thereof and endorsements thereto) and all of the pending applications
identified in Part 3.22 of the Disclosure Schedule.
(b) Each of the policies identified in Part 3.22 of the Disclosure
Schedule is valid, enforceable and in full force and effect. All of the
information contained in the applications submitted in connection with said
policies was (at the times said applications were submitted) accurate and
complete, and all premiums and other amounts owing with respect to said policies
have been paid in full on a timely basis. The nature, scope and dollar amounts
of the insurance coverage provided by said policies are sufficient to adequately
insure Assist's business, assets, operations, key employees, services and
potential liabilities.
(c) Except as set forth in Part 3.22 of the Disclosure Schedule,
there is no pending claim under or based upon any of the policies identified in
Part 3.22 of the Disclosure Schedule; and no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for any such
claim.
(d) Assist has not received:
(i) any notice or other communication (in writing or
otherwise) regarding the actual or possible cancellation or invalidation of any
of the policies identified in Part 3.22 of the Disclosure Schedule or regarding
any actual or possible adjustment in the amount of the premiums payable with
respect to any of said policies;
(ii) any notice or other communication (in writing or
otherwise) regarding any actual or possible refusal of coverage under, or any
actual or possible rejection of any claim under, any of the policies identified
in Part 3.22 of the Disclosure Schedule; or
(iii) any indication that the issuer of any of the policies
identified in Part 3.22 of the Disclosure Schedule may be unwilling or unable to
perform any of its obligations thereunder.
3.23 Related Party Transactions. Except as set forth in Part 3.23 of the
Disclosure Schedule:
(a) no Related Party has, and no Related Party has at any time since
December 31, 1997 had, any direct or indirect interest of any nature in any
asset used in or otherwise relating to the business of Assist;
(b) no Related Party is, or has at any time since December 31, 1997
been, indebted to Assist;
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(c) since December 31, 1997, no Related Party has entered into, or
has had any direct or indirect financial interest in, any Contract, transaction
or business dealing of any nature involving Assist;
(d) no Related Party is competing, or has at any time since December
31, 1997 competed, directly or indirectly, with Assist in any market served by
Assist;
(e) no Related Party has any claim or right against Assist; and
(f) no event has occurred, and no condition or circumstance exists,
that reasonably might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a basis for any claim or right in favor of
any Related Party against Assist.
3.24 Certain Payments, Etc. Neither Assist, nor any officer, employee,
agent or other Person associated with or acting for or on behalf of Assist, has
at any time, directly or indirectly:
(a) used any corporate funds (i) to make any unlawful political
contribution or gift or for any other unlawful purpose relating to any political
activity, (ii) to make any unlawful payment to any governmental official or
employee, or (iii) to establish or maintain any unlawful or unrecorded fund or
account of any nature;
(b) intentionally made any false or fictitious entry, or failed to
make any entry that should have been made, in any of the books of account or
other records of Assist;
(c) made any payoff, influence payment, bribe, rebate, kickback or
unlawful payment to any Person;
(d) performed any favor or given any gift which was not deductible
for federal income tax purposes;
(e) made any unlawful payment to any Person, or provided any
unlawful favor or anything of value (whether in the form of property or
services, or in any other form) to any Person, for the purpose of obtaining or
paying for (i) favorable treatment in securing business, or (ii) any other
special concession; or
(f) agreed, committed, offered or attempted to take any of the
actions described in clauses "(a)" through "(e)" above.
3.25 Proceedings; Orders.
(a) Except as set forth in Part 3.25 of the Disclosure Schedule,
there is no pending Proceeding, and no Person has threatened to commence any
Proceeding:
(i) that involves Assist or that otherwise relates to or
reasonably might affect Assist's business or any of the assets owned or used by
Assist (whether or not Assist is named as a party thereto); or
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(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions.
Except as set forth in Part 3.25 of the Disclosure Schedule, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
might directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding.
(b) Except as set forth in Part 3.25 of the Disclosure Schedule,
since January 1, 1996, no Proceeding has ever been commenced by or against
Assist; and no Proceeding otherwise involving or relating to Assist has been
pending or to Assist's Knowledge threatened at any time.
(c) Assist has delivered to Cayenta accurate and complete copies of
all pleadings, correspondence and other written materials to which Assist has
access that relate to the Proceedings identified in Part 3.25 of the Disclosure
Schedule.
(d) There is no Order to which Assist, or any of the assets owned or
used by Assist, is subject; and none of the Selling Shareholders is subject to
any Order that relates to Assist's business or to any of the assets owned or
used by Assist.
(e) To the Knowledge of Assist and the Selling Shareholders, no
officer or employee of Assist is subject to any Order that prohibits such
officer or employee from engaging in or continuing any conduct, activity or
practice relating to Assist's business.
(f) There is no proposed Order that, if issued or otherwise put into
effect, (i) may have an adverse effect on Assist's business, condition, assets,
liabilities, operations, financial performance or net income (or on any aspect
or portion thereof) or on the ability of Assist or any of the Selling
Shareholders to comply with or perform any covenant or obligation under any of
the Transactional Agreements, or (ii) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.
3.26 Authority; Binding Nature of Agreements.
(a) Assist has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement; and
the execution, delivery and performance by Assist of this Agreement have been
duly authorized by all necessary action on the part of Assist and its board of
directors and officers. This Agreement constitutes the legal, valid and binding
obligation of Assist, enforceable against Assist in accordance with its terms.
(b) Each Selling Shareholder has the absolute and unrestricted
right, power and capacity to enter into and to perform such Selling
Shareholder's obligations under each of the Transactional Agreements to which
such Selling Shareholder is or may become a party. This Agreement constitutes
the legal, valid and binding obligation of each of the Selling Shareholders,
enforceable against each of the Selling Shareholders in accordance with its
terms. Upon the execution of each of the other Transactional Agreements at the
Closing, each of such other Transactional Agreements will constitute the legal,
valid and binding obligation of each Selling Shareholder who is a party thereto,
and will be enforceable against such Selling Shareholder in accordance with its
terms.
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(c) The respective spouses of the Selling Shareholders have the
absolute and unrestricted right, power and capacity to execute and deliver and
to perform their obligations under the Spousal Consents, if any, being executed
by them. Said Spousal Consents constitute their legal, valid and binding
obligations, enforceable against them in accordance with their terms.
(d) The Agent has the unrestricted right, power, authority and
capacity to act for and bind each of the Selling Shareholders with respect to
all matters relating to the Transactional Agreements and the Transactions.
3.27 Non-Contravention; Consents. Except as set forth in Part 3.27 of the
Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Assist's certificate of incorporation or bylaws, or (ii) any
currently effective resolution adopted by Assist's shareholders, Assist's board
of directors or any committee of Assist's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Assist or any of the Selling Shareholders, or
any of the assets owned or used by Assist, is subject;
(c) cause Assist, Cayenta or any affiliate of Cayenta to become
subject to, or to become liable for the payment of, any Tax;
(d) cause any of the assets owned or used by Assist to be reassessed
or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Assist or any of its employees or that otherwise relates to
Assist's business or to any of the assets owned or used by Assist;
(f) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Assist Contracts (other than
any Excluded Contract);
(g) give any Person the right under any Assist Contract (other than
any Excluded Contract) to, (i) declare a default or exercise any remedy under
any Assist Contracts, (ii) accelerate the maturity or performance of any Assist
Contracts, or (iii) cancel, terminate or modify any Assist Contract;
(h) contravene, conflict with or result in a violation or breach of
or a default under any provision of, or give any Person the right to declare a
default under, any Contract to
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which any of the Selling Shareholders is a party or by which any of the Selling
Shareholders is bound; or
(i) result in the imposition or creation of any Encumbrance upon or
with respect to any material asset owned or used by Assist.
Except as set forth in Part 3.27 of the Disclosure Schedule, neither
Assist nor any of the Selling Shareholders was, is or will be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with the execution and delivery of any of the Transactional
Agreements or the consummation or performance of any of the Transactional.
3.28 Year 2000 Compliance. All of Assist's products and internal systems
are designed to be used prior to, during and after the year 2000, and are Year
2000 Compliant. At Cayenta's request, Assist will provide evidence demonstrating
adequate testing of Assist's products and internal systems to assure that they
are Year 2000 Compliant.
(a) Brokers. Neither Assist nor any of the Selling Shareholders has
agreed or become obligated to pay, or has taken any action that might result in
any Person claiming to be entitled to receive, any brokerage commission,
finder's fee or similar commission or fee in connection with any of the
Transactions.
3.29 Full Disclosure.
(a) None of the Transactional Agreements contains or will contain
any material untrue statement of fact; and none of the Transactional Agreements
omits or will omit to state any material facts necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading in light of the circumstances in which they were made.
(b) Except as set forth in Part 3.29 of the Disclosure Schedule,
there is no fact within the Knowledge of Assist (other than publicly known facts
relating exclusively to political or economic matters of general applicability
that will adversely affect all Comparable Entities) that (i) might have a
material adverse effect on Assist's business, condition, assets, liabilities,
operations, financial performance or net income (or on any aspect or portion
thereof) or on the ability of Assist or any of the Selling Shareholders to
comply with or perform any covenant or obligation under any of the Transactional
Agreements, or (ii) may have the effect of preventing, delaying, making illegal
or otherwise preventing any of the Transactions.
(c) The information in the Information Statement regarding Assist
will not, as of the date of the Information Statement or as of the Closing Date,
(i) contain any statement that is inaccurate or misleading with respect to any
material fact, (ii) omit to state any material fact; or (iii) omit to state any
material fact necessary in order to make such information (in the light of the
circumstances under which it is provided) not false or misleading.
(d) All of the information set forth in the Disclosure Schedule is
accurate and complete in all respects.
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(e) Assist and the Selling Shareholders have provided Cayenta and
Cayenta's Representatives with full and complete access to all of Assist's
records and other documents and data.
3.30 No Other Representations or Warranties. Neither Assist nor any
Selling Shareholder shall be deemed to have made to Cayenta, Cayenta Sub or
Titan or to any other Person any representation or warranty other than as
expressly made in this Agreement or any other Transactional Agreement, in the
Disclosure Schedule or in the Closing Certificate. Without limiting the
generality of the foregoing, neither Assist nor any Selling Shareholder makes
any representation or warranty with respect to any projections, estimates or
budgets relating to future operations or results of operations of Assist
heretofore delivered or made available to Cayenta, Cayenta Sub or Titan or any
of their Representatives.
4. REPRESENTATIONS AND WARRANTIES OF CAYENTA AND CAYENTA SUB
Cayenta and Cayenta Sub each represents and warrants, to and for the
benefit of the Selling Shareholders, as follows:
4.1 Due Organization. Cayenta is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary power and authority to conduct its business in the manner in which
its business is currently being conducted and to own and use its assets in the
manner in which its assets are currently owned and used. Cayenta Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary power and authority to conduct
its business in the manner in which its business is currently being conducted
and to own and use its assets in the manner in which its assets are currently
owned and used. Cayenta and Cayenta Sub are not required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than California and Virginia except where the failure to
be so qualified has not had and reasonably is not expected to have a material
adverse effect on the business or financial condition of Cayenta.
4.2 Authority; Binding Nature of Agreements. Cayenta and Cayenta Sub each
has the absolute and unrestricted right, power and authority to enter into and
to perform its obligations under the Transaction Agreements; and the execution,
delivery and performance by Cayenta and Cayenta Sub of the Transaction
Agreements have been duly authorized by all necessary action on the part of
Cayenta and its stockholders, board of directors and officers and by Cayenta Sub
and its stockholders, board of directors and officers. This Agreement
constitutes the legal, valid and binding obligation of Cayenta and Cayenta Sub,
enforceable against Cayenta and Cayenta Sub, respectively, in accordance with
its terms.
4.3 Non-Contravention; Consents. Except as set forth in Part 4.3 of the
Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Cayenta's or Cayenta Sub's certificate of incorporation or
bylaws, or (ii) any resolution
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adopted by Cayenta's or Cayenta Sub's stockholders, Cayenta's or Cayenta Sub's
board of directors or any committee of Cayenta's or Cayenta Sub's board of
directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Cayenta or any of the assets owned or used by
Cayenta, is subject or to which Cayenta Sub or any of the assets owned or used
by Cayenta Sub is subject;
(c) cause Cayenta or Cayenta Sub or any affiliate of Cayenta or
Cayenta Sub to become subject to, or to become liable for the payment of, any
Tax;
(d) cause any of the assets owned or used by Cayenta or Cayenta Sub
to be reassessed or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Cayenta or Cayenta Sub or any of their respective employees or
that otherwise relates to Cayenta's or Cayenta Sub's business or to any of the
assets owned or used by Cayenta or Cayenta Sub;
(f) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Contracts of Cayenta or
Cayenta Sub;
(g) give any Person the right under any Cayenta or Cayenta Sub
Contracts (other than Excluded Contracts) to (i) declare a default or exercise
any remedy under any Contracts of Cayenta or Cayenta Sub, (ii) accelerate the
maturity or performance of any Contracts of Cayenta or Cayenta Sub, or (iii)
cancel, terminate or modify any Contracts of Cayenta or Cayenta Sub; or
(h) result in the imposition or creation of any Encumbrance upon or
with respect to any material asset owned or used by Cayenta or Cayenta Sub.
Except as set forth in Part 4.3 of the Disclosure Schedule, neither Cayenta nor
Cayenta Sub was, is or will be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of Transactions contemplated by this
Agreement.
4.4 Capitalization, Etc.
(a) The authorized capital stock of Cayenta consists of:
(i) 100,000,000 shares of Class A common stock having a par
value of $.001 per share, none of which is outstanding as of the date of this
Agreement;
(ii) 50,000,000 shares of Class B common stock having a par
value of $.001 per share, none of which is outstanding as of the date of this
Agreement;
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(iii) 2,345,000 shares of Series A preferred stock having a
par value of $.001 per share, none of which is outstanding as of the date of
this Agreement;
(iv) 15,000,000 shares of preferred stock (excluding the
Series A preferred stock) having a par value of $.001 per share; and
(v) 3,343,800 shares that will be reserved for issuance under
options and warrants.
(b) Upon Closing and the issuance of the Cayenta Shares pursuant to
this Agreement and upon the concurrent closing of the other transactions that
are part of Section 351 Plan, the following shares of capital stock of Cayenta
will be issued and outstanding:
(i) 10,000,000 shares of Class B common stock;
(ii) 566,458 shares of Class A common stock; and
(iii) 2,345,000 shares of Series A preferred stock.
(c) Upon Closing pursuant to this Agreement and upon the concurrent
closing of the other transactions that are part of the Section 351 Plan, all of
the capital stock of Cayenta Sub will be owned by Cayenta.
(d) The Cayenta Shares when issued and delivered in accordance with
this Agreement in the Exchange shall be duly and validly authorized and issued,
fully paid and nonassessable.
4.5 Financial Statements. Cayenta Sub has delivered to Assist the
unaudited balance sheet of Cayenta Sub as of September 30, 1999, and the related
unaudited statements of operations, changes in shareholders' equity and cash
flows of Cayenta Sub for the nine months then ended (collectively, the "Cayenta
Financial Statements"). All of the Cayenta Financial Statements are accurate and
complete in all respects, subject to normal year end audit adjustments. The
financial statements present fairly the financial position of Cayenta Sub as of
September 30, 1999 and the results of operations, changes in shareholders'
equity and cash flows of Cayenta Sub for nine months then ended. The Cayenta
Financial Statements have been prepared in accordance with generally accepted
accounting principles, applied on a consistent basis throughout the periods
covered.
4.6 No Adverse Change. There has not been any material adverse change in
Cayenta or Cayenta Sub's business, condition, assets, liabilities, operations,
financial performance or net income (or in any aspect or portion thereof) since
September 30, 1999, and no event since September 30, 1999 has occurred that
reasonably might have a material adverse effect on Cayenta or Cayenta Sub's
business, condition, assets, liabilities, operations, financial performance or
net income (or in any aspect or portion thereof).
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4.7 Proceedings.
(a) There is no pending Proceeding, and no Person has threatened to
commence any Proceeding:
(i) that involves Cayenta or Cayenta Sub or that otherwise
relates to or reasonably might affect Cayenta's or Cayenta Sub's business or any
of the assets owned or used by Cayenta or Cayenta Sub (whether or not Cayenta or
Cayenta Sub is named as a party thereto); or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions.
(b) No event has occurred, and no claim, dispute or other condition
or circumstance exists, that might directly or indirectly give rise to or serve
as a basis for the commencement of any such Proceeding.
4.8 Brokers. Except for fees payable to Batchelder & Partners, Inc. by
Titan, Cayenta has not agreed or become obligated to pay, and has not taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions.
4.9 No Other Representations or Warranties. Neither Cayenta, Cayenta Sub
nor Titan shall be deemed to have made to Assist, the Selling Shareholders or to
any other Person any representation or warranty other than as expressly made in
this Agreement or any other Transaction Agreement, in the Closing Certificate.
Without limiting the generality of the foregoing, neither Cayenta, Cayenta Sub,
nor Titan makes any representation or warranty with respect to any projections,
estimates or budgets relating to future operations or results of operations of
Cayenta or Cayenta Sub heretofore delivered or made available to Assist or any
of their Representatives.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder understands, or has been advised by its Purchaser
Representative, that Cayenta Shares have not been registered under the
Securities Act. Each Selling Shareholder also understands, or has been advised
by its Purchaser Representative, that Cayenta Shares are being issued pursuant
to an exemption from registration contained in the Securities Act based in part
upon such Selling Shareholder's representations contained in this Agreement.
Each Selling Shareholder hereby represents and warrants, to and for the benefit
of Cayenta and Assist, as follows:
5.1 Selling Shareholder Bears Economic Risk. The Selling Shareholder has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to Cayenta so that he or it is
capable of, or has been advised by his or its Purchaser Representative
regarding, evaluating the merits and risks of an investment in Cayenta and has
the capacity to protect his or its own interests. The Selling Shareholder must
bear the economic risk of this investment indefinitely unless Cayenta Shares are
registered pursuant to the Securities Act, or an exemption from registration is
available. The Selling Shareholder
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understands that Cayenta has not made any commitment to register any of its
shares under the Securities Act of 1933, as amended. The Selling Shareholder
also understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow the Selling Shareholder to transfer all or any portion
of Cayenta Shares under the circumstances, in the amounts or at the times the
Selling Shareholder might propose.
5.2 Acquisition for Own Account. The Selling Shareholder is acquiring
Cayenta Shares for the Selling Shareholder's own account for investment only,
and not with a view towards their distribution.
5.3 Selling Shareholder Can Protect Its Interest. The Selling Shareholder
represents that either (i) by reason of his or its, or of its management's,
business or financial experience, the Selling Shareholder has the capacity to
protect its own interests in connection with the transactions contemplated by
this Agreement or (ii) he or it has had its interests represented by a Purchaser
Representative (as defined in Rule 501 of Regulation D) in the transactions
contemplated by this Agreement. Further, the Selling Shareholder is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
5.4 Accredited Investor. The Selling Shareholder represents either (i)
that he or it is an accredited investor within the meaning of Regulation D under
the Securities Act or (ii) that he or it has been advised by a Purchaser
Representative (as defined in Rule 501 of Regulation D).
5.5 Company Information. The Selling Shareholder has received and read the
information provided by Cayenta or has had such information explained by its
Purchaser Representative and either the Selling Shareholder or its Purchaser
Representative has had an opportunity to discuss Cayenta's business, management
and financial affairs with directors, officers and management of Cayenta and has
had the opportunity to review Cayenta's operations and facilities. The Selling
Shareholder or his or its Purchaser Representative has also had the opportunity
to ask questions of and receive answers from, Cayenta and its management
regarding the terms and conditions of this investment.
5.6 Rule 144. The Selling Shareholder acknowledges and agrees that Cayenta
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. The
Selling Shareholder has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act as in effect from time to time, which
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about Cayenta, the resale
occurring following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
5.7 Residence. If the Selling Shareholder is an individual, then the
Selling Shareholder resides in the state or province identified in the address
of the Selling Shareholder set forth on Exhibit D; if the Selling Shareholder is
a partnership, corporation, limited liability company or other entity, then the
office or offices of the Selling Shareholder in which its
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investment decision was made is located at the address or addresses of the
Selling Shareholder set forth on Exhibit D.
5.8 Selling Shareholder.
(a) The Selling Shareholder has the capacity and financial
capability to comply with and perform all of such Selling Shareholder's
covenants and obligations under each of the Transactional Agreements to which
such Selling Shareholder is or may become a party.
(b) No Selling Shareholder:
(i) has, at any time, (A) made a general assignment for the
benefit of creditors, (B) filed, or had filed against such Selling Shareholder,
any bankruptcy petition or similar filing, (C) suffered the attachment or other
judicial seizure of all or a substantial portion of such Selling Shareholder's
assets, (D) admitted in writing such Selling Shareholder's inability to pay such
Selling Shareholder's debts as they become due, (E) been convicted of, or
pleaded guilty to, any felony, or (F) taken or been the subject of any action
that may have an adverse effect on such Selling Shareholder's ability to comply
with or perform any of such Selling Shareholder's covenants or obligations under
any of the Transactional Agreements; or
(ii) is subject to any Order that may have an adverse effect
on such Selling Shareholder's ability to comply with or perform any of such
Selling Shareholder's covenants or obligations under any of the Transactional
Agreements.
There is no Proceeding pending, and no Person has threatened to commence
any Proceeding, that may reasonably have an adverse effect on the ability of any
Selling Shareholder to comply with or perform any of such Selling Shareholder's
covenants or obligations under any of the Transactional Agreements. No event has
occurred, and no claim, dispute or other condition or circumstance exists, that
reasonably might directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding.
6. PRE-CLOSING COVENANTS OF ASSIST AND SELLING SHAREHOLDERS
6.1 Access and Investigation. Assist and the Selling Shareholders shall
ensure that, at all times during the Pre-Closing Period:
(a) Assist and its Representatives provide Cayenta and its
Representatives with free and complete access to Assist's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Companies;
(b) Assist and its Representatives provide Cayenta and its
Representatives with such copies of existing books, records, Tax Returns, work
papers and other documents and information relating to the Companies as Cayenta
may request in good faith; and
(c) Assist and its Representatives compile and provide Cayenta and
its Representations with such additional financial, operating and other data and
information regarding the Companies as Cayenta may request in good faith.
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6.2 Operation of Business. Assist and the Selling Shareholders shall use
Best Efforts to ensure that, during the Pre-Closing Period:
(a) none of the Selling Shareholders directly or indirectly sells or
otherwise transfers, or offers, agrees or commits (in writing or otherwise) to
sell or otherwise transfer, any of the Shares or any interest in or right
relating to any of the Shares;
(b) none of the Selling Shareholders permits, and none of the
Selling Shareholders offers, agrees or commits (in writing or otherwise) to
permit, any of the Shares to become subject, directly or indirectly, to any
Encumbrance;
(c) Assist preserves intact its current business organization, keeps
available the services of its current officers and employees and maintains its
relations and good will with all suppliers, customers, landlords, creditors,
licensors, licensees, employees and other Persons having business relationships
with Assist;
(d) Assist keeps in full force all insurance policies identified in
Part 3.22 of the Disclosure Schedule;
(e) Except as otherwise prohibited by law, Assist's officers confer
regularly with Cayenta concerning operational matters and otherwise report
regularly to Cayenta concerning the status of Assist's business, condition,
assets, liabilities, operations, financial performance and prospects;
(f) Assist immediately notifies Cayenta of any inquiry, proposal or
offer from any Person relating to any Acquisition Transaction;
(g) Assist and its officers use their Best Efforts to cause the
Company to operate the business prudently and in the Ordinary Course of
Business, consistent with past practices, and the Company's current business
plan which includes the development of the application service provider and
total service provider businesses using the Company's current product offerings;
(h) Assist does not declare, accrue, set aside or pay any dividend
or make any other distribution in respect of any shares of capital stock, and
does not repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities except for the redemption of the Series A and Series B
preferred stock in accordance with this Agreement and the cash-out of certain
outstanding options prior to the Closing in accordance with this Agreement;
(i) Assist does not sell or otherwise issue any shares of capital
stock or any other securities other than upon the exercise of outstanding
warrants or options;
(j) Assist does not amend its certificate of incorporation or
bylaws, and does not effect or become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(k) Assist does not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
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(l) Assist does not make any capital expenditure, except for capital
expenditures that are made in the Ordinary Course of Business and that, when
added to all other capital expenditures made on behalf of Assist during the
Pre-Closing Period, do not exceed $100,000 in the aggregate;
(m) Assist does not enter into or permit any of the assets owned or
used by Assist to become bound by any Contract, except for any Excluded
Contract;
(n) Assist does not incur, assume or otherwise become subject to any
Liability, except for current liabilities (of the type required to be reflected
in the "liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred in the Ordinary Course of Business;
(o) Assist does not establish or adopt any Employee Benefit Plan,
and does not pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
(p) Assist does not change any of its methods of accounting or
accounting practices in any material respect;
(q) Assist does not make any Tax election;
(r) Assist does not commence any Proceeding;
(s) Assist does not enter into any transaction or take any other
action of the type referred to in Section 3.5;
(t) Assist does not knowingly enter into any transaction or take any
other action that reasonably might cause or constitute a Breach of any
representation or warranty made by Assist or any of the Selling Shareholders in
this Agreement or in the Closing Certificate; and
(u) Assist does not agree, commit or offer (in writing or
otherwise), and does not attempt, to take any of the actions described in
clauses "(i)" through "(t)" of this Section 6.2.
6.3 Filings and Consents. Assist and the Selling Shareholders shall ensure
that:
(a) each other filing or notice required to be made or given
(pursuant to any applicable Legal Requirement, Order or Contract, or otherwise)
by Assist or any of the Selling Shareholders in connection with the execution
and delivery of any of the Transactional Agreements or in connection with the
consummation or performance of any of the Transactions (including each of the
filings and notices identified in Part 3.28 of the Disclosure Schedule) is made
or given as soon as possible after the date of this Agreement;
(b) each Consent required to be obtained (pursuant to any applicable
Legal Requirement, Order or Contract, or otherwise) by Assist or any of the
Selling Shareholders in connection with the execution and delivery of any of the
Transactional Agreements or in connection with the consummation or performance
of any of the Transactions (including each of
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the Consents identified in Part 3.28 of the Disclosure Schedule) is obtained as
soon as possible after the date of this Agreement and remains in full force and
effect through the Closing Date;
(c) Assist promptly delivers to Cayenta a copy of each filing made,
each notice given and each Consent obtained by Assist or any Selling Shareholder
during the Pre-Closing Period; and
(d) during the Pre-Closing Period, Assist and its Representatives
cooperate with Cayenta and with Cayenta's Representatives, and prepare and make
available such documents and take such other actions as Cayenta may request in
good faith, in connection with any filing, notice or Consent that Cayenta is
required or elects to make, give or obtain.
6.4 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Assist and the Selling
Shareholders shall promptly notify Cayenta in writing of:
(i) the discovery by Assist or any of the Selling Shareholders
of any event, condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or constitutes a Breach of
any representation or warranty made by Assist or any of the Selling Shareholders
in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a Breach of any representation or warranty made by Assist or any of
the Selling Shareholders in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any Breach of any covenant or obligation of Assist or
any of the Selling Shareholders; and
(iv) any event, condition, fact or circumstance that may make
the timely satisfaction of any of the conditions set forth in Section 8 or
Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 6.4(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then Assist and the Selling Shareholders shall promptly deliver to
Cayenta an update to the Disclosure Schedule specifying such change. No such
update shall be deemed to supplement or amend the Disclosure Schedule for the
purpose of (i) determining the accuracy of any of the representations and
warranties made by Assist or any of the Selling Shareholders in this Agreement
or in the Closing Certificate, or (ii) determining whether any of the conditions
set forth in Section 8 has been satisfied unless Cayenta and Assist agree that
such supplement or update shall constitute an amendment to this Agreement;
provided, however, that if Cayenta agrees to close the Transactions
notwithstanding any Breach disclosed through any
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update of the Disclosure Schedule, Cayenta shall not have the right to seek
Damages with respect to such Breach unless Cayenta and Agent have agreed to
amend the Agreement to provide for such indemnity; and provided further, that if
Cayenta and Agent cannot agree in good faith on an appropriate remedy for a
Breach that occurs prior to the Closing and close the Transactions and the
Agreement is terminated, then Cayenta's remedies will be limited as follows: (a)
if the Breach existed as of the date of this Agreement, then Cayenta shall be
entitled to be reimbursed for its direct out of pocket professional fees for the
Transactions; (b) if the Breach is the result of any event, circumstance, or
condition occurring or arising after the date of execution and prior to the
Closing, then Cayenta's sole remedy shall be termination of this Agreement.
6.5 Payment of Indebtedness by Related Parties. Assist and the Selling
Shareholders shall cause all indebtedness and other Liabilities of each Related
Party to Assist (including any such indebtedness or other Liability identified
in Part 3.23 of the Disclosure Schedule) to be discharged and paid in full prior
to the Closing.
6.6 No Negotiation. Assist and the Selling Shareholders shall ensure that,
during the Pre-Closing Period, neither Assist nor any of Assist's
Representatives directly or indirectly:
(a) solicits or encourages the initiation of any inquiry, proposal
or offer from any Person (other than Cayenta) relating to any Acquisition
Transaction;
(b) participates in any discussions (other than the mere receipt of
an unsolicited inquiry, proposal or offer that Assist promptly reports in
writing to Cayenta) or negotiations with, or provides any non-public information
to, any Person (other than Cayenta) relating to any Acquisition Proposal; or
(c) considers the merits of any unsolicited inquiry, proposal or
offer from any Person (other than Cayenta) relating to any Acquisition
Transaction.
6.7 Best Efforts. During the Pre-Closing Period, Assist and the Selling
Shareholders shall use their Best Efforts to cause the conditions set forth in
Sections 8 and 9 to be satisfied on a timely basis.
6.8 Confidentiality. Except for limited disclosures to Persons who are not
parties to this Agreement in order to obtain Consents, Assist and the Selling
Shareholders shall ensure that, during the Pre-Closing Period:
(a) Assist and its Representatives keep strictly confidential the
existence and terms of this Agreement;
(b) neither Assist nor any of its Representatives issues or
disseminates any press release or other publicity or otherwise makes any
disclosure of any nature (to any of Assist's suppliers, customers, landlords,
creditors or employees or to any other Person) regarding any of the
Transactions, except to the extent that Assist is required by law to make any
such disclosure regarding the Transactions; and
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(c) if Assist is required by law to make any disclosure regarding
the Transactions, Assist advises Cayenta, at least five business days before
making such disclosure, of the nature and content of the intended disclosure.
7. PRE-CLOSING COVENANTS OF CAYENTA AND CAYENTA SUB
7.1 Cayenta and Cayenta Sub shall ensure that, during the Pre-Closing
Period:
(a) Cayenta, Cayenta Sub, Titan and their Representatives keep
strictly confidential the existence and terms of this Agreement;
(b) neither Cayenta, Cayenta Sub, nor Titan nor any of their
Representatives issues or disseminates any press release or other publicity or
otherwise makes any disclosure of any nature (to any of Assist's suppliers,
customers, landlords, creditors or employees or to any other Person) regarding
any of the Transactions, except to the extent that Cayenta, Cayenta Sub or Titan
is required by law to make any such disclosure regarding the Transactions; and
(c) if Titan, Cayenta or Cayenta Sub is required by law to make any
disclosure regarding the Transactions, Cayenta advises Assist at least five
business days before making such disclosure, of the nature and content of the
intended disclosure.
8. CONDITIONS PRECEDENT TO CAYENTA'S OR CAYENTA SUB'S OBLIGATION TO CLOSE
Cayenta's obligation to consummate the Exchange and Cayenta Sub's
obligation to purchase the Purchased Shares and to take the other actions
required to be taken by Cayenta or Cayenta Sub at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Cayenta or Cayenta Sub's, in whole or in part, in
accordance with Section 12.15):
8.1 Satisfactory Completion of Pre-Acquisition Review. Cayenta shall have
satisfactorily completed its pre-acquisition investigation and review of
Assist's business, condition, assets, liabilities, operations, financial
performance, net income and prospects and shall be satisfied with the results of
that investigation and review.
8.2 Accuracy of Representations.
(a) Each of the Specified Representations shall have been accurate
in all respects as of the Scheduled Closing Time as if made at the Scheduled
Closing Time and as of the Closing as if made at the Closing, without giving
effect to any update to the Disclosure Schedule.
(b) All of the other representations and warranties made by Assist
and the Selling Shareholders in this Agreement (considered collectively), and
each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Scheduled Closing Time
as if made at the Scheduled Closing Time and as of the Closing, as if made at
the Closing, each without giving effect to any update to the Disclosure
Schedule.
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8.3 Performance of Obligations. All of the other covenants and obligations
that Assist and the Selling Shareholders are required to comply with or to
perform at or prior to the Closing (considered collectively), and each of said
covenants and obligations (considered individually), shall have been duly
complied with and performed in all material respects.
8.4 Approval of Cayenta's Board of Directors; Consents.
(a) Cayenta's and Cayenta Sub's board of directors shall have
ratified the execution of this Agreement by Cayenta and Cayenta Sub and shall
have approved the consummation of the Transactions.
(b) Each of the Consents identified in Part 3.27 of the Disclosure
Schedule shall have been obtained and shall be in full force and effect.
8.5 No Material Adverse Change. There shall have been no material adverse
change in Assist's business, condition, assets, liabilities, operations,
financial performance, net income or prospects (or in any aspect or portion
thereof) since September 30, 1999.
8.6 Regulation D. The Exchange shall be exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Rule 506
under Regulation D as reasonably determined by counsel for Cayenta.
8.7 Cash Out of Options. All options and rights to acquire any capital
stock of Assist other than options or warrants exercised by the Selling
Shareholders immediately prior to the Closing shall have been cashed out in
accordance with the Agreement to terminate options, which shall be fully
executed by each holder of a cashed out option or warrant. No more than
5,061,810 options and warrants shall have been exercised by the Selling
Shareholders.
8.8 Section 351 Plan. The other transactions contemplated by the Section
351 Plan shall have been concurrently consummated in accordance with the Section
351 Plan attached as Exhibit E.
8.9 Closing Documents. Cayenta shall have received the following
documents:
(a) the Selling Shareholders shall have executed and deliver to
Cayenta and Assist a General Release in the form of Exhibit F;
(b) Cayenta shall have received from the Selling Shareholders' and
Assist's counsel an opinion of such counsel substantially in the form of Exhibit
G;
(c) Assist shall have executed and deliver to Cayenta a certificate
(the "Closing Certificate") setting forth the estimated Debt and the estimated
Working Capital of Assist as of the Closing Date and that (A) each of the
representations and warranties made by Assist and the Selling Shareholders in
this Agreement was accurate in all respects as of the date of this Agreement,
(B) except as expressly set forth in the Closing Certificate, each of the
Specified Representations made by Assist and the Selling Shareholders in this
Agreement is accurate in all respects as of the Closing Date as if made on the
Closing Date and each of the other representations and warranties made by Assist
and the Selling Shareholders in this
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Agreement is accurate in all material respects as of the Closing Date (without
giving effect to any materiality exception within the representation or
warranty), (C) each of the covenants and obligations that Assist and the Selling
Shareholders are required to have complied with or performed pursuant to this
Agreement at or prior to the Closing has been duly complied with and performed
in all respects, and (D) except as expressly set forth in the Closing
Certificate, each of the conditions set forth in Sections 8.4(b), 8.5, 8.7,
8.10, 8.11, 8.12 and 8.13 has been satisfied in all respects;
(d) Assist shall have delivered to Cayenta a statement (in such form
as may be reasonably requested by counsel to Cayenta) conforming to the
requirements of Section 1.897-2(h)(1)(i) of the United States Treasury
Regulations and Assist shall deliver to the Internal Revenue Service the
notification required under Section 1.897-2(h)(2) of the United States Treasury
Regulations;
(e) Resignations of the directors and officers of Assist from their
respective positions as directors and officers of Assist;
(f) Scott Pynes shall have executed and delivered to Assist and
Cayenta a noncompetition agreement;
(g) estoppel certificates executed on behalf of Assist's landlord,
dated as of a date not more than three days prior to the Closing Date and
satisfactory in form and content to Cayenta; and
(h) such other documents as Cayenta may request in good faith for
the purpose of (i) evidencing the accuracy of any representation or warranty
made by Assist or any of the Selling Shareholders, (ii) evidencing the
compliance by Assist or any of the Selling Shareholders with, or the performance
by Assist or any of the Selling Shareholders of, any covenant or obligation set
forth in this Agreement, (iii) evidencing the satisfaction of any condition set
forth in this Section 8, or (iv) otherwise facilitating the consummation of or
performance of any of the Transactions.
8.10 No Proceedings. Since the date of this Agreement, there shall not
have been commenced or threatened against Cayenta, or against any Person
affiliated with Cayenta, any Proceeding (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Transactions, or
(b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
8.11 No Claim Regarding Stock Ownership or Sale Proceeds. No Person shall
have made or threatened any claim asserting that such Person (a) may be the
holder or the beneficial owner of, or may have the right to acquire or to obtain
beneficial ownership of, any capital stock or other securities of Assist, or (b)
may be entitled to all or any the Purchase Price or Cayenta Shares.
8.12 No Prohibition. Neither the consummation nor the performance of any
of the Transactions will, directly or indirectly (with or without notice or
lapse of time), contravene or conflict with or result in a violation of, or
cause Cayenta or any Person affiliated with Cayenta to suffer any material
adverse consequence under, (a) any applicable Legal Requirement or Order,
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or (b) any Legal Requirement or Order that has been proposed by or before any
Governmental Body.
8.13 Confidential Information and Invention Assignment Agreements. All
current employees of Assist shall have executed and delivered to Assist an
agreement (containing no exceptions to or exclusions from the scope of its
coverage except for prior inventions that do not conflict with the operations of
Assist's business or the use of Assist assets) that is substantially identical
to the standard form of Confidential Information and Invention Assignment
Agreement previously delivered to Cayenta.
9. CONDITIONS PRECEDENT TO ASSIST'S AND SELLING SHAREHOLDERS' OBLIGATION TO
CLOSE
The Selling Shareholders' obligation to sell the Shares and to take the
other actions required to be taken by the Selling Shareholders at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Agent, in whole or in
part, in accordance with Section 12.15):
9.1 Accuracy of Representations. All of the representations and warranties
made by Cayenta in this Agreement (considered collectively), and each of said
representations and warranties (considered individually), shall have been
accurate in all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Scheduled Closing Time as if made at
the Scheduled Closing Time.
9.2 Cayenta's Performance. All of the other covenants and obligations that
Cayenta is required to comply with or to perform pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of said covenants
and obligations (considered individually), shall have been complied with and
performed in all material respects.
9.3 Closing Documents. The Agent shall have received the following
documents:
(a) Cayenta shall have executed and delivered the Investor Rights
Agreement in the form of Exhibit C;
(b) Cayenta and Cayenta Sub shall have executed and delivered to the
Agent a certificate (the "Closing Certificate") that (A) each of the
representations and warranties made by Cayenta and Cayenta Sub in this Agreement
was accurate in all respects as of the date of this Agreement, (B) except as
expressly set forth in the Closing Certificate, each of the Specified
Representations made by Cayenta and Cayenta Sub in this Agreement is accurate in
all respects as of the Closing Date as if made on the Closing Date and each of
the representations and warranties made by Cayenta and Cayenta Sub in this
Agreement is accurate in all material respects as of the Closing Date as if made
on the Closing Date, and (C) each of the covenants and obligations that Cayenta
and Cayenta Sub is required to have complied with or performed pursuant to this
Agreement at or prior to the Closing has been duly complied with and performed
in all respects.
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10. TERMINATION
10.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Cayenta if (i) there is a material Breach of any covenant or
obligation of Assist or any of the Selling Shareholders, or (ii) Cayenta
reasonably determines that the timely satisfaction of any condition set forth in
Section 8 has become impossible or impractical (other than as a result of any
failure on the part of Cayenta to comply with or perform its covenants and
obligations under this Agreement);
(b) by the Agent if (i) there is a material Breach of any covenant
or obligation of Cayenta, or (ii) the Agent reasonably determines that the
timely satisfaction of any condition set forth in Section 9 has become
impossible or impractical (other than as a result of any failure on the part of
Assist or any of the Selling Shareholders to comply with or perform any covenant
or obligation set forth in this Agreement);
(c) by Cayenta at or after the Scheduled Closing Time if any
condition set forth in Section 8 has not been satisfied by the Scheduled Closing
Time;
(d) by the Agent at or after the Scheduled Closing Time if any
condition set forth in Section 9 has not been satisfied by the Scheduled Closing
Time;
(e) by Cayenta if the Closing has not taken place on or before
December 31, 1999 (other than as a result of any failure on the part of Cayenta
to comply with or perform its covenants and obligations under this Agreement);
(f) by the Agent if the Closing has not taken place on or before
December 31, 1999 (other than as a result of the failure on the part of Assist
or any of the Selling Shareholders to comply with or perform any covenant or
obligation set forth in this Agreement); or
(g) by the mutual consent of Cayenta, Cayenta Sub and the Agent.
10.2 Termination Procedures. If Cayenta and Cayenta Sub wishes to
terminate this Agreement pursuant to Section 10.1(a), Section 10.1(c) or Section
10.1(e), Cayenta and Cayenta Sub shall deliver to the Agent a written notice
stating that Cayenta and Cayenta Sub is terminating this Agreement and setting
forth a brief description of the basis on which Cayenta and Cayenta Sub is
terminating this Agreement. If the Agent wishes to terminate this Agreement
pursuant to Section 10.1(b), Section 10.1(d) or Section 10.1(f), the Agent shall
deliver to Cayenta and Cayenta Sub a written notice stating that the Agent is
terminating this Agreement and setting forth a brief description of the basis on
which the Agent is terminating this Agreement.
10.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that:
(a) the parties shall, in all events, remain bound by and continue
to be subject to the provisions set forth in Section 12; and
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(b) Assist and the Selling Shareholders shall, in all events, remain
bound by and continue to be subject to Section 6.8.
11. INDEMNIFICATION, ETC.
11.1 Survival of Representations and Covenants.
(a) The representations, warranties, covenants and obligations of
each party shall survive (without limitation):
(i) the Exchange, the purchase and sale of the Purchased
Shares and the other Transactions;
(ii) any sale or other disposition of Assist or any assets of
Assist by Cayenta; and
(iii) any Acquisition Transaction effected by or otherwise
involving Cayenta or Assist.
All of said representations, warranties, covenants and obligations shall
remain in full force and effect and shall survive until 11:59 p.m. on the 18
month anniversary of the Closing Date; except the Specified Representations
shall survive until the fourth anniversary of the Closing Date.
(b) The representations, warranties, covenants and obligations of
Assist and the Selling Shareholders, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any information furnished to, or any investigation made by or
Knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
Assist and the Selling Shareholders in this Agreement.
11.2 Indemnification by Selling Shareholders.
(a) The Selling Shareholders, jointly but not severally (except
where the Selling Shareholder makes a representation or warranty only with
respect to himself or itself in which case such Selling Shareholder shall
solely), shall hold harmless and indemnify each of the Indemnitees from and
against, and shall compensate and reimburse each of the Indemnitees for, any
Damages which are directly or indirectly suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject at
any time during the 18 month period described in Section 11.1(a) above
(regardless of whether or not such Damages relate to any third-party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with:
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(i) any Breach of any representation or warranty made by
Assist or any of the Selling Shareholders in this Agreement or in the Closing
Certificate, subject to Section 6.4(b);
(ii) any Breach of any representation, warranty, statement,
information or provision contained in the Disclosure Schedule, subject to
Section 6.4(b);
(iii) any Breach of any covenant or obligation of Assist or
any of the Selling Shareholders, subject to Section 6.4(b);
(iv) any matter identified or referred to in Part 3.15 or Part
3.25 of the Disclosure Schedule (provided no Purchase Price adjustment is made
on account of any such specific matter following the post-closing audit); or
(v) any Proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," or "(iv)," above (including any Proceeding commenced by
any Indemnitee for the purpose of enforcing any of its rights under this Section
11).
(b) The Selling Shareholders acknowledge and agree that, if there is
any Breach of any representation, warranty or other provision relating to Assist
or Assist's business, condition, assets, liabilities, operations, financial
performance or net income (or any aspect or portion thereof), then Cayenta and
Cayenta Sub itself shall be deemed, by virtue of its ownership of common stock
of Assist, to have incurred Damages as a result of such Breach or Liability.
Nothing contained in this Section 11.2(b) shall have the effect of (i) limiting
the circumstances under which Cayenta and Cayenta Sub may otherwise be deemed to
have incurred Damages for purposes of this Agreement, (ii) limiting the other
types of Damages that Cayenta and Cayenta Sub may be deemed to have incurred
(whether in connection with any such Breach or Liability or otherwise), or (iii)
limiting the rights of Assist or any of the other Indemnitees under this Section
11.2. Nothing herein shall entitle Cayenta or Cayenta Sub and Assist to recover
Damages more than once on the same claim although the Damage recovery may be
allocated among the Indemnitees.
11.3 Threshold.
(a) Subject to Section 11.3(b), the Selling Shareholders shall not
be required to make any indemnification payment pursuant to Section 11.2 until
such time as the total amount of all Damages (including the Damages arising from
such Breach and all other Damages arising from any other Breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds the amount equal
to the positive Working Capital as shown in the Audited Balance Sheet, if any,
(the "Deductible"). At such time as the total amount of Damages exceeds the
Deductible, the Indemnitees shall be entitled to be indemnified against any
Damages in excess of the Deductible.
(b) The limitation on the Selling Shareholders' indemnification
obligations that is set forth in Sections 11.3(a) and 11.7 shall not apply to
(i) any Breach of any of the Specified Representations, or (ii) any act or
omission ruled by a non-appealable judgment
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to have been fraud by Assist or any of the Selling Shareholders in connection
with the Transaction. In no event shall any Selling Shareholder's liability for
the Specified Representations exceed its or his pro rata share of the Purchase
Price and the then fair market value of the Cayenta Shares. A Selling
Shareholder can satisfy this obligation by delivery of his or its pro rata share
of the Purchase Price and the Cayenta Shares. To the extent that a Selling
Shareholder does not deliver Cayenta Shares, then his or its liability under
this subsection shall be limited to his or its pro rata share of the Purchase
Price plus the fair market value of the Cayenta Shares he or it still owns plus
the proceeds received by the Selling Shareholder from the sale of such Cayenta
Shares, net of brokerage or underwriting commissions only.
11.4 Right to Require Cure of Breach. Without limiting the generality of
anything contained in Section 11.2, if there is any Breach of any representation
or warranty made by Assist or any of the Selling Shareholders after the
Deductible is satisfied, then the Selling Shareholders, jointly but not
severally, may elect to (a) pay Damages to Cayenta, Cayenta Sub or Assist or (b)
take such other actions as Cayenta may in good faith reasonably request for the
purpose of causing such Breach to be corrected, cured and eliminated in all
respects (at no cost to Assist or Cayenta or Cayenta Sub).
11.5 No Contribution. Each Selling Shareholder waives, and acknowledges
and agrees that such Selling Shareholder shall not have and shall not exercise
or assert or attempt to exercise or assert, any right of contribution or right
of indemnity or any other right or remedy against Assist in connection with any
indemnification obligation or any other Liability to which such Selling
Shareholder may become subject under any of the Transactional Agreements or
otherwise in connection with any of the Transactions.
11.6 Interest. Any party that is required to indemnify any other Person
pursuant to this Section 11 with respect to any Damages shall also be required
to pay such other Person interest on the amount of such Damages (for the period
commencing as of the date on which such other Person first gave notice of such
Damages to the Agent and ending on the date on which the applicable
indemnification payment is made by such party) at a floating rate three
percentage points above the rate of interest publicly announced by Bank of
America, N.T. & S.A. from time to time as its prime, base or reference rate;
provided that to the extent that Damages are recovered through setoffs against
the Second Installment or the Third Installment, no interest will be payable on
the set off amount in lieu of recovering interest under this Section 11.6.
11.7 Setoff/ Limited Recourse. Subject to Section 11.3, an Indemnitee's
sole remedy under this Agreement shall be to set off any amount that may be owed
to any Indemnitee under this Section 11 against the Second Installment and the
Third Installment. Except in the case of Breach of any of the Specified
Representations by Assist or the Selling Shareholders, the Indemnitees shall
have no recourse against the Selling Shareholders other than through set offs
against the Second Installment (until such installment is paid) and the Third
Installment. Except as set forth in Section 11.3 in no event shall any Selling
Shareholder be liable for any Damages in excess of such Selling Shareholder's
pro rata share of the Second Installment (prior to the payment thereof) and the
Third Installment (prior to payment thereof). Each Selling Shareholder's pro
rata share shall be determined by multiplying the Second Installment or the
Third Installment, as applicable, by a fraction, the numerator of which is the
number of
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Purchased Shares that were owned by the Selling Shareholder and the denominator
of which shall be 7,707,617. Cayenta Sub may set off any amount under this
Section 11 upon notice to the Agent of the claim, the amount of Damages and the
date on which such Damages were suffered or incurred and the nature of the
Breach or Liability giving rise to the Damages. Any such set off shall be
without prejudice to the right of the Agent on behalf of the Selling
Shareholders to challenge the validity of the set off and seek recovery of the
set off amounts. If the Selling Shareholders prevail as to any portion of the
set off Second or Third Installments, they will be entitled to receive interest
on the restored portion at the rate of 8% per annum accruing from the Closing
Date to the payment date.
11.8 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against Assist,
against any other Indemnitee or against any other Person) with respect to which
any of the Selling Shareholders may become obligated to indemnify, hold
harmless, compensate or reimburse any Indemnitee pursuant to this Section 11,
Cayenta and Cayenta Sub may proceed with the defense of such claim or Proceeding
on its own. If Cayenta and Cayenta Sub so proceeds with the defense of any such
claim or Proceeding on its own:
(a) all expenses relating to the defense of such claim or Proceeding
(whether or not incurred by Cayenta and Cayenta Sub) shall be borne and paid
exclusively by the Selling Shareholders through set offs against the Second or
Third Installment, as applicable;
(b) the Selling Shareholders shall make available to Cayenta and
Cayenta Sub any documents and materials in the possession or control of any of
the Selling Shareholders that may be necessary to the defense of such claim or
Proceeding;
(c) Cayenta and Cayenta Sub shall keep the Agent informed of all
material developments and events relating to such claim or Proceeding;
(d) Cayenta and Cayenta Sub shall have the right to settle, adjust
or compromise such claim or Proceeding with the consent of the Agent; provided,
however, that the Agent shall not unreasonably withhold such consent; and
(e) The counsel selected by Cayenta or Cayenta Sub to defend such
claim or Proceeding shall be subject to the approval of the Agent (such approval
not to be withheld unreasonably).
11.9 Exercise of Remedies by Indemnitees Other Than Cayenta and Cayenta
Sub. No Indemnitee (other than Cayenta, Cayenta Sub or any of their respective
successor thereto or assign thereof) shall be permitted to assert any
indemnification claim or exercise any other remedy under this Agreement unless
Cayenta or Cayenta Sub (or any respective successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
11.10 Indemnification by Cayenta and Cayenta Sub.
(a) Cayenta and Cayenta Sub shall jointly and severally hold
harmless and indemnify each of the Selling Shareholders from and against, and
shall compensate and
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reimburse each of the Selling Shareholders for, any Damages which are directly
or indirectly suffered or incurred by any of the Selling Shareholders or to
which any of the Selling Shareholders may otherwise become subject at any time
(regardless of whether or not such Damages relate to any third-party claim) and
which arise directly or indirectly from or as a direct or indirect result of, or
are directly or indirectly connected with any Breach of any representation,
warranty, covenant or obligation made by Cayenta or Cayenta Sub in this
Agreement (without giving effect to any update to the Disclosure Schedule) or in
the Closing Certificate and any Proceeding relating directly or indirectly to
any Breach or alleged Breach referred to herein (including any Proceeding
commenced by the Selling Shareholders for the purpose of enforcing any of their
rights under this Section 11).
(b) Subject to Section (c), Cayenta or Cayenta Sub shall not be
required to make any indemnification payment pursuant to Section 11.10 until
such time as the total amount of all Damages (including the Damages arising from
such Breach and all other Damages arising from any other Breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Selling Shareholders, or to which any one or
more of the Selling Shareholders has or have otherwise become subject, exceeds
$600,000.00. At such time as the total amount of such Damages exceeds
$600,000.00, the Selling Shareholders shall be entitled to be indemnified
against any Damages in excess of $600,000.00. Except as set forth in Section 11,
in no event shall Cayenta, Cayenta Sub or any affiliate of Cayenta or Cayenta
Sub be liable for any Damages arising under this Agreement in excess of
$1,300,000.00.
(c) The limitation on Cayenta's and Cayenta Sub's indemnification
obligations that is set forth in Section (b) shall not apply to (i) any Breach
of any of the Specified Representations of Cayenta, or (ii) any act or omission
(including any violation of the securities laws) ruled by a non-appealable
judgment to have been fraud by Cayenta or Cayenta Sub in connection with the
Transaction.
12. MISCELLANEOUS PROVISIONS
12.1 Selling Shareholders' Agent.
(a) Each of the Selling Shareholders hereby irrevocably nominates,
constitutes and appoints Andrew Dumke as the agent and true and lawful
attorney-in-fact of the Selling Shareholders (the "Agent"), with full power of
substitution, to act in the name, place and stead of the Selling Shareholders
for purposes of executing any documents and taking any actions that the Agent
may, in his sole discretion, determine to be necessary, desirable or appropriate
in connection with any of the Transactional Agreements or any of the
Transactions. Andrew Dumke hereby accepts his appointment as Agent.
(b) The Selling Shareholders hereby grant to the Agent full
authority to execute, deliver, acknowledge, certify and file on behalf of the
Selling Shareholders (in the name of any or all of the Selling Shareholders or
otherwise) any and all documents that the Agent may, in his sole discretion,
determine to be necessary, desirable or appropriate, in such forms and
containing such provisions as the Agent may, in his sole discretion, determine
to be appropriate (including the General Release referred to in Section 8.9(a),
the Closing Certificate and any
50.
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amendment to or waiver of rights under any of the Transactional Agreements).
Notwithstanding anything to the contrary contained in any of the Transactional
Agreements:
(i) Cayenta and Cayenta Sub shall be entitled to deal
exclusively with the Agent on all matters relating to the respective
Transactional Agreements and the respective Transactional (including all matters
relating to any notice to, or any Consent to be given or action to be taken by,
any Selling Shareholder); and
(ii) each Indemnitee shall be entitled to rely conclusively
(without further evidence of any kind whatsoever) on any document executed or
purported to be executed on behalf of any Selling Shareholder by the Agent, and
on any other action taken or purported to be taken on behalf of any Selling
Shareholder by the Agent, as fully binding upon such Selling Shareholder.
(c) The Selling Shareholders recognize and intend that the power of
attorney granted in Section 12.1:
(i) is coupled with an interest and is irrevocable;
(ii) may be delegated by the Agent; and
(iii) shall survive the death or incapacity of each of the
Selling Shareholders.
(d) The Agent shall be entitled to treat as genuine, and as the
document it purports to be, any letter, facsimile, telex or other document that
is believed by him to be genuine and to have been mailed, sent by overnight
delivery or express courier, telexed, telegraphed, faxed or cabled by a Selling
Shareholder or to have been signed and presented by a Selling Shareholder.
(e) If the Agent shall die, become disabled or otherwise be unable
to fulfill his responsibilities hereunder, the Selling Shareholders shall,
within ten days after such death or disability, appoint a successor to the Agent
and immediately thereafter notify Cayenta and Cayenta Sub of the identity of
such successor. Any such successor shall succeed the Agent as Agent hereunder.
If for any reason there is no Agent at any time, all references herein to the
Agent shall be deemed to refer to the Selling Shareholders.
(f) All expenses incurred by the Agent in connection with the
performance of his duties as Agent shall be borne and paid by the Selling
Shareholders.
(g) The Agent shall not incur any liability to the Selling
Shareholders directly or indirectly for any action taken by the Agent in good
faith in the exercise of his business judgment. Each Selling Shareholder shall
indemnify, protect and hold the Agent harmless from any against any and all
liability, loss, cost, claim, or expense, including attorneys' fees and costs
arising from his performance as the Agent.
12.2 Further Assurances. Each party hereto shall execute and/or cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such
51.
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other actions, as such other party may reasonably request (prior to, at or after
the Closing) for the purpose of carrying out or evidencing any of the
Transactions.
12.3 Retirement of Debt. Within five (5) business days following the
Closing, Cayenta Sub shall have paid or shall have caused Assist to have paid
(1) to the Pacific Mezzanine Fund L.P. cash in the amount representing all
principal and any accrued interest on the Secured Promissory Notes and the
redemption price of all outstanding Series B 8% non-cumulative redeemable
preferred stock, (2) to Silicon Valley Bank all principal and any accrued debt
on its credit facility, (3) the redemption price of all outstanding Series A
preferred stock, including all accrued but unpaid dividends on the Series A
preferred stock and (4) any other Debt that Cayenta Sub agrees in writing to
satisfy within such period.
12.4 Stock Options. Following the Closing, Cayenta shall grant to the key
managerial employees of Assist (the "Key Employees") listed on Exhibit H hereto,
either nonqualified options or incentive stock options to acquire shares of
Cayenta's Class A Common Stock (the "Key Employee Options") in Cayenta's sole
discretion. The Key Employee Options will be granted to the Key Employees
subject to substantially similar terms and conditions as options granted to
similarly situated employees of Cayenta. The exercise price for such options
shall be set at the fair market value of Cayenta's Class A common stock on the
date of grant and shall vest from the date of grant equally over four years, on
an annual basis.
12.5 Fees and Expenses.
(a) Without limiting the generality of anything contained in Section
12.5(b), the Selling Shareholders shall bear and pay all fees, costs and
expenses (including all legal fees and expenses payable to counsel for Assist,
which Assist shall pay at Closing, subject to reduction in the Purchase Price as
provided below) that have been incurred or that are in the future incurred by,
on behalf of or for the benefit of Assist or any of the Selling Shareholders in
connection with:
(i) the negotiation, preparation and review of any term sheet
or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by Cayenta and its
Representatives with respect to Assist's business (and the furnishing of
information to Cayenta and its Representatives in connection with such
investigation and review);
(iii) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule), the other Transactional
Agreements and all certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactional
(iv) the preparation and submission of any filing or notice
required to be made or given in connection with any of the Transactions the
obtaining of any Consent required to be obtained in connection with any of the
Transactions; and
(v) the consummation and performance of the Transactions.
52.
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Assist shall not bear or pay, and the Selling Shareholders shall not
permit Assist to bear or pay, any such fees, costs or expenses. To the extent
Assist bears or pays any such fees, costs, or expenses (the "Transaction
Expenses"), the Purchase Price will be reduced on a dollar for dollar basis. The
Transaction Expenses shall not include the fees payable by Assist in the
Ordinary Course of Business to Batchelder & Partners, Inc. for outsourced
services.
(b) Subject to the provisions of Section 11 (including the
indemnification and other obligations of the Selling Shareholders thereunder)
and the provisions of Section 12.5(b)(iv), Cayenta shall bear and pay all fees,
costs and expenses (including all legal fees and expenses payable to Cooley
Godward LLP) that have been incurred or that are in the future incurred by or on
behalf of Cayenta in connection with:
(i) the negotiation, preparation and review of any term sheet
or similar document relating to any of the Transactions;
(ii) the investigation and review conducted by Cayenta and its
Representatives with respect to Assist's business;
(iii) the negotiation, preparation and review of this
Agreement, the other Transactional Agreements and all certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the Transactions; and
(iv) the consummation and the performance of the Transactions.
12.6 Attorneys' Fees. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
12.7 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile number set forth beneath the name of such party below (or
to such other address or facsimile number as such party shall have specified in
a written notice given to the other parties hereto):
if to Assist:
Assist Cornerstone Technologies, Inc.
77 West 200 South, Suite 500
Salt Lake City, UT 84101
Attention: Scott E. Pynes
Facsimile: (801) 355-7720
with a copy to:
53.
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Nolan S. Taylor, Esq.
LeBoeuf, Lamb, Greene & MacRae LLP
1000 Kearns Building
136 South Main Street
Salt Lake City, UT 84101
Facsimile: (801) 359-8256
if to any of the Selling Shareholders:
c/o of the Agent
if to the Agent:
Andrew Dumke as Agent of the Selling Shareholders
2200 Powell Street, Suite 1250
Emeryvile, CA 94608
Facsimile: (510) 595-9801
With a copy to:
Ed Wes, Esq.
Perkins Coie, LLP
135 Commonwealth #250
Menlo Park, CA 94025
Facsimile: (650) 752-6050
if to Cayenta or Cayenta Sub:
Cayenta.com, Inc. and Cayenta Operating Company
c/o The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Attention: David Porreca
Facsimile: (858) 552-9759
with a copy to:
Nicholas J. Costanza, Esq.
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
Facsimile: (858) 552-9759
Barbara L. Borden, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Facsimile: (858) 453-3555
54.
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12.8 Publicity. Without limiting the generality of anything contained in
Section 6.8, on and at all times after the Closing Date:
(a) no press release or other publicity concerning any of the
Transactions shall be issued or otherwise disseminated by or on behalf of any of
the Selling Shareholders, and the Selling Shareholders shall continue to keep
the existence and terms of this Agreement and the other Transactional Agreements
strictly confidential; and
(b) each Selling Shareholder shall keep strictly confidential, and
shall not use or disclose to any other Person, any non-public document or other
information in such Selling Shareholder's possession that relates directly or
indirectly to the business of Assist, Cayenta or any affiliate of Cayenta.
12.9 Time of the Essence. Time is of the essence of this Agreement.
12.10 Headings. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
12.11 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
12.12 Governing Law; Venue.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
San Diego, California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San Diego,
California (and each appellate court located in the State of California) in
connection with any such legal proceeding;
(ii) agrees that each state and federal court located in the
County of San Diego, California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal court
located in the County of San Diego, California, any claim that such party is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.
55.
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(c) Each Selling Shareholder agrees that, if any Proceeding is
commenced against any Indemnitee by any Person in or before any court or other
tribunal anywhere in the world, then such Indemnitee may proceed against such
Selling Shareholder in such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such Proceeding or any of the matters alleged
therein or any of the circumstances giving rise thereto.
(d) Nothing contained in Section 12.12(b) or 12.12(c) shall be
deemed to limit or otherwise affect the right of any Indemnitee to commence any
legal proceeding or otherwise proceed against Assist or any of the Selling
Shareholders in any other forum or jurisdiction.
(e) The Selling Shareholders irrevocably constitute and appoint the
Agent as their agent to receive service of process in connection with any legal
proceeding relating to this Agreement or the enforcement of any provision of
this Agreement.
(f) The Selling Shareholders irrevocably waive the right to a jury
trial in connection with any legal proceeding relating to this Agreement or the
enforcement of any provision of this Agreement.
12.13 Successors and Assigns. This Agreement shall be binding upon: Assist
and its successors and assigns (if any); the Selling Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); and Cayenta and its successors and assigns (if
any). This Agreement shall inure to the benefit of: Assist; the Selling
Shareholders; Cayenta; the other Indemnitees (subject to Section 11.9); and the
respective successors and assigns (if any) of the foregoing. Cayenta may freely
assign any or all of its rights under this Agreement (including its
indemnification rights under Section 11), in whole or in part, to any other
Person without obtaining the consent or approval of any other party hereto or of
any other Person.
12.14 Remedies Cumulative; Specific Performance. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). Each of the
parties agrees that:
(a) in the event of any Breach or threatened Breach by a party to
this Agreement of any covenant, obligation or other provision set forth in this
Agreement, the other parties shall be entitled (in addition to any other remedy
that may be available to it) to (i) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (ii) an injunction restraining such Breach or threatened
Breach; and
(b) the party seeking specific performance or an injunction shall
not be required to provide any bond or other security in connection with any
such decree, order or injunction or in connection with any related action or
Proceeding.
12.15 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right,
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privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
12.16 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Cayenta and the Agent.
12.17 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
12.18 Parties in Interest. Except for the provisions of Section 11 hereof,
none of the provisions of this Agreement is intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
12.19 Entire Agreement. The Transactional Agreements set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
12.20 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
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12.21 Negotiation of Disputes. If a dispute arises between the parties
relating to the interpretation or performance of this Agreement or the grounds
for the termination thereof, and the parties cannot resolve the dispute within
thirty days of a written request by either party to the other, such dispute
shall be referred to the Chief Executive Officer, Chief Financial Officer or
General Counsel of Cayenta and the Agent for resolution. Such persons shall hold
a meeting to attempt in good faith to negotiate a resolution of the dispute
prior to pursuing other available remedies. If within 10 business days after
such meeting, the Chief Executive Officer, Chief Financial Officer or General
Counsel of Cayenta and the Agent have not succeeded in negotiating a resolution
of the dispute, such dispute may be resolved in accordance with Section 12.12.
12.22 Ernst & Young LLP Consent. The Agent shall use its reasonable Best
Efforts to obtain any consent of Ernst & Young LLP required by Cayenta in
connection with the filing of any consolidated financial statements of Cayenta
in any registration statement, report or other filing made by Cayenta or Titan
with the Securities and Exchange Commission, or any blue sky securities
authority or any securities exchange or market.
12.23 Titan as Signing Party. Titan is signing this Agreement solely as a
party to Section 2 and Titan does not guarantee performance of any of Cayenta's
obligations under this Agreement.
12.24 Assist's Legal Counsel. Each of the Selling Shareholders
acknowledges and agrees that LeBoeuf, Lamb, Greene & MacRae, LLP has represented
Assist only and not the Selling Shareholders individually. The Selling
Shareholders have been separately represented by and relied upon their own
legal, tax and accounting advisors.
12.25 Directors' and Officers' Insurance. For a period of four years from
the Closing Date, Cayenta shall cause Assist to maintain in effect the current
policies of directors and officers liability insurance maintained by Assist
covering persons who are currently covered by Assist directors' and officers'
liability insurance policies with respect to acts or omission occurring prior to
the closing; provided that policies of at least the same coverage containing
terms and conditions which are no less advantageous to the insured as may be
substituted therefor.
[THIS SPACE INTENTIONALLY LEFT BLANK]
58.
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The parties hereto have caused this Agreement to be executed and delivered
as of ______________, 1999.
CAYENTA: CAYENTA.COM, INC.,
a Delaware corporation
By:______________________________
Its:_____________________________
CAYENTA OPERATING COMPANY,
a Delaware corporation
By:______________________________
Its:_____________________________
TITAN: THE TITAN CORPORATION,
a Delaware corporation
By:______________________________
Its:_____________________________
ASSIST: ASSIST CORNERSTONE TECHNOLOGIES, INC.,
a Utah corporation
By:______________________________
Scott E. Pynes
President
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
SELLING SHAREHOLDERS:
-------------------------------
SCOTT E. PYNES
-------------------------------
JERRY L. MCMILLAN
-------------------------------
KENNETH R. SAWYER
-------------------------------
ANDREAS SEEMULLER
-------------------------------
HENRY J. EYRING
-------------------------------
VERN R. CHRISTENSEN
-------------------------------
GREGORY C. ESTY
BATCHELDER & PARTNERS, INC.
By:______________________________
Its:_____________________________
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
-------------------------------
E. SCOTT ANDERSON
-------------------------------
GUY M. CAMERON
-------------------------------
MARNIE NUTTALL-MARTINEZ
-------------------------------
RANDALL CROCKER
-------------------------------
PAUL SCHWEET
-------------------------------
STUART CLIFTON
-------------------------------
MARK S. HOWLETT
-------------------------------
C. BURTON STOHL
-------------------------------
MARLON R. BERRETT
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
PACIFIC MEZZANINE FUND, L.P.
By:______________________________
Its:_____________________________
Agent
By: ____________________________
ANDREW DUMKE
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license or other disposition or acquisition of all or
any portion of Assist's business or assets (other than in the Ordinary
Course of Business);
(b) the issuance, sale or other disposition of (i) any capital stock
or other equity security of Assist (other than common stock issued to
employees of Assist in routine transactions in accordance with Assist's
past practices), (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity
security of Assist other than stock options granted to employees of Assist
in routine transactions in accordance with Assist's past practices), or
(iii) any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock or other equity
security of Assist; or
(c) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction involving Assist.
Assist. "Assist" shall mean Assist Cornerstone Technologies, Inc., a Utah
corporation.
Assist Contract. "Assist Contract" shall mean any Contract:
(a) to which Assist is a party;
(b) by which Assist or any of its assets is or may become bound or
under which Assist has, or may become subject to, any obligation; or
(c) under which Assist has or may acquire any right or interest.
Assist Financial Statements. "Assist Financial Statements" shall have the
meaning specified in Section 3.4(a) of the Agreement.
Assist Returns. "Assist Returns" shall have the meaning specified in
Section 3.17(a) of the Agreement.
Agent. "Agent" shall have the meaning specified in Section 12.1 of the
Agreement.
Agreement. "Agreement" shall mean the Stock Exchange and Stock Purchase
Agreement to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
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Best Efforts. "Best Efforts" shall mean the efforts that a prudent and
reasonable Person desiring to achieve a particular result would use in order to
achieve such result as expeditiously as possible.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Assist.
Closing. "Closing" shall have the meaning specified in Section 1.5 of the
Agreement.
Closing Certificate. "Closing Certificate" shall have the meaning
specified in Section 8.9(b) of the Agreement.
Closing Date. "Closing Date" shall have the meaning specified in Section
1.5 of the Agreement.
Code. "Code" shall mean the Internal Revenue Code of 1986.
Company Plan. "Company Plan" shall mean any Current Benefit Plan or Past
Benefit Plan.
Comparable Entities. "Comparable Entities" shall mean Entities (other than
Assist) that are engaged in businesses similar to Assist's business and are of
comparable size in annualized revenues.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
Current Benefit Plan. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(a) that was established or adopted by Assist or any ERISA Affiliate
or is maintained or sponsored by Assist;
(b) in which Assist participates;
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(c) with respect to which Assist or any ERISA Affiliate is or may be
required or permitted to make any contribution; or
(d) with respect to which Assist or any ERISA Affiliate is or may
become subject to any Liability.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature, less any amounts recovered through insurance policies of Assist so
long as the claim does not result in a material increase in Assist's premiums
for such policy or policies or the cancellation of such policy or policies.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Cayenta on behalf of Assist and
the Selling Shareholders, a copy of which is attached to the Agreement and
incorporated in the Agreement by reference.
Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Assist
of 1974.
ERISA Affiliate. "ERISA Affiliate" shall mean any Person that is, was or
would be treated as a single employer with Assist under Section 414 of the Code.
Excluded Contract. "Excluded Contract" shall mean any Assist Contract
that:
(a) Assist has entered into in the Ordinary Course of Business;
(c) has a term of less than 90 days or may be terminated by Assist
(without penalty) within 90 days after the delivery of a termination
notice by Assist; and
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(d) does not contemplate or involve the payment of cash or other
consideration in an amount or having a value in excess of $15,000.
GAAP. "GAAP" shall mean United States generally accepted accounting
principles, applied on a basis consistent with the basis on which the Assist
Financial Statements were prepared.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, concession, approval,
consent, ratification, permission, clearance, confirmation, endorsement,
waiver, certification, designation, rating, registration, qualification or
authorization that is, has been or may in the future be issued, granted,
given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
Governmental Body. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office, commission, council, board, instrumentality,
officer, official, representative, organization, unit, body or Entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to exercise,
any executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
Hazardous Material. "Hazardous Material" shall include:
(a) any petroleum, waste oil, crude oil, asbestos, urea formaldehyde
or polychlorinated biphenyl;
(b) any waste, gas or other substance or material that is explosive
or radioactive;
(c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or "toxic
chemical" as designated, listed or defined (whether expressly or by
reference) in any statute, regulation or other Legal Requirement
(including CERCLA, any other so-called "superfund" or "superlien" law, the
Resource Conservation Recovery Assist, the Federal Water Pollution Control
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Assist, the Toxic Substances Control Assist, the Emergency Planning and
Community Right-to-Know Assist and the respective regulations promulgated
thereunder);
(d) any other substance or material (regardless of physical form) or
form of energy that is subject to any Legal Requirement which regulates or
establishes standards of conduct in connection with, or which otherwise
relates to, the protection of human health, plant life, animal life,
natural resources, property or the enjoyment of life or property from the
presence in the environment of any solid, liquid, gas, odor, noise or form
of energy; and
(e) any compound, mixture, solution, product or other substance or
material that contains any substance or material referred to in clause
"(a)", "(b)", "(c)" or "(d)" above.
Indemnitees. "Indemnitees" shall mean the following Persons:
(a) Cayenta;
(b) Cayenta Sub;
(c) Cayenta's and Cayenta Sub's current and future affiliates
(including Assist);
(d) the respective Representatives of the Persons referred to in
clauses "(a)" , "(b)" and "(c)" above; and
(d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)", "(c)" and "(d)" above;
provided, however, that (i) Assist shall not be entitled to exercise any
rights as an Indemnitee prior to the Closing, and (ii) the Selling Shareholders
shall not be deemed to be "Indemnitees" as such term is used herein.
Information Statement. "Information Statement" shall mean an information
statement for the Assist Shareholders for purposes of soliciting their approval
of the Exchange in accordance with this Agreement. The Information Statement
will contain the type of information generally included in an S-4 registration
statement as required under the Exchange Act. Assist shall submit a draft report
to Cayenta for its prior approval.
Knowledge. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter;
or
(b) a prudent individual could reasonably be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a diligent investigation concerning the truth or existence of
such fact or other matter.
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Assist shall be deemed to have "Knowledge" of a particular fact or other
matter if any Scott Pynes, Marnie Nuttall-Martinez, Scott Anderson, Guy Cameron,
Randall Crocker or Paul Schweet has Knowledge of such fact or other matter.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
Liability. "Liability" shall mean any debt, obligation, duty or liability
of any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
Order. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence,
subpoena, writ or award that is, has been or may in the future be issued,
made, entered, rendered or otherwise put into effect by or under the
authority of any court, administrative agency or other Governmental Body
or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is, has been or may in
the future be entered into in connection with any Proceeding.
Ordinary Course of Business. An action taken by or on behalf of Assist
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(a) such action is recurring in nature, is consistent with Assist's
past practices and is taken in the ordinary course of Assist's normal
day-to-day operations;
(c) such action is not required to be authorized by Assist's
shareholders, Assist's board of directors or any committee of Assist's
board of directors and does not require any other separate or special
authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in the
ordinary course of the normal day-to-day operations of other Entities that
are engaged in businesses similar to Assist's business.
Past Benefit Plan. "Past Benefit Plan" shall mean any Employee Benefit
Plan (other than a Current Benefit Plan):
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(a) of which Assist or any ERISA Affiliate has ever been a "plan
sponsor" (as defined in Section 3(16)(B) of ERISA) or that otherwise has
at any time been established, adopted, maintained or sponsored by Assist
or by any ERISA Affiliate;
(b) in which Assist or any ERISA Affiliate has ever participated;
(c) with respect to which Assist or any ERISA Affiliate has ever
made, or has ever been required or permitted to make, any contribution; or
(d) with respect to which Assist or any ERISA Affiliate has ever
been subject to any Liability.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Pre-Closing Period. "Pre-Closing Period" shall mean the period commencing
as of the date of the Agreement and ending on the Closing Date.
Proceeding. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
Proprietary Asset. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset.
Related Party. Each of the following shall be deemed to be a "Related
Party":
(a) each of the Selling Shareholders;
(b) each individual who is, or who has at any time been, an officer
of Assist;
(c) each member of the family of each of the individuals referred to
in clauses "(a)" and "(b)" above; and
(d) any Entity (other than Assist) in which any one of the
individuals referred to in clauses "(a)", "(b)" and "(c)" above holds (or
in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity
interest.
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Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives. The
Selling Shareholders and all other Related Parties shall be deemed to be
"Representatives" of Assist.
Scheduled Closing Time. "Scheduled Closing Time" shall have the meaning
specified in Section 1.5 of the Agreement.
Selling Shareholders. "Selling Shareholders" shall have the meaning
specified in the introductory paragraph of the Agreement.
Specified Representations. "Specified Representations" shall mean the
representations and warranties set forth in Sections 3.1, 3.3, 3.17 and 3.20 of
the Agreement and the representations and warranties set forth in Section 4.1
and Section 4.4 of the Agreement.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
Transactional Agreements. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Investor Rights Agreement;
(c) the Noncompetition Agreement referred to in Section 8.9(f) of
the Agreement;
(d) the General Release referred to in Section 8.9(a) of the
Agreement;
(e) the Closing Certificate; and
(f) the mutual non-disclosure agreement between the parties executed
prior to the date of this Agreement.
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Transactions. "Transactions" shall mean (i) the consummation of the
Exchange as part of the 351 Plan, (ii) the consummation of the purchase and sale
of the Purchased Shares; (iii) the execution and delivery of the respective
Transactional Agreements, and (iv) all of the transactions contemplated by the
respective Transactional Agreements.
Working Capital. "Working Capital" shall mean as of the Closing Date the
difference between Assist's current assets and Assist's current liabilities
(excluding the current portion of any Debt) as determined under GAAP.
Notwithstanding the foregoing, any cash contributions made or deemed to be made
by Cayenta at Closing to fund repayment or retirement of Debt and any cash
payments made to cash-out options shall be excluded from the calculation of
Working Capital.
Year 2000 Compliant. "Year 2000 Compliant" shall mean, in regard to any
product or internal system, that such product or internal system can
individually continue to be used normally and to operate successfully (both in
functionality and performance in all material respects) over the transition into
the twenty first century when used in accordance with the documentation relating
to such product or internal system, including being able to, before, on and
after January 1, 2000 substantially conform to the following: (i) use logic
pertaining to dates that allow users to identify and/or use the century portion
of any date fields without special processing; and (ii) respond to all date
elements and date input so as to resolve any ambiguity as to century in a
disclosed, defined and pre-determined manner and provide date information in
ways that are unambiguous as to century, either by permitting or requiring the
century to be specified or where the data element is represented without a
century, the correct century is unambiguous for all manipulations involving that
element.
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Exhibit 10.32
TRANSLATION
TITAN AFRICA, INC.
LOAN FACILITY AGREEMENT
THE FCFA EQUIVALENT
OF FRF 300,000,000
ARRANGER
AFRICA MERCHANT BANK
DECEMBER 10, 1999
JEAN-FRANCOIS ADELLE
BIGNON & LEBRAY
14, RUE PERGOLESE
75116 PARIS
<PAGE>
- 2 - TRANSLATION
BY AND BETWEEN THE UNDERSIGNED:
1) TITAN AFRICA, INC., a corporation organized under the laws of Delaware
(United States of America) having its principal office at 3033 Science
Park Road, San Diego, California 92121 (United States of America),
incorporated on December 16, 1998, represented by Mr. Ray H. Guillaume as
Assistant Treasurer, duly authorized for the purpose hereof,
hereinafter referred to as the "Borrower",
PARTY OF THE FIRST PART
AND:
2) OFFICE DES POSTES ET TELECOMMUNICATIONS of the State of Benin, a
state-owned company with stated capital of FCFA 7,065,000,000, the
exclusive provider of telecommunications services in the territory of
Benin, having its principal office at 01 BP 5959 Cotonou, Republic of
Benin, created by decree No. 89-156 of April 25, 1989, represented by Mr.
Barthelemy Agnan, duly authorized for the purpose hereof,
hereinafter referred to as "O.P.T.B." or the "Guarantor".
PARTY OF THE SECOND PART
3) BANQUE BELGOLAISE, a corporation (SOCIETE ANONYME) organized under Belgian
law, with stated capital of BEF 1,000,000,000, having its principal office
at Cantersteen I, 1000 Brussels, Belgium.
Represented by its Paris branch, registered in the Paris Register of
Commerce and Companies under No. B 411.858.731 and domiciled at 6, avenue
Velasquez, 75008 Paris, represented by Messrs. Idelphonse Affogbolo and
Mr. Joel Krief, duly authorized for the purpose of this Agreement, acting
in its own name and as agent of a syndicate of Banks,
and as Arranger through its Africa Merchant Bank investment bank division,
hereinafter referred to in its capacity as
agent as the "International Agent",
and in its capacity as arranger as the "Arranger",
PARTY OF THE THIRD PART
4) ECO BANK BENIN, a corporation (SOCIETE ANONYME) with stated capital of
FCFA 1,500,000,000 having its principal office at rue du Gouverneur Bayol,
BP 1280 Cotonou, Republic of Benin, registered in the Cotonou Commercial
Register under No. 15,054-B represented for the purpose hereof by Mr.
Fogan Sossah, Managing Director Vice President (DIRECTEUR GENERAL), duly
authorized by virtue of the power of attorney attached hereto in APPENDIX
1A,
<PAGE>
- 3 - TRANSLATION
Acting in its own name and in its capacity as a member of the banking
syndicate participating in cash and risk,
PARTY OF THE FOURTH PART
5) BANQUE OUEST AFRICAIN POUR LE DEVELOPPEMENT, an international
non-governmental organization having its principal office at 68 avenue de
la Liberation, BP 1172, Lome (Togo) represented by Mr. _____________,
Chairman of the Board, duly authorized for the purpose hereof by virtue of
the power of attorney attached hereto in APPENDIX 1.A,
Acting in its own name and as a member of the banking syndicate
participating in cash and risk,
hereinafter referred to as "B.O.A.D."
PARTY OF THE FIFTH PART
6) BANQUE INTERNATIONALE DU BENIN, a corporation (SOCIETE ANONYME) with
stated capital of FCFA 3,000,000,000 having its principal office at
Carrefour des Trois Banques, Avenue Giran, 03 BP 2098 Jericho Cotonou,
Republic of Benin, registered in the Cotonou Commercial Register under No.
15,125-B, represented for the purpose hereof by Mr. Dave Lafiaji,
Executive Manager (DIRECTEUR EXECUTIF), duly authorized by virtue of the
power of attorney attached hereto in APPENDIX 1.A,
Acting in its own name and as a member of the banking syndicate
participating in cash and risk,
PARTY OF THE SIXTH PART
7) CONTINENTAL BANK BENIN, a corporation (SOCIETE ANONYME) with stated
capital of FCFA 3,600,000,000 having its principal office at Carrefour des
Trois Banques, Avenue Jean-Paul II, BP 2020 Cotonou, Republic of Benin
registered in the Cotonou Commercial Register under No. 16,584-B,
represented for the purpose hereof by Mr. Michel D'Almeida, General
Manager (DIRECTEUR GENERAL), duly authorized by virtue of the power of
attorney attached hereto in APPENDIX 1.A,
Acting in its own name and as a member of the banking syndicate
participating in cash and risk;
PARTY OF THE SEVENTH PART
8) BANK OF AFRICA BENIN, a corporation (SOCIETE ANONYME) with stated capital
of FCFA 3,600,000,000 having its principal office at 08 BP 0879 Tri
Postal, Avenue Jean-Paul II, Cotonou, Republic of Benin, registered in the
Cotonou Commercial Register under No. 15,053-B represented for the purpose
hereof by Mr. Rene Formey de Saint
<PAGE>
- 4 - TRANSLATION
Louvent, duly authorized by virtue of the power of attorney attached
hereto in APPENDIX 1.A,
Acting in its own name and as Local Agent (hereinafter referred to in its
capacity as Local Agent as the "Local Agent") and as a member of the
banking syndicate participating in cash and risk;
PARTY OF THE EIGHTH PART
the banks which are the parties of the fourth, fifth, sixth, seventh and
eighth (aside from its mission as Local Agent) parts are collectively
referred to herein as the "Banks",
<PAGE>
- 5 - TRANSLATION
CONTENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
ARTICLE 1 - DEFINITIONS....................................................................................7
ARTICLE 2 - THE FACILITY..................................................................................11
ARTICLE 3 - TERM OF THE FACILITY..........................................................................12
ARTICLE 4 - DRAWDOWNS - ADVANCES..........................................................................12
ARTICLE 5 - ACCOUNTING AND REPRESENTATION OF THE FACILITY.................................................13
ARTICLE 6 - ASSIGNMENT OR TRANSFER........................................................................14
ARTICLE 7 - INTEREST......................................................................................15
ARTICLE 8 - LATE-PAYMENT INTEREST.........................................................................15
ARTICLE 9 - FEES..........................................................................................16
ARTICLE 10 - REPAYMENTS - PAYMENTS - NO RECOURSE..........................................................16
ARTICLE 11 - GUARANTIES...................................................................................20
ARTICLE 12 - BORROWER'S REPRESENTATIONS AND WARRANTIES....................................................24
ARTICLE 13 - BORROWER'S COVENANTS.........................................................................24
ARTICLE 14 - CONDITIONS PRECEDENT TO THE RIGHT TO
FIRST DRAWDOWN..............................................................................26
ARTICLE 15 - NEW CIRCUMSTANCES............................................................................27
ARTICLE 16 - ACCELERATION.................................................................................28
ARTICLE 17 - INTERNATIONAL AGENT.........................................................................28
ARTICLE 18 - LOCAL AGENT..................................................................................30
ARTICLE 19 - MISCELLANEOUS................................................................................31
ARTICLE 20 - GOVERNING LAW AND CHOICE OF FORUM............................................................34
ARTICLE 21 - APPENDICES...................................................................................35
</TABLE>
<PAGE>
- 6 - TRANSLATION
RECITALS:
(A) The Borrower is an indirect wholly-owned subsidiary of The Titan
Corporation, a Delaware (United States of America) corporation having its
principal office at 3033 Science Park Road, San Diego, California 92121 (United
States of America) which is listed on the New York Stock Exchange. Among its
businesses, the Titan group develops satellite telecommunications and rural
telephony systems and supplies related telecommunications services.
(B) For the purpose of a vast investment program designed to increase the
capacity of its telephone network and the accessibility of telecommunications
services for the Benin population, the O.P.T.B., which has a monopoly on the
supply of all telecommunications services in the territory of Benin, has awarded
The Titan Corporation a BUILD, CO-OPERATE AND TRANSFER contract dated August 17,
1999, which has been assigned to the Borrower (hereinafter referred to as the
"BCT Contract"), for the supply to O.P.T.B. of turnkey telecommunications
equipment designed to extend and modernize fixed-line, traditional and cellular
telephone networks and to provide technical assistance with the installation and
operation of said equipment (said program hereinafter referred to as the
"Project").
(C) The BCT Contract has a term of nine years from the date on which the Project
financing is arranged. The Project covered by the BCT Contract is divided into
five phases (hereinafter the "Phases"):
1. installation of a VSAT satellite telecommunications system;
2. installation of a GSM network for 20,000 subscribers;
3. installation of a switch with a capacity of 20,000 subscribers in
Parakou;
4. installation of a fiber optic cable linking Cotonou to Parakou;
5. implementation of several rural wireless local loops ("WLL") for
15,000 subscribers.
Phase 2 represents the GSM portion of the Project and the remaining Phases
represent the non-GSM portions of the Project.
(D) The BCT Contract stipulates that the Borrower will remain the owner of the
Equipment relating to all Phases of the Project until complete repayment of the
financing for all Phases.
(E) However, prior to any transfer of title in the said Equipment, the right to
operate the Equipment shall be licensed by the Borrower to O.P.T.B., the
Borrower retains the right to inspect the operation of the Equipment via a joint
monitoring committee, composed of three representatives of Titan, one
representative of O.P.T.B., and one representative of the Local Agent without a
vote (hereinafter the "Joint Monitoring Committee").
(F) The BCT Contract provides that the financing of the Equipment will be
procured by the Borrower. The BCT Contract stipulates that the revenue generated
by the Equipment supplied under the Project will be divided between O.P.T.B. and
the Borrower until complete repayment under the Facility and for three or five
years, as the case may be, following the date of said repayment. In order to
identify and segregate Project revenues, the GSM portion of the Project and the
non-GSM portions of the Project that generate revenue must each be equipped
<PAGE>
- 7 - TRANSLATION
with an independent invoicing and management system linked directly to the
supervision centers of O.P.T.B. and the Borrower.
(G) Lastly, the BCT Contract stipulates that the Borrower's obligations in
connection with the execution of the Project may be transferred to a company
organized under Benin law that is wholly owned by the Borrower.
(H) In order to perform its obligations in connection with Phases 2 to 5 of the
BCT Contract, the Borrower has signed a Master Supply and Service Agreement
(hereinafter referred to as the "Master Agreement") with Alcatel Contracting SA
(hereinafter referred to as "ALCO"), a 95%-held Alcatel subsidiary, to supply
the required equipment and to provide O.P.T.B. with technical assistance during
the first few months of operation. The entry into force of the Master Agreement
is subject to the execution of a credit facility agreement to finance Phases 2
to 5 of the Project.
(I) Under these circumstances, the Arranger has organized a banking syndicate
comprised of the Banks in order to grant the Borrower a medium-term facility for
the equivalent of FRF 300,000,000 (three hundred million French francs), that
is, as of this date, FCFA 30,000,000,000 (thirty billion Francs CFA), to be
granted in Francs CFA by Benin and WAEMU banks, on the terms and in
consideration of the security interests and guaranties provided for herein,
including a first demand guaranty granted by O.P.T.B., O.P.T.B.'s assignment of
all net revenues generated by the Equipment supplied under the Project to a
Pledged Project Account, and a lien on all of the Alcatel equipment. It is
agreed that this Facility will be repaid out of net revenues. This Facility is
non-recourse with respect to the Borrower and its Affiliates, and in the event
that the amounts credited to the Pledged Project Account are insufficient to
insure repayment of the Facility the difference will be paid by the security
interests and guaranties granted to the Banks, to the Arranger, to the
International Agent, and to the Local Agent under this Agreement.
(J) The proceeds put at the Borrower's disposal shall be used exclusively to
finance Phases 2 to 5 of the Project, on the understanding that Phase 2, which
is already underway, has entailed the implementation of a bridge loan in the
principal amount of FRF 50,000,000, (fifty million French Francs) which will be
entirely repaid out of the first Drawdown under the present facility.
(K) The Borrower undertakes to use and repay the loan on the following terms and
conditions.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - DEFINITIONS
ADVANCE: amount made available to the Borrower in FCFA under the Facility as a
Drawdown.
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AFFILIATES: any person(s) who, directly or indirectly, through one or more
intermediaries, control(s), is/are controlled by and/or are ultimately under the
common control of the Borrower or The Titan Corporation. For the purposes of
this definition, "control" shall mean the power to directly or indirectly
influence or direct the management or policy of the person in question, whether
through ownership of voting stock, an equity interest, by contract or otherwise.
As an exception to the foregoing, O.P.T.B. will not be considered to be an
Affiliate hereunder.
AGREEMENT: this loan facility agreement, including its appendices, and any
subsequent amendments or supplementary agreements hereto.
ALCATEL EQUIPMENT: all equipment and machinery to be built by ALCO and supplied
to the Borrower pursuant to the Master Agreement for implementation and
completion of Phases 2 to 5 of the Project and which will be subject to a lien
in favor of the Banks, the Arranger, the International Agent and the Local
Agent, in accordance with Article 11.3 hereof. A list of the equipment expected
to be supplied to the Borrower is attached hereto in APPENDIX 1.C.
ALCO: Alcatel Contracting S.A., as defined in recital (H) above.
ARRANGER: Africa Merchant Bank, as defined in section 3) of the list of parties.
BANKS: each of the Benin and WAEMU banks set forth in 4), 5), 6), 7) 8) of the
list of parties above, (i) participating in cash and risk connected with the
Facility in the amounts and percentages indicated in APPENDIX 1.B. (other than
those who cease to be a party hereto in accordance with Article 6 hereof) it
being specified that B.O.A.D. will only participate in the syndicate beginning
on the date it executes this Agreement, after having been duly authorized to do
so by its board of directors, provided however that said date shall not be later
than April 30, 2000, failing which the provisions of Clause 4.2 hereof shall
apply, and (ii) any financial institution that has become a party hereto in
accordance with Article 6 herebelow.
BCT CONTRACT: a Build, Co-operate and Transfer agreement as defined in recital
(B) above.
BORROWER: Titan Africa, Inc. as defined in 1) of the list of parties.
BRIDGE LOAN: loan in the principal amount of FRF 50,000,000 between O.P.T.B. and
Banque Belgolaise pursuant to a loan agreement dated August 19, 1999 for the
implementation of Phase 2.
BUSINESS DAY: any full day (except Saturday and Sunday) on which banks are open
in mainland France and which is not a non-working day or a holiday in Benin.
COMMITMENTS: in relation to a Bank, at any time and except as otherwise provided
in this Agreement, the amount which said Bank undertakes to put at the disposal
of the Borrower in accordance with this Agreement.
DAY: calendar day.
DISTRIBUTABLE REVENUES: the amounts defined in Clause 10.1.2.3. hereof.
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DOMICILED ACCOUNT: an account opened in O.P.T.B.'s name on the books of Bank of
Africa Benin to which O.P.T.B. irrevocably undertakes to deposit all Project
Revenues until complete repayment of the Facility and the financing for the
Titan Equipment.
DRAWDOWN: the Borrower's use of the Facility by means of one or more Advances.
EQUIPMENT: the Alcatel Equipment and the Titan Equipment.
EURO: The single currency that will be legal tender in the member states of the
European Monetary Union ("EMU") when such currency is introduced and recognized
as such by applicable regulations in the European Union and/or the French
Republic.
EXECUTION DATE: the last day on which the Agreement is executed by all of the
Parties with the exception of B.O.A.D. with regard to which the Agreement will
enter into force on the date it signs the Agreement after having been duly
authorized to do so by its board of directors, and in any event no later than
April 30, 2000.
FACILITY: the total principal amount of the loan in FCFA, i.e. the equivalent of
FRF 300,000,000 that the Banks agree to lend to the Borrower under the
Agreement.
FINAL REPAYMENT DATE: December 31, 2003, at the latest.
FRANC CFA OR FCFA: the currency of the African Financial Community or any
currency that may take its place and is legal tender in Benin.
FRENCH FRANCS OR FRF: the currency that is legal tender in the French Republic.
Any reference to FRF in this Agreement must be understood as a reference to the
Euro for the purpose of this Agreement after the French franc ceases to be legal
tender in France.
GUARANTOR: O.P.T.B., as defined in section 2) of the list of parties above.
INTEREST PERIOD: each period of six calendar months commencing on January 1 or
July 1 of each year during the term of the Facility, beginning with the first
Drawdown. If the proceeds from a Drawdown are credited to the Titan Africa
Facility Account before January 1, 2000, the first Interest Period shall end on
June 30, 2000.
JOINT MONITORING COMMITTEE: committee as defined in recital (E).
LOCAL AGENT: a Bank established in Benin, appointed by the International Agent
or any other bank in Benin or the WAEMU designated in accordance with Clause
18.9 hereof, in order to monitor the Facility and to carry out certain tasks in
Benin for which the International Agent is responsible under this Agreement.
MAJORITY BANKS: one or more Banks whose aggregate Commitments at any given time
account for more than 66 2/3 % of the amount of the Overall Commitment.
MASTER AGREEMENT: the supply agreement defined in recital (H) above.
NET REVENUES: Project Revenues less Project Expenses.
<PAGE>
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O.P.T.B.: Office des Postes et Telecommunications du Benin, as defined in
section 2) of the list of parties.
OVERALL COMMITMENT: the aggregate sum of all Commitments.
PARTIES: the parties to this Agreement, i.e. the Arranger, the Banks, the
Borrower, the Guarantor, the International Agent and the Local Agent, and/or
their assignees and/or successors.
PAYMENT DATE: any date as defined in Clause 10.1.2.1.
PAYMENT SCHEDULE: schedule for repayment of the Facility, as defined in Appendix
10.1.1.
PHASE: one of the five Phases of the Project as defined in Recital (C) above.
PLEDGED O.P.T.B. ACCOUNT: the account defined in Clause 10.1.2.3. hereof.
PLEDGED PROJECT ACCOUNT: an account opened in the Borrower's name on the books
of the Local Agent and pledged in favor of the Banks, the Arranger, the
International Agent and the Local Agent, to which O.P.T.B. irrevocably
undertakes to deposit all Net Revenues, until repayment in full of all amounts
owed by the Borrower under the Agreement and the financing for the Titan
Equipment.
PROJECT: the turnkey telecommunications equipment project defined in recital
(B).
PROJECT EXPENSES: all of the Borrower's costs, expenses and other amounts
expended or incurred by the Borrower in connection with or relating to the
Project. The assumptions used as a basis for the corresponding "Project Costs &
Expenses" line item on page 9 of a document titled "Financial Model", which page
is attached in APPENDIX 1.E, serve as illustrations of Project Expenses but are
non-binding.
PROJECT REVENUES: with respect to each Reference Period, (i) all revenues billed
and actually received by O.P.T.B. during such period that are generated by the
operation of the Equipment or, for those which do not give rise to billing, the
revenues actually received, plus (ii) all amounts paid during such period by
O.P.T.B. to the Domiciled Account pursuant to Clause 11.1.2. in the event of
non-payment of revenues billed pursuant to (i).
REFERENCE PERIOD: Any period of time running between the due date of each batch
of bills issued by O.P.T.B. and the due date of the following batch.
SUBSIDIARY: any company in which the Borrower directly or indirectly holds more
than 50% of the voting rights of the issued capital.
TITAN: The Titan Corporation and/or any company directly or indirectly
controlled by The Titan Corporation.
TITAN AFRICA FACILITY ACCOUNT: facility account in FCFA opened in the Borrower's
name on the books of the Local Agent and pledged in favor of the Banks.
<PAGE>
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TITAN EQUIPMENT: all equipment and machinery to be manufactured by Titan in
connection with Phase 1 of the Project, listed in APPENDIX 1.D.
USE AND AMORTIZATION TABLE: use and amortization table for the financing of the
Titan Equipment as defined in Clause 10.1.2.1.
WAEMU: the West African Economic and Monetary Union.
ARTICLE 2 - THE FACILITY
The Facility granted by the Banks to the Borrower on the terms and subject to
the conditions contained herein, is a loan in an aggregate amount of the FCFA
equivalent at the time of the Drawdown(s) of FRF 300,000,000 (three hundred
million French francs), intended to finance the Borrower's requirements in
connection with the purchase and installation in Benin of the Alcatel Equipment,
i.e., payment of the Alcatel Equipment and technical assistance for its start-up
and operation, as supplied by ALCO, and repayment of the Bridge Loan.
It is specified that the amount of the Facility is limited to the FCFA
equivalent of FRF 250,000,000 until the Agreement comes into force with respect
to B.O.A.D. in accordance with the provisions of the paragraph in Article 1
hereof entitled "Banks", for the FCFA equivalent of FRF 50,000,000. Until the
Agreement comes into force with respect to B.O.A.D., the Banks will finance the
entirety of the Drawdowns up to the FCFA equivalent of FRF 250,000,000.
The execution of this Agreement by B.O.A.D. with respect to the parties will
bring the amount of the Facility to the CFA franc equivalent of FRF 300,000,000,
it being understood that (i) B.O.A.D. will rank PARI PASSU with the sureties and
guaranties defined in Clause 10.1.2.3 and Article 11 under the Agreement and
(ii) B.O.A.D. will participate in all of the Advances made beginning with its
participation in the syndicate until it has reached one-sixth of the amount of
the Advances made prior to its joining but up to a limit of the amount of its
participation, i.e. the FCFA equivalent of FRF 50,000,000.
Failing execution of the Agreement by B.O.A.D. on or before April 30, 2000, the
International Agent will use its best efforts to obtain as soon as possible from
the Banks and/or any credit establishments one or more participations in the
Facility in an aggregate amount of the FCFA equivalent of FRF 50,000,000. Until
the date when this/these engagement(s) are formalized and take effect, the
amount of the Facility will remain at the FCFA equivalent of FRF 250,000,000.
The aggregate amount of the outstanding Drawdowns shall at no time exceed the
amount of the Facility.
<PAGE>
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ARTICLE 3 - TERM OF THE FACILITY
The Facility is granted for a term commencing on the Execution Date and ending
on the Final Repayment Date.
ARTICLE 4 -DRAWDOWNS - ADVANCES
4.1 FORMS AND CONDITIONS OF THE DRAWDOWN NOTICES
Subject to the conditions precedent stipulated in Article 14, and provided that
no event of acceleration has occurred, the Borrower shall be entitled to make
Drawdowns on any Business Day during the term of the Facility, on the
understanding that the Local Agent must be previously notified thereof by tested
telex or by fax received by the Local Agent five (5) Business Days before the
contemplated Drawdown date; a copy of this tested telex or fax must also be
faxed to the International Agent and immediately confirmed to the Local Agent by
mail.
The first Drawdown notice, in the form of APPENDIX 4.1A, shall specify the
amount and the date of the contemplated Advance with reference to the Agreement.
All subsequent Drawdown notices, which must be in the form of APPENDIX 4.1B,
shall specify the amount and the date of the contemplated Advance(s), with
reference to the Agreement.
Simultaneously with each Drawdown notice, except in the case of the first
Drawdown as concerns repayment of the Bridge Loan, the Borrower must provide the
Local Agent with documents reasonably evidencing the order(s) placed by the
Borrower which are to be paid out of the proceeds of the requested Advance(s).
The Drawdown notice shall be irrevocably binding on the Borrower in all of its
terms. The "Titan Africa Facility Account" will be credited with the amount of
the Advance specified in the Drawdown notice, subject to compliance with the
terms of the Agreement with respect to the right to make a Drawdown and provided
that at the date of the Drawdown by the Borrower, no acceleration event has
occurred and not been remedied.
No Drawdown may exceed the total amount of the Facility. The aggregate amount of
the Advances may not exceed the amount of the Facility at any time during the
term and performance of the Facility.
The Borrower shall no longer have the right to make Drawdowns after June 30,
2001.
4.2 NOTICE OF FUNDING REQUESTS TO THE BANKS
Upon receipt of the Drawdown notice and no later than four (4) Business Days
before each Drawdown, the Local Agent shall inform the Banks of the amount of
the Advance to be paid
<PAGE>
- 13 - TRANSLATION
by each of them in accordance with their respective participations in the
Facility. Each of the Banks so informed shall make the transfer corresponding to
its participation onto the Local Agent's books no later than one (1) Business
Day before the Drawdown date specified in the Drawdown notice and, upon receipt
of such funds, the Local Agent shall credit to the Titan Africa Facility Account
on the Drawdown date the amounts requested in the Drawdown notice.
On the Drawdown date, the Local Agent undertakes to have the amounts specified
in the Drawdown notice, subject to the Borrower's having satisfied all
conditions precedent to the disbursement of said amounts.
In the event of default by one or more of the Banks, said default shall not in
any case release the other Banks from their obligations. The other Banks shall,
no later than the Drawdown date, assume and transfer to the Local Agent the
entirety of the amount of the participation of the defaulting Bank(s) up to the
amount of said default. The share(s) of the defaulting Banks shall be allocated
between/among the remaining Banks pro rata in accordance with their respective
participations.
The Local Agent shall inform the International Agent as soon as the amount of
the Advance has been deposited by the Banks in the "Titan Africa Facility
Account".
4.3 IDENTITY OF THE AUTHORIZED SIGNATORY
The Borrower warrants and represents that it will assume any and all
consequences of erroneous or unauthorized use of the identity of the persons
authorized by it to issue instructions by fax, subject to formal verification by
the Local Agent of the apparent conformity of the signature compared with the
officially authorized signature on file.
The Borrower undertakes not to dispute the acceptance and execution of an
operation directly requested by the Borrower or, on the contrary, refusal to
execute such an operation by the Local Agent. The Borrower shall assume all
consequences of the acceptance and execution of an operation or refusal by the
Local Agent to execute an operation and undertakes to indemnify the Local Agent
for any action or liability, including costs and expenses that may be incurred
by the Local Agent as a result of a breach of the Borrower's obligations under
this Agreement. However, in the event of negligence or a wrongful act (FAUTE) by
the International Agent or the Local Agent, the Borrower shall be entitled to
challenge the acceptance and execution of an operation or the refusal to execute
an operation.
ARTICLE 5 - ACCOUNTING AND REPRESENTATION OF THE FACILITY
5.1 The Local Agent shall open on its books in the name of the Borrower an
account bearing number ____________ entitled "Titan Africa Facility Account",
which shall be used exclusively for Facility operations.
<PAGE>
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5.2 The Titan African Facility Account will be credited by the Local Agent with
the amount of each Advance granted by the Banks pursuant to the Drawdowns
requested by the Borrower.
5.3 Funds made available in connection with the Facility may only be credited to
the Titan Africa Facility Account.
5.4 Any amounts owed by the Borrower under the Agreement, including principal,
interest, late-payment interest, costs, and incidental expenses, shall be
debited by the Local Agent from the Titan African Facility Account upon
instructions from the Borrower to the Local Agent. If instructions have not been
received 2 (two) Business Days prior to the scheduled payment date of the
amounts due, the Local Agent shall be authorized to directly debit such funds
from the Titan Africa Facility Account on the scheduled payment date.
5.5 Notwithstanding the foregoing or any other provision to the contrary
contained in this Agreement, neither the Arranger, the Banks, the International
Agent nor the Local Agent shall have the right to set off any amounts due under
the Agreement with the proceeds of any Advance.
ARTICLE 6 - ASSIGNMENT OR TRANSFER
6.1 BORROWER
The Borrower shall in no event be entitled to assign or transfer its rights and
obligations under the Agreement without the prior written approval of the
Majority Banks.
6.2 BANKS
Each Bank shall be entitled to assign or transfer all or part of its rights and
obligations under the Agreement (but in the case of a partial assignment or
transfer, in an amount no less than the FCFA equivalent of FRF 10,000,000) to
any home office, parent company, branch or subsidiary or to any credit
institution that accepts the assignment or transfer (and in the case of an
assignment or transfer to a credit institution, provided the Borrower has given
its prior written approval, which approval shall be deemed to have been given if
the Borrower does not reply within fifteen (15) Business Days from the notice
sent to it).
Notwithstanding the foregoing, no Bank may assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of the
Borrower where such assignment or transfer would be reasonably likely to result
in any increased cost or other liability to the Borrower pursuant to Article 15
or Clause 19.4 hereof.
The assigning or transferring Bank shall send the International Agent, with a
copy to the Borrower, a notice of the proposed assignment or transfer in the
form of APPENDIX 6.2, on the understanding that for each assignment or transfer
the assigning or transferring Bank shall pay the International Agent the lump
sum of FRF 100,000, excluding taxes, intended to cover the administrative costs
incurred by the International Agent in connection with such assignment or
transfer.
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- 15 - TRANSLATION
Upon notifying the Borrower of completion of the assignment or transfer, the
assigning or transferring Bank shall be released from its obligations toward the
Borrower in the amount of the assigned or transferred Commitment and the
Borrower shall be released from its obligations toward the assigning or
transferring Bank.
ARTICLE 7 - INTEREST
7.1 INTEREST RATE
Each Advance shall bear interest from the date on which the Advance is made
available at a fixed rate of 9.5% per annum which includes any taxes that may be
applicable to the interest payments.
7.2 CALCULATION OF INTEREST
Interest shall be based on the real number of Days that have passed during the
relevant Interest Period and a year of three hundred sixty (360) Days.
7.3 PAYMENT OF INTEREST
The Borrower shall pay interest on the last Day of each Interest Period.
The last Day of an Interest Period shall in no event fall after the Final
Repayment Date.
7.4 COMPOUNDING OF INTEREST
Interest shall be compounded at the rate set forth above if it has not been paid
one year after the day it falls due.
ARTICLE 8 - LATE-PAYMENT INTEREST
8.1 LATE-PAYMENT INTEREST RATE
Any amount due, including principal, interest, fees, costs and incidental
expenses, not paid or not repaid by the Borrower within two (2) Business Days
after its due date, and forming the debit balance of the Titan Africa Facility
Account, shall automatically accrue interest without notice from its due date
until the Day of actual payment or repayment, at a rate of 9.5% per annum plus
4% per annum which includes any taxes that may be applicable.
<PAGE>
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8.2 CALCULATION OF LATE-PAYMENT INTEREST
[Late-payment] interest shall be calculated based on the number of Days that
have passed between the due date for any amount owed by the Borrower and (but
excluding) the date on which it was actually repaid, based on a
three-hundred-sixty-(360) Day year.
Application of late-payment interest shall not be construed as granting
additional time for payment, nor as waiving any right arising under this
Agreement and, in particular, the acceleration clauses set forth in Article 16
shall remain in effect.
The Local Agent and Banks waive late-payment interest in the event that the
Local Agent. acting on behalf of the Banks, the Arranger, the International
Agent, and the Local Agent, does not enforce one or more of the guaranties in
Clauses 11.2 through 11.4 within 30 Days following the observation of a default
in payment of all amounts due and payable by the Borrower.
8.3 COMPOUNDING OF LATE-PAYMENT INTEREST
Late payment interest shall be compounded at the rate set forth above if it has
not been paid one year after the day it falls due.
ARTICLE 9 - FEES
The Borrower shall owe the Arranger, International Agent and Local Agent
Arranger's fees, International Agent fees, and Local Agent fees the amounts and
methods of payment of which will be the subject of separate agreements between
each of them and the Borrower.
ARTICLE 10 - REPAYMENTS - PAYMENTS - NO-RECOURSE
10.1 REPAYMENT
10.1.1 SCHEDULE
All amounts due under this Agreement, including principal, interest,
late-payment interest, fees and incidental expenses, shall be repaid in full by
the Final Repayment Date at the latest.
Any payment of principal and interest due under the Facility will be repaid or
paid in seven (7) semi-annual installments, on the due date for each Interest
Period, the first being December 31, 2000 and the last December 31, 2003, in
accordance with the Payment Schedule in APPENDIX 10.1.1 hereto, with the
exception however of the first interest due date, which will be payable on June
30, 2000. If the entire Facility has not been made available to the Borrower by
NOVEMBER 30, 2000 at the latest, the parties agree to meet as soon as possible
<PAGE>
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at the request of either of them to determine jointly and in good faith possible
changes to be made to the Payment Schedule, as well as to the Use and
Amortization Table in APPENDIX 10.1.2.1. The new Payment Schedule will provide
for equal semi-annual installments for the remaining six-month periods.
The parties nevertheless agree to meet between April 30, 2000 and May 31, 2000
in order to discuss the conditions of the use of the Facility and to determine,
as necessary, the adjustments to be made to the Payment Schedule.
The Borrower undertakes to pay the Local Agent for the benefit of the Banks and
the Local Agent the amounts due in connection with the Facility, including
principal, interest, late-payment interest, costs, fees of the Local Agent and
incidental expenses, and to the International Agent the amounts due as Arranger
and International Agent fees on the Day they fall due, respectively, without any
withholding or deduction of any present or future tax, duty, levy or other
costs.
Repayments on the Facility as provided for under the Agreement shall be sent to
the Local Agent, which shall immediately advise the International Agent thereof,
with the value date as of the repayment date, under the reference: "PROJET
BCT/TITAN AFRICA, INC. - CONVENTION DE FACILITE EN DATE DU 10 DECEMBRE 1999 (BCT
Project/Titan Africa, Inc. - Loan Facility Agreement dated December 10, 1999)".
10.1.2 REPAYMENT MECHANISM
10.1.2.1 TRANSFER OF NET REVENUES TO THE PLEDGED PROJECT ACCOUNT
The Parties agree that the amounts of Net Revenues credited to the Pledged
Project Account shall be applied to repay or pay all amounts due by the Borrower
in connection with the Agreement and all amounts due to Titan from O.P.T.B. in
connection with the financing of the Titan Equipment. In accordance with Article
5 hereof, the Local Agent shall debit from the Pledged Project Account on their
Payment Date, (i) any amounts owed by the Borrower with respect to this
Agreement, which amount is to be credited to the Titan Africa Facility Account,
and (ii) an amount equal to the amounts owed to Titan by O.P.T.B. in connection
with the financing of the Titan Equipment, such amount to be paid by the Local
Agent on behalf of O.P.T.B. as Titan may direct.
Each Payment Date shall fall on the last Day of an Interest Period. If however a
Payment Date falls on a Saturday, Sunday, holiday or non-working day in Benin,
repayment shall be postponed until the first Business Day following the initial
repayment date, unless such postponement causes the repayment to fall in the
next calendar month, in which case the repayment date shall be the Business Day
immediately preceding the initial repayment date.
For the purposes of this Agreement, "Payment Date" shall mean (i) with respect
to the Facility, the date on which a payment of principal and interest or
interest alone with respect to the first Interest Period, is due and payable in
accordance with Article 10 hereof; and (ii) with respect to the financing for
the Titan Equipment, the date on which an installment payment is
<PAGE>
- 18 - TRANSLATION
due and payable in accordance with the Use and Amortization Table prepared by
the International Agent on behalf of the Borrower for the BCT Contract.
The Use and Amortization Table shall be prepared by the International Agent on
behalf of the Borrower such that (i) the Payment Dates for the Titan Equipment
financing match the Payment Dates for the Facility, and (ii) the last payment
owed by O.P.T.B. to Titan for the Titan Equipment financing shall be payable on
the Final Repayment Date.
10.1.2.2 PLEDGED PROJECT ACCOUNT SHORTFALL
In the event that the Net Revenues are insufficient to repay in full all amounts
due and payable in accordance with the Use and Amortization Table and the
Payment Schedule, the Net Revenues shall be first applied to repayment of all
amounts due by the Borrower under the Agreement and thereafter to amounts due
for Titan Equipment financing. No shortfall in Net Revenues (i) with respect to
amounts due and payable by the Borrower under the Agreement, shall grant the
Banks, the Arranger, the International Agent or the Local Agent any right of
recourse against the Borrower but shall instead entitle the Banks, the
International Agent, the Arranger, and the Local Agent to exercise their rights
under the guaranties and security interests referred to in Clauses 11.2 through
11.4 hereof, and (ii) with respect to amounts due and payable for Titan
Equipment financing, shall promptly be paid by O.P.T.B. to the Borrower by
deposit to the Pledged Project Account in immediately available funds.
For the application of (ii) above, the Local Agent undertakes promptly to notify
O.P.T.B. of any shortfall in funds permitting repayment in full of amounts due
under the Titan Equipment financing; in addition, any amount received from
O.P.T.B. for this purpose shall be used only for the repayment of the Titan
Equipment financing.
10.1.2.3 DISTRIBUTABLE REVENUES
On any Payment Date, any credit balance remaining on the Pledged Project Account
after the amounts due and payable by the Borrower under the Agreement and the
amounts due and payable for Titan Equipment financing have been debited (the
"Distributable Revenues") shall be divided between the Borrower and O.P.T.B. as
provided for in the allocation basis in the BCT Contract and attached hereto in
APPENDIX 10.1.2.3.A.
The fraction of the Distributable Revenues due to the Borrower will be
immediately transferred to an interest-bearing account opened in the Borrower's
name on the books of the Local Agent. The Borrower shall not transfer this
fraction until after the first Payment Date following the date on which this
fraction was credited to said account. The International Agent, the Arranger,
the Local Agent, the Banks and O.P.T.B. shall not exercise any recourse nor
shall they have any right to set off the amounts in said Account against any
amount that may be owed by the Borrower under the Agreement.
The fraction of the Distributable Revenues due to O.P.T.B. will be immediately
transferred to an interest-bearing account opened in O.P.T.B.'s name on the
books of the Local Agent and pledged in favor of the Banks, the Arranger, the
International Agent and the Local Agent (the "O.P.T.B. Pledged Account") in
accordance with the form of O.P.T.B. Account Pledge
<PAGE>
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Agreement in APPENDIX 10.1.2.3.B attached hereto. O.P.T.B. shall not transfer
this fraction until after the first Payment Date following the date on which
this fraction was credited to said account.
If. on the Payment Date specified in the preceding paragraph, the Local Agent
considers that the amount in the Pledged Project Account is insufficient to
ensure repayment of the amounts due and payable by the Borrower under the
Agreement, it may oppose the transfer request made by O.P.T.B. and, if
necessary, debit from the Pledged O.P.T.B. Account any amount required to ensure
repayment of any amount due and payable by the Borrower to the Banks, the
Arranger, the International Agent and the Local Agent under the Agreement.
O.P.T.B. shall have no recourse against the Borrower with regard to any amount
that the Local Agent may debit from the Pledged O.P.T.B. Account in favor of the
Banks, the Arranger, the International Agent and the Local Agent.
10.2 NO RECOURSE
Notwithstanding any other provision of this Agreement, and except in the event
of fraud, in all of the documents or agreements to which the Borrower is a party
in which a security interest or guaranty is created, or any other documents or
agreements to which the Borrower is a party which relate to the document or
agreement in question, the Parties expressly agree that:
10.2.1 The Borrower's maximum aggregate liability as defined herein,
in contract or tort (intentional torts and negligence), or any
obligation arising from any documents or agreements creating
any security interest to which the Borrower is a party and any
other documents or agreements to which the Borrower is a party
in connection with this Agreement, shall be limited to the
amount of the Net Revenues. In the event that the Net Revenues
are insufficient, the Banks shall have no further recourse
against the Borrower, without prejudice to their rights under
the guaranties and security interests stipulated in Clauses
11.2 through 11.4 hereof.
10.2.2 O.P.T.B. shall not have any recourse whatsoever against the
Borrower with respect to any amount paid by it or any harm
suffered by it by reason of the performance of its obligations
under this Agreement.
10.2.3 In addition, neither the Banks, the Arranger, the
International Agent nor the Local Agent shall have any right
of recourse against the Borrower if any late-payment interest
or other amounts are owed by the Borrower hereunder due to a
delay in the payment of amounts guaranteed by O.P.T.B. in the
event of a Pledged Project Account shortfall or under Clause
11.1.2 hereof.
However, subject to the provisions of Clause 8.2, the Banks
shall retain their rights to late-payment interest or in the
event of enforcement of the guaranties referred to in Clauses
11.2 through 11.4 hereof.
10.2.4 All references to the Borrower in this Clause 10.2 shall mean
the Borrower and its Affiliates.
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10.3 NO SET-OFFS
The Borrower expressly undertakes not to set off any amount owed by it under the
Agreement with any claim it may hold on the Banks or any of them.
10.4 ALLOCATION OF PAYMENTS
All payments received by the Local Agent, the Arranger or the International
Agent shall be applied first to due and payable late-payment interest, next to
interest, then to all other amounts due, and, lastly, to principal, beginning
with amounts with the oldest due date.
10.5 DATE OF PAYMENTS
Without prejudice to Clause 10.1.2.3, each payment shall be made on a Business
Day.
In the event that, in accordance with the provisions of this Agreement, any
amount falls due on a date which is not a Business Day, payment shall be made on
the next Business Day (unless said postponement causes the payment to fall in
the following month, in which case payment shall be made on the previous
Business Day). The Local Agent shall accordingly modify the calculation of the
relevant interest or fee of the Local Agent and the International Agent shall
modify the calculation of the fee of the International Agent, as the case may
be.
10.6 PREPAYMENT
The Borrower shall be entitled to prepay all or part of the outstanding
principal at any time during the term of the Facility, provided notice is given
eight (8) Days in advance.
In the event of a prepayment, the Borrower shall pay a penalty calculated by
applying the interest rate specified in Clause 7.1 hereof to the prepaid
principal over the number of Days between the prepayment date and the scheduled
repayment date, not to exceed three (3) calendar months.
ARTICLE 11 - GUARANTIES
For all amounts owed by the Borrower under the Agreement, the Borrower and
O.P.T.B. shall take or cause to be taken the actions described below, each in
fulfillment of its own responsibilities.
It is expressly agreed among the Parties that the guaranties contained in
Clauses 11.2 through 11.4 herebelow, may only be called after the Local Agent
determines that the amounts available in the Pledged Project Account do not
suffice to pay all amounts due and payable by the Borrower under the Agreement.
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11.1 DOMICILIATION OF PROJECT REVENUES ON THE DOMICILIATION ACCOUNT AND
PLEDGE OF NET REVENUES IN THE PLEDGED PROJECT ACCOUNT - INDEPENDENT
INVOICING SYSTEMS
11.1.1. During the term hereof and until all amounts owed by the
Borrower to the Banks, the Arranger, the International Agent
and the Local Agent under the Agreement and to Titan for the
financing of the Titan Equipment have been entirely repaid,
O.P.T.B. irrevocably undertakes to domicile all Project
Revenues on the Domiciled Account from which O.P.T.B. will
transfer to the Borrower, as instructed by same, the amount of
the Project Expenses.
O.P.T.B. further undertakes to transfer all of the Net
Revenues from the Domiciliation Account to the Pledged Project
Account at least once every two (2) months and at least five
(5) Days before the due date for each Interest Period.
11.1.2 O.P.T.B. irrevocably undertakes to assume the commercial risk
of partial payment or non-payment of invoices issued in
connection with the operation of the Equipment by crediting
the Domiciled Account with any payment shortfall sixty (60)
Days after issuance of the corresponding invoice(s). Moreover,
O.P.T.B. undertakes not to seek recourse against Borrower for
repayment of any amount paid under this Clause.
11.1.3 The Borrower warrants and represents that the Titan Equipment
and the equipment included in Phases 2, 3 and 5 of the Alcatel
Equipment include independent invoicing systems that make it
possible to segregate Project Revenues, both for existing
subscribers and for new subscribers, from other O.P.T.B.
revenues, and that will enable the Borrower to monitor
invoices issued and revenues generated.
The Borrower undertakes to monitor the operation of these
systems within the context of the Joint Monitoring Committee
and the BCT Contract until all amounts due by it under the
Agreement have been repaid in full.
The Borrower shall send the International Agent every two (2)
months, within thirty (30) days of the Reference Period, a
statement of amounts invoiced in connection with the operation
of the Equipment.
11.1.4 The Pledged Project Account shall be pledged by the Borrower
in favor of the Banks, the Arranger, the International Agent
and the Local Agent to secure payment of all amounts due by
the Borrower under the Agreement, in accordance with form of
Pledged Project Account Agreement in APPENDIX 11.1.4 attached
hereto.
The pledge shall not apply to any amounts, other than Net
Revenues, paid by O.P.T.B. into the Pledged Project Account in
repayment of the Titan Equipment financing.
11.1.5 The Local Agent irrevocably undertakes to administer the
Pledged Project Account as specified in Clause 10.1.2 hereof.
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11.2 FIRST DEMAND GUARANTY OF O.P.T.B.
O.P.T.B. shall issue to the Banks, the Arranger, the International Agent and the
Local Agent an independent and autonomous first demand guaranty for payment of
all amounts due under this Agreement, including but not limited to all
principal, interest, late-payment interest, fees, costs and incidental expenses,
in the form of the document in APPENDIX 11.2.
11.3 ALCATEL EQUIPMENT LIEN
11.3.1 CREATION OF LIEN
The Borrower undertakes to grant a lien on all financed Alcatel
Equipment in favor of the Banks, the Arranger, the International Agent
and the Local Agent as soon as title to the financed Alcatel Equipment
has been transferred to the Borrower by ALCO.
Accordingly, the Borrower and the Local Agent, acting in the name and
on behalf of the Banks, the Arranger, the International Agent and the
Local Agent, shall execute (i) a lien agreement in the form of the
Alcatel Equipment Lien Agreement attached hereto in APPENDIX 11.3.1A
and (ii) an additional lien agreement in the form of the Additional
Alcatel Equipment Lien Agreement attached hereto in APPENDIX 11.3.1B.
11.3.2 INSPECTION OF LIENED ALCATEL EQUIPMENT
The Borrower authorizes the Local Agent to inspect or to have
inspected, by SGS-Cotonou or by BUREAU VERITAS, as the Local Agent may
elect, after prior notice to the Borrower, the liened Alcatel
Equipment, on two occasions during the term of the Facility, and, in
addition, in the event a material adverse circumstance arises which may
substantially affect the liened Alcatel Equipment.
The Borrower undertakes to bear the reasonable costs of the foregoing
inspections carried out by SGS-Cotonou, or by BUREAU VERITAS.
11.3.3 TRANSFER OF THE LIENED ALCATEL EQUIPMENT TO A SUBSIDIARY
It is expressly agreed that the lien shall not bar any transfer of
Alcatel Equipment to a wholly-owned subsidiary of Titan organized under
Benin law and the OHADA subject to compliance with the required
formalities in this regard under Benin law.
11.3.4 RELEASE OF LIEN
The Local Agent shall release the Alcatel Equipment liens upon complete
repayment of all amounts owed by the Borrower to the Banks, the
Arranger, the International Agent, and the Local Agent under the
Agreement.
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11.3.5 INSURANCE POLICIES
The Borrower undertakes to insure the liened Alcatel Equipment against
fire, flood, theft, natural disasters and similar casualties in favor
of the Local Agent, on behalf of the Banks, the Arranger, the
International Agent and the Local Agent during the entire term of the
Facility with the Local Agent named as first loss payee on behalf of
the Banks, the Arranger, the International Agent and the Local Agent.
In the event of a partial or total loss of any Alcatel Equipment, as a
result of which the Agent receives the proceeds of any such insurance
policy, the Local Agent, on behalf of the Banks, the Arranger, the
International Agent and the Local Agent, undertakes, at the request of
the Borrower, first to apply those insurance proceeds to repair,
restore or replace the relevant Alcatel Equipment.
Accordingly, the Borrower undertakes to submit to the Local Agent the
original insurance certificate for the liened Alcatel Equipment and the
transportation of the Alcatel Equipment upon the Borrower's assuming
the risk thereof under the Master Agreement.
11.4 PLEDGE OF THE FACILITY ACCOUNT
The Borrower's claims on the Banks with respect to the Titan Africa Facility
Account shall be pledged in favor of the Banks, in accordance with the Titan
Africa Facility Account Pledge Agreement in APPENDIX 11.4.
11.5 COMFORT LETTER FROM THE REPUBLIC OF BENIN
The Borrower and O.P.T.B. undertake to obtain from the Finance Minister of the
Republic of Benin, with a copy thereof to the International Agent, a comfort
letter from the Republic of Benin [regarding] O.P.T.B.'s continuing obligations
under the Agreement and the BCT Contract in light of the contemplated
modification of the laws and regulations governing the Benin telecommunications
sector and O.P.T.B.'s spin-off. To this end, the Borrower and O.P.T.B. shall
send the Minister of Finance a letter in the form of APPENDIX 11.5, with a copy
to the International Agent.
11.6 CONTINUATION OF TRANSFER AUTHORIZATIONS
The Borrower and O.P.T.B. undertake to obtain from the Ministry of Finance of
the Republic of Benin, with a copy to the International Agent, a letter assuring
the Borrower that all necessary authorizations will be granted to permit the
transfer outside Benin of funds used to pay ALCO under the Master Agreement. To
this end, the Borrower and O.P.T.B. shall send the Minister of Finance, a letter
in the form of APPENDIX 11.6, with a copy to the International Agent.
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ARTICLE 12 - BORROWER'S REPRESENTATIONS AND WARRANTIES
On the understanding that the accuracy of the Borrower's representations and
warranties is deemed to be a determinative and essential condition of the
Banks', the Arranger's, the International Agent's and the Local Agent's
undertakings, the Borrower represents and warrants that:
12.1 the Borrower is organized as a corporation under the laws of the State
of Delaware (United States of America);
12.2 the signatory to the Agreement is invested with the necessary authority
for the Borrower to be bound by the terms of the Agreement;
12.3 the Borrower's obligations under the Agreement rank in all respects
senior or equal (PARI PASSU) to all other debts, commitments and
obligations assumed or made toward all other creditors;
12.4 the execution and performance of the Agreement are not in contravention
of any law or regulation applicable to the Borrower;
12.5 the Borrower is not in breach of its material obligations under a
significant agreement related to the Project to which it is a party;
12.6 no dispute or legal action for more than FRF 10,000,000 or its
equivalent in another currency and likely to have a material adverse
impact on the Borrower's activities, financial situation or assets, is
pending;
12.7 the Borrower's undertakings are made pursuant to a commercial
instrument and it is not entitled to sovereign immunity for itself or
its assets; and
12.8 the Borrower has been informed of the rates applied to standard banking
operations by the Local Agent.
In the event that one or more of these representations and warranties is no
longer true or accurate during the term of the Facility, the Borrower shall
immediately notify the Local Agent thereof.
ARTICLE 13 - BORROWER'S COVENANTS
On the understanding that the following covenants are deemed to be an essential
and determinative condition of the Banks', the Arranger's, the International
Agent's and the Local Agent's undertakings, the Borrower irrevocably undertakes
during the term of the Facility:
13.1 To comply with the laws and regulations currently in force in the State
of the Borrower's incorporation and any that may take effect after the
Agreement is
<PAGE>
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executed, in order to ensure at all times that the Agreement is valid
and can be performed.
13.2 To inform the Local Agent immediately of all facts or circumstances
that may constitute or become one or more of the events mentioned in
Article 16 "ACCELERATION".
13.3 To provide the Local Agent with an annual report prepared by Arthur
Andersen or another auditing firm acceptable to the Local Agent,
reviewing and reporting on the Project Expenses.
13.4 To inform the Local Agent immediately of all facts or circumstances
that may affect the authority of the persons represented on the date
hereof as having the capacity to duly bind the Borrower for the
performance of this Agreement or affecting the accuracy or changing any
portion of the representations and warranties in Article 12 "BORROWER'S
REPRESENTATION AND WARRANTIES" and the covenants in Article 13
"BORROWER'S COVENANTS".
13.5 To pay the fees mentioned in Article 9 of the Agreement when due.
13.6 To inform the Local Agent every calendar quarter of the progress of the
Project and to inform it of any event that materially affects or may
affect the Project timetable as soon as [the Borrower] learns of [such
event].
13.7 Not to use the restructuring of Benin debt or the O.P.T.B.'s
privatization as an excuse not to repay any amount due under the
Agreement.
13.8 Until repayment of all amounts due by the Borrower under the Agreement,
not to grant security interests in the Alcatel Equipment, the Net
Revenues or the shares of a Subsidiary incorporated in Benin to another
creditor or creditors for the purpose of performing all or some of the
Borrower's obligations under the BCT Contract, or as a general matter
grant any guaranty, security interest or undertaking having the effect
of according priority to a creditor, without the International Agent's
prior approval.
13.9 To take out and maintain during the term of the Facility, insurance
policies on the Alcatel Equipment and their transportation, in
accordance with Clause 11.3.5 hereof.
13.10 To immediately forward to the Local Agent copies of all correspondence
between the Borrower and the International Agent, and to the
International Agent copies of all correspondence between the Borrower
and the Local Agent, to the extent that such correspondence relates to
this Facility, with the exception of correspondence related to the
commissions mentioned in Article 9 hereof.
13.11 To keep the independent invoicing centers in Calavi (Phases 2 and 3)
and Parakou (Phase 5) in good working order and to record the revenues
generated by the corresponding Equipment precisely and independently of
O.P.T.B., and to inform the Local Agent every month of the amount of
said revenues.
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13.12 To supervise the implementation and completion of the Project through
the Joint Monitoring Committee and, to the extent of the Borrower's
obligations, to create said Committee, and to immediately inform the
Local Agent of any material difficulty in connection with the Project.
13.13 To use the Facility for the purpose set forth in the recitals hereof
and notably, to allocate the proceeds of the first Drawdown to
repayment of the entirety of the Bridge Loan.
ARTICLE 14 - CONDITIONS PRECEDENT TO THE RIGHT TO FIRST DRAWDOWN
The Borrower's right to the first Drawdown shall be subordinate to the
Borrower's providing the International Agent, in a satisfactory form and with a
satisfactory content, the documents listed below, and the International Agent's
approval of the form and content of the said documents, said approval not to be
unreasonably withheld or delayed:
14.1 A duly certified copy of the resolution of the Borrower's Board of
Directors authorizing it to sign the Agreement, to grant the related
security interests and guaranties and appointing its duly authorized
representatives for those purposes.
14.2 A duly certified copy of the Borrower's incorporation certificate,
articles of incorporation and by-laws (STATUTS).
14.3 A duly executed Pledged Project Account Agreement substantially in the
form of APPENDIX 11.1.4.
14.4 A duly executed First Demand Guaranty issued by O.P.T.B. substantially
in the form of APPENDIX 11.2.
14.5 A duly executed Alcatel Equipment Lien Agreement and Additional Alcatel
Equipment Lien Agreement substantially in the form of APPENDIX 11.3.1A
and APPENDIX 11.3.1B.
14.6 The insurance policy certificate stipulated in Clause 11.3.5.
14.7 The duly executed Facility Account Pledge Agreement substantially in
the form of APPENDIX 11.4.
14.8 A legal opinion by the Borrower's Benin lawyer substantially in the
form of APPENDIX 14.8.A and a legal opinion from O.P.T.B.'s Benin
lawyer substantially in the form of APPENDIX 14.8.B.
14.9 A comfort letter from the Republic of Benin with respect to the
continuity of O.P.T.B.'s commitments in reply to the letter sent
jointly by O.P.T.B. and the Borrower in the form of APPENDIX 11.5.
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14.10 A letter from the Republic of Benin with respect to the right to
transfer the funds in FCFA needed to pay all amounts owed to Alcatel
under the Master Agreement, in reply to the letter sent jointly by
O.P.T.B. and the Borrower in the form of APPENDIX 11.6.
14.11 A duly executed O.P.T.B. Account Pledge Agreement substantially in the
form of APPENDIX 10.1.2.3.B hereto.
ARTICLE 15 - NEW CIRCUMSTANCES
This Agreement is based on the legal, tax and monetary regulatory standards in
force as of the Execution Date in France and Benin.
In case of a legally binding change to a legal or regulatory decision of any
banking supervisory or other authority, which change applies generally to banks
located in France or Benin, subjecting the Banks, the International Agent,
and/or the Local Agent to:
a) Any tax, duty, levy or withholding tax of any kind (except
corporate income tax) on any amount owed by the Borrower by
virtue of this Agreement.
b) New charges or additional costs in connection with the
Facility.
The following provisions shall apply:
1) The International Agent shall promptly inform the Borrower of this new
circumstance in reasonable detail.
2) The Borrower and the International Agent shall meet promptly in order to
resolve the difficulties presented, in the spirit of co-operation in which this
Agreement was executed.
3) If no solution can be found within sixty (60) Days of the date on which the
Borrower receives said notice, the Borrower shall either:
- ask the International Agent to maintain the Facility while
undertaking to bear the entire additional cost that the
International Agent, the Local Agent or the Banks would or will
have to bear from the date on which the new circumstance occurred.
Notification by the International Agent specifying these costs
shall be final and binding unless the Borrower can prove a patent
error; or
- terminate the Banks', the International Agent's and the Local
Agent's undertakings by repaying in full all amounts owed by the
Borrower under the Agreement, including principal, interest,
late-payment interest, costs, fees and incidental expenses.
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ARTICLE 16 - ACCELERATION
Upon the request of the Majority Banks, and after notifying the Borrower, the
Local Agent shall be entitled to refuse any new Drawdown under the Agreement
and/or to demand immediate (re)payment of all outstanding principal, interest,
late-payment interest, costs, fees and incidental expenses and all other amounts
due under this Agreement, without making demand, formal notice or any judicial
or extra-judicial formality, upon the occurrence of any following events, unless
such event no longer exists on the date the Local Agent notifies the Borrower of
the acceleration event and/or refuses a new Drawdown:
1) In the event that the Borrower fails to pay any amount due under the
Agreement on its due date, if the Borrower does not remedy such default within
15 Days of being given notice to do so;
2) In the event that one or more of the representations and warranties made by
the Borrower in connection with this Agreement ceases to be accurate or in
force;
3) In the event that one or more of the obligations of or covenants undertaken
by the Borrower or the Guarantor in connection with this Agreement ceases to be
substantially valid or in force;
4) In the event that any Benin import license for any material portion of the
Equipment ceases to be substantially valid or in force;
5) In the event that any event occurs which materially affects the Project and
jeopardizes repayment of the Facility;
6) In the event that the Borrower does not perform one or more of its other
obligations under this Agreement within fifteen (15) days after notice requiring
it to remedy such non-performance;
7) In the event of a change in the Borrower's ownership structure or a merger,
spin-off or dissolution of the Borrower;
8) In the event of discontinuation of the Borrower's business; or a material
change in the Borrower's core business; or the Borrower's court-ordered
liquidation; or
9) In the event that any of the guaranties listed in Clauses 11.1 to 11.4 ceases
to be valid and enforceable under the terms of the Agreement in whole or in part
and for any reason whatsoever, except in the event that the Local Agent does not
comply with the formalities set forth in APPENDIX 11.3.1A or APPENDIX 11.3.1B.
ARTICLE 17 - INTERNATIONAL AGENT
17.1 Each Bank irrevocably appoints the International Agent to act as agent and
authorizes the International Agent to take measures on behalf of the Banks'
syndicate and to exercise the
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powers expressly set forth or delegated to the International Agent in this
Agreement, as well as any that are reasonably the consequence thereof.
[17.2] The International Agent shall not be liable to the Banks, the Borrower,
or the Local Agent, as the case may be, for breach by one or more of the Banks,
the Local Agent or the Borrower of its/their obligations.
17.3 The International Agent shall be entitled to bring or to have the Local
Agent bring any action against third parties, and/or, upon the occurrence of any
event defined in Article 16, against the Borrower, and/or to apply for or cause
to be applied for any interlocutory relief in the interests of the Banks. The
International Agent shall promptly inform the other Banks of such actions.
17.4 The International Agent shall have no obligation to make inquiries or
verifications in order to determine whether the Borrower is in compliance with
and performing its obligations and covenants, or to determine its financial or
legal condition.
The International Agent's disclosure obligations shall be limited to the Local
Agent.
Moreover, the obligation to inform the Local Agent of any facts and conditions
in connection with the Agreement shall be limited to forwarding information
received directly in the performance of its assignment.
17.5 Notwithstanding anything in this Agreement to the contrary, the
International Agent shall not incur any liability towards the Local Agent or the
Banks absent gross negligence or serious misconduct (FAUTE LOURDE). The
International Agent shall be entitled to rely on any document it considers
reasonably and in good faith to be authentic or signed by authorized person(s)
and any communication by the Banks or the Local Agent it reasonably believes to
originate with the said authorized persons.
The International Agent shall be charged with forwarding to the Local Agent all
information provided to it by O.P.T.B. and the Borrower.
17.6 The Borrower shall reimburse the International Agent, for its own account
or on behalf of the Banks, upon presentation of detailed supporting documents,
all costs, expenses, court costs and penalties reasonably incurred by it in
connection with legal proceedings to enforce the Borrower's obligations in the
event of a default by the Borrower.
17.7 If the Borrower does not repay the International Agent as International
Agent or as agent of the Banks hereunder, the Banks undertake reciprocally to
bear the risk of final loss due to use of the Facility, in proportion to the
percentage of their respective participations in the Facility.
17.8 The International Agent shall continue to act as International Agent until
its replacement has been appointed in accordance with the following procedure:
the International Agent shall first submit to the Borrower a list of three (3)
candidates for International Agent. Each of the candidates shall be approved or
rejected by the Borrower. In the event the Borrower has not notified the
International Agent of its approval and/or rejection of each of the candidates,
or in case of refusal to approve the three candidates proposed, within a
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maximum of 30 (thirty) Days of the date of Borrower's receipt of the list of the
International Agent's proposed candidates, the Majority Banks shall be obligated
to promptly appoint a replacement International Agent.
ARTICLE 18 - LOCAL AGENT
18.1 The International Agent authorizes the Local Agent, on its behalf, to take
such measures and exercise such powers as are expressly provided for or
delegated to the Local Agent in this Agreement as well as those which are
reasonably the consequence thereof.
18.2 The Local Agent is responsible for the prompt transfer to the Borrower of
all amounts received from the Banks in connection with the Facility.
It is further responsible for transferring to the Banks concerned all amounts
received from the Borrower or from the Guarantor on their behalf for repayment
of the principal and payment of the interest, late-payment interest, costs and
incidental expenses under the Facility. Lastly, it is responsible for
transferring the Distributable Revenues to Titan and O.P.T.B. The Local Agent
shall promptly inform the Borrower, O.P.T.B., and the International Agent of
each such transaction.
18.3 The Local Agent shall see to it that the transactions involved in the grant
and release of the Alcatel Equipment liens are duly carried out. It shall
further arrange for regular inspections to be carried out in accordance with
Clause 11.3.2 hereof, with copies of the inspection reports to be sent to the
International Agent and the Borrower.
18.4 Unless expressly stipulated in this Agreement, the Local Agent shall not be
obligated to take any initiative under its own authority; its actions or
decisions not to act shall be valid provided that it acts or refrains from
acting in accordance with the instructions received from the International
Agent.
18.5 Absent a formal request from the International Agent, the Local Agent shall
not be obligated to make inquiries or verifications as regards compliance with
and performance of the Borrower's obligations and covenants or its financial or
legal condition.
The Local Agent shall be responsible for forwarding information received from
the International Agent to the Banks.
Moreover, the obligation to inform the International Agent of any facts or
conditions in connection with the Agreement shall be limited to forwarding
information received directly in the performance of its assignment as a Local
Agent.
18.6 The Local Agent shall not incur any liability toward the Banks absent
serious misconduct or gross negligence (FAUTE LOURDE). The Local Agent shall be
entitled to rely on any document it considers authentic or signed by the
authorized person(s) and on any notice from the International Agent or the Banks
it believes to originate with authorized persons.
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18.7 Upon presentation of reasonably detailed supporting documents, the Borrower
shall reimburse the Local Agent, on behalf of the Banks, all costs, expenses,
court costs and penalties incurred in connection with legal proceedings to
enforce the Borrower's obligations, in the event of default by the Borrower.
18.8 In its capacity as a Bank, the Local Agent shall have the same rights and
obligations under the Agreement as any other Bank and shall be entitled to
exercise them as though it were not the Local Agent, without being accountable
to the Banks or incurring any specific liability in this respect toward the
Banks.
The fact that a Bank is or becomes the Local Agent shall not in any way impair
its rights as a Bank.
18.9 The Local Agent shall continue to act as Local Agent until its replacement
has been appointed in accordance with the following procedure: the International
Agent shall first submit to the Borrower a list of three candidates for Local
Agent. Each of these candidates shall be approved or rejected by the Borrower,
provided, however, that approval may not be unreasonably withheld.
In the event that the Borrower fails to notify the International Agent of its
approval and/or rejection of each of the candidates, or in the event of refusal
to approve the three candidates proposed, within 30 (thirty) Days of the date of
Borrower's receipt of the list of the International Agent's proposed candidates,
the Majority Banks shall be required to promptly appoint a replacement Local
Agent.
ARTICLE 19 - MISCELLANEOUS
19.1 NO JOINT AND SEVERAL LIABILITY
Subject to the provisions of Clause 4.2, the obligations of the Banks shall be
several and not joint and several. Accordingly, no Bank shall be liable for the
obligations of another Bank.
19.2 WAIVER OF RIGHTS
Failure by the Banks fail to exercise one or more of their rights under the
Agreement or postponement by the International Agent and/or the Local Agent of
the exercise of said rights on behalf of the Banks shall not be construed as an
abandonment or waiver of said rights. Similarly, the partial exercise of a right
or exercise of only one of the remedies available to the Banks shall not prevent
them from exercising their entire rights or from exhausting all remedies
available to them.
Notwithstanding the foregoing, the Borrower shall be entitled to request the
Local Agent, at its discretion, to waive performance of all or part of its
obligations under this Agreement, with the exception of those enumerated in
Article 9 hereof. Said waivers shall be deemed to be effective if the Majority
Banks so agree in writing.
<PAGE>
- 32 - TRANSLATION
19.3 TAXES AND DUTIES
Subject to Clauses 7.1 and 8.1 hereof, any and all present or future taxes,
duties, levies or costs, excluding corporate income tax, or any other tax levied
in lieu of or as an advance on corporate income tax, owed on the income of any
Bank, and due within or without Benin in connection with the Agreement or its
performance shall be borne by the Borrower, including all withholding taxes, if
any, on the interest collected by the Banks in connection with the Facility,
such that the amounts due to the Banks pursuant to this Agreement are in no way
affected.
19.4 NOTICES
Any notice, agreement or communication in connection with this Agreement shall
be sent in French, with a copy in English if the Borrower is the addressee, by
certified letter or international courier, or by tested telex or fax followed by
mailed confirmation, to the following addresses:
BORROWER: Titan Africa, Inc.
Address: 3033 Science Park Road
San Diego, California 92121 (United States of America)
Telephone: 00 1 858 552 97 86
Fax: 00 1 858 552 98 02
Attention: Mr. Ray H. Guillaume
INTERNATIONAL AGENT: AMB - Banque Belgolaise
Address: 6, Avenue Velasquez - 75008 Paris
Telex: 641-088
Fax: 00 33 1 53 93 76 39
Attention: Mr. Idelphonse Affogbolo
LOCAL AGENT: Bank of Africa Benin
Address: 08 BP 0879 Tri Postal Avenue Jean-Paul II
Cotonou, Republic of Benin
Telex: 5079
Fax: 00 229 31 31 17
Attention: Mr. Rene Formey de Saint-Louvent
GUARANTOR: Office des Postes et Telecommunications du Benin
Address: 01 BP 5959
Cotonou, Republic of Benin
Telex: 5206
Fax: 00 229 31 49 42
Attention: Mr. Barthelemy Agnan
Any notice given under this Agreement shall be deemed to be received by the
addressee as follows: if sent by tested telex or fax, on the Business Day
immediately following the Day it is sent; if by international courier, three
Business Days from the day it is mailed, and if by certified letter, ten Days
from the date of mailing.
<PAGE>
- 33 - TRANSLATION
It is agreed that for the purposes of this Clause the term "Business Day"
excludes any Day on which banks are closed for business in New York, NY.
19.5 SURVIVAL
Notwithstanding any provision to the contrary in this Agreement, the expiration
or termination of this Agreement shall not relieve the Borrower and O.P.T.B. of
their respective obligations to pay all amounts due hereunder and Clause 10.2
shall continue to apply.
19.6 ARRANGER
The Arranger shall not be subject to any liability or obligation in that
capacity in connection with the proper performance, validity or contents of the
Agreement or any other document delivered by virtue of the Agreement.
19.7 AMENDMENT
No modification or amendment to this Agreement shall be valid or be binding on
the Parties unless it is made in a writing duly executed by the
representative(s) of each of the Parties.
Notwithstanding the foregoing, the Borrower shall be entitled to request at its
discretion amendments to this Agreement, which amendments shall be binding on
all of the Parties if executed solely by the Borrower and the Majority Banks,
provided, however, that no amendment concerning the amount of the Facility or
the Final Payment Date may be modified unless executed by all of the Parties,
and that any modification to the rights and obligations of the International
Agent and/or the Local Agent requires its/their approval, as the case may be.
19.8 SEVERABILITY
In the event that one of the provisions in the Agreement becomes or is held to
be void, prohibited or invalid, the validity of the other provisions of the
Agreement shall not be affected thereby.
19.9 LANGUAGE
This Agreement is in French, which is the controlling language as between the
Parties. An English translation hereof which satisfactorily reflects the content
of this agreement has nonetheless been prepared for the performance of the
Agreement by Titan.
It is expressly agreed among the Parties that said English translation shall not
be controlling or take precedence over this Agreement.
<PAGE>
- 34 - TRANSLATION
19.10 INTERPRETATION
In the event of any inconsistency between the BCT Contract and this Agreement
with respect to the terms and conditions of repayment of the financing for the
Alcatel Equipment and the Titan Equipment, it is expressly agreed among the
Parties that the terms of this Agreement shall prevail as among the Parties.
ARTICLE 20 - GOVERNING LAW AND CHOICE OF FORUM
20.1 GOVERNING LAW
This Agreement, including its Appendices, is governed by French law, except for
the Alcatel Equipment Lien Agreement, the Titan Africa Facility Account Pledge
Agreement, the Pledged Project Account Agreement, the O.P.T.B. Account Pledge
Agreement, and the First Demand Guaranty which are governed by the laws of the
Republic of Benin.
20.2 DISPUTES
In the event a dispute should arise, the Parties agree to consult one another
with the aim of reaching an amicable settlement. Failing an amicable settlement,
any dispute that may arise in connection with the validity, interpretation or
performance of this Agreement shall be subject to the exclusive jurisdiction of
the Paris courts. However, the Borrower acknowledges that the International
Agent and the Local Agent have the right to sue in any Benin court with
[subject-matter] jurisdiction.
The Parties expressly waive, each on its own behalf and to the extent necessary,
the privilege of sovereign immunity from jurisdiction and enforcement recognized
by any court in which a complaint is filed in accordance with the above
paragraph, or by any court in which an action is brought to enforce a judgment
by such court.
In the event that the payment of an award of damages in a foreign currency after
the required conversion into FCFA falls short of the amount due, the Borrower
shall continue to owe the Banks the difference.
20.3 DOMICILE
For this Agreement and as necessary, the Borrower irrevocably appoints:
Maitre Nicholas J. Costanza
3033 Science Park Road
San Diego, CA 92121
United States of America
Telephone: 00 1 858 552 94 91
Fax: 00 1 858 552 97 59
<PAGE>
- 35 - TRANSLATION
as its agent to receive on its behalf all summons and complaints and all other
judicial instruments that may be served in judicial proceedings.
The International Agent elects domicile at its branch office at 6, Avenue
Velasquez, 75008 Paris, France.
The Local Agent elects domicile at its principal office.
ARTICLE 21: APPENDICES
The following appendices, annexed hereto, are an integral part of the Agreement:
- - APPENDIX 1.A: Powers of Attorney of the Banks' Representatives;
- - APPENDIX 1.B: Amount and Percentage of the Banks' Participations;
- - APPENDIX 1.C: Alcatel Equipment List;
- - APPENDIX 1.D: Titan Equipment List;
- - APPENDIX 1.E: Excerpt from Financial Model
- - APPENDIX 4.1A: Form of First Drawdown Notice;
- - APPENDIX 4.1B: Form of Drawdown Notice;
- - APPENDIX 6.2: Form of Notice of Assignment or Transfer;
- - APPENDIX 10.1.1: Payment Schedule;
- - APPENDIX 10.1.2.1: Use and Amortization Table;
- - APPENDIX 10.1.2.3A: Division of Project Revenues;
- - APPENDIX 10.1.2.3B: O.P.T.B. Account Pledge Agreement;
- - APPENDIX 11.1.4: Pledged Project Account Agreement;
- - APPENDIX 11.2: Form of Guarantor's First Demand Guaranty;
- - APPENDIX 11.3.1A: Alcatel Equipment Lien Agreement;
- - APPENDIX 11.3.1B: Additional Alcatel Equipment Lien Agreement;
- - APPENDIX 11.4: Titan Africa Facility Account Pledge Agreement;
<PAGE>
- 36 - TRANSLATION
- - APPENDIX 11.5: Form of Letter from O.P.T.B. and the Borrower to the
Finance Minister of Benin with respect to the
Continuity of O.P.T.B.'s Commitments;
- - APPENDIX 11.6: Form of Letter from O.P.T.B. and the Borrower to the
Finance Minister of Benin with respect to the
Transferability of Amounts in FCFA;
- - APPENDIX 14.8.A: Form of Legal Opinion to be Provided by the Borrower;
- - APPENDIX 14.8.B: Form of Legal Opinion to be Provided by O.P.T.B..
This Agreement is executed in as many originals as there are parties.
Executed in Cotonou, in eight counterparts,
December 10, 1999
<TABLE>
<S> <C>
- --------------------------------------- --------------------------------
Titan Africa, Inc. AMB-Banque Belgolaise
Represented by Mr. Ray H. Guillaume Represented by Messrs. Idelphonse
Affogbolo and Joel Krief
- --------------------------------------- -----------------------------
Office des Postes et Telecommunications ECO Bank Benin
du Benin Represented by Mr. Fogan Sossah
Represented by Mr. Barthelemy Agnan
- --------------------------------------- ---------------------------------
Continental Bank Benin Bank of Africa Benin
Represented by Mr. Michel D'Almeida Represented by Mr. Rene Formey de Saint
Louvent
- --------------------------------------
Banque Internationale du Benin
Represented by Mr. Dave Lafiaji
</TABLE>
<PAGE>
- 36 - TRANSLATION
Done in _____________
On _________________
- ---------------------------------------
Banque Ouest-Africaine pour le Developpement
Represented by Mr. ___________________
<PAGE>
TRANSLATION
APPENDIX 1.A
POWERS OF ATTORNEY OF THE BANKS' REPRESENTATIVES
<PAGE>
TRANSLATION
APPENDIX 1.B
AMOUNT AND PERCENTAGE OF THE BANKS' PARTICIPATIONS
<PAGE>
TRANSLATION
APPENDIX 1.C
ALCATEL EQUIPMENT LIST
<PAGE>
TRANSLATION
APPENDIX 1.D
TITAN EQUIPMENT LIST
<PAGE>
TRANSLATION
APPENDIX 1.E
EXCERPT FROM THE FINANCIAL MODEL
<PAGE>
TRANSLATION
APPENDIX 4-1A
FORM OF FIRST DRAWDOWN NOTICE
From: Titan Africa, Inc.
To: [Local Agent]
Date:
Ref: Facility Agreement dated December 10, 1999 (the "Agreement")
We have sent the International Agent the documents referenced in Article 14 of
the Agreement.
We herewith request the following drawdown to be provided on _______________
[value date]:
FCFA _______________ repayable in accordance with Clause 10.1.1 of the
Agreement.
We instruct you to pay this advance by:
Crediting our "Titan Africa" Facility Account No. _______________ with FCFA
_______________ corresponding in particular (i) to the amounts owed pursuant to
the repayment of the Bridge Loan, in accordance with Article 4 of the Agreement
and (ii) to the amount of commissions due and payable under the Agreement.
We further instruct you:
By debiting the "Titan Africa" Facility Account, to convert into [FRF] [Euros]
FCFA _______________ and to transfer or have transferred such amount in favor of
[our] account No. _______________ [opened in the name _______________] on the
books of [Bank] under reference _______________.
Please confirm by return the value date of the advance to be disbursed and
execution of the transfer in our favor.
- --------------------------------------------
[first name, last name, title and signature]
<PAGE>
TRANSLATION
APPENDIX 4-1B
FORM OF DRAWDOWN NOTICE
From: Titan Africa, Inc.
To: [Local Agent]
Date:
Ref: Facility Agreement dated December 10, 1999 (the "Agreement")
We are sending you the documents stipulated in Clause 4.1 of the Agreement, the
delivery of which to the Local Agent is a condition precedent to each drawdown
other than the first drawdown.
We herewith request the following drawdown(s) to be provided for _______________
[value date]:
FCFA _______________ repayable in accordance with Clause 10.1.1 of the
Agreement.
We instruct you to pay this/these advance(s) by:
Crediting our "Titan Africa" Facility Account No. _______________ with FCFA
_______________.
We further instruct you:
By debiting the "Titan Africa" Facility Account, to convert into [Euros] [FRF]
FCFA _______________ and to transfer or have transferred such amount in favor of
[our] account No. _______________ [opened in the name of _______________] on the
books of [Bank] under reference: _______________.
Please confirm by return the value date of the advances to be disbursed and
execution of the transfer in our favor.
- --------------------------------------------
[first name, last name, title and signature]
<PAGE>
TRANSLATION
APPENDIX 6.2
FORM OF NOTICE OF ASSIGNMENT OR TRANSFER
To: Banque Belgolaise
6, avenue Velasquez
75008 Paris
France
Attention: Mr. Idelphonse Affogbolo
cc: Titan Africa, Inc.
3033 Science Park Road
San Diego
California 92121
U.S.A.
Attention: Mr. Ray H. Guillaume
NOTICE OF ASSIGNMENT OR TRANSFER RELATING TO THE LOAN FACILITY AGREEMENT DATED
DECEMBER 10, 1999 (THE "AGREEMENT") WHEREBY A MEDIUM-TERM LOAN FACILITY IN THE
AMOUNT OF THE FCFA EQUIVALENT OF FRF 300,000,000 IS MADE AVAILABLE TO TITAN
AFRICA, INC. (THE "BORROWER") BY A SYNDICATE OF BANKS ON WHOSE BEHALF BANQUE
BELGOLAISE (THE "INTERNATIONAL AGENT") ACTS AS INTERNATIONAL AGENT.
TERMS DEFINED IN THE AGREEMENT AND NOT DEFINED HEREIN SHALL, UNLESS THE CONTEXT
INDICATES OTHERWISE, HAVE THE MEANING DEFINED IN THE AGREEMENT.
1. ______________, the assigning/transferring Bank (the "Bank"), (a)
confirms that the details in the Schedule attached hereto accurately
summarize its Commitment and/or the amount of all Advances owed to it
(b) requests ______________ (the "Transferee") to accept and realize
the assignment or transfer to the Transferee of that part of said
Commitment and/or, as the case may be, such Advances by countersigning
and delivering this Notice of Assignment or Transfer to the
International Agent, with a copy to the Borrower, at their respective
addresses for the delivery of notices specified in the Agreement,
subject to the approval of the Borrower.
<PAGE>
2 TRANSLATION
2. The Bank represents and warrants that:
/ / The Transferee is a home office, parent company, branch or subsidiary
of the Bank,
or
/ / The Transferee is a credit institution, in which case the assignment or
transfer requires the prior written approval of the Borrower,
and, as applicable,
/ / This assignment or transfer would be reasonably likely to result in
increased costs or other liability to the Borrower pursuant to Article
15 ("NEW CIRCUMSTANCES") or Clause 19.3 ("TAXES") of the Agreement, in
which case such assignment or transfer requires the prior written
approval of the Borrower.
3. The Transferee requests the International Agent to accept this Notice
of Assignment or Transfer as being delivered to the International
Agent, with a copy to the Borrower, pursuant to and for the purposes of
Clause 6.2 of the Agreement so as to take effect in accordance with the
terms of the Agreement, and notably upon the prior written approval of
the Borrower, as applicable.
4. The Transferee confirms that it has received a copy of the Agreement
together with such other related documents and information as it has
required and that it has not relied and will not hereafter rely on the
Bank to check or enquire on its behalf into the legality, validity,
effectiveness, accuracy, adequacy or completeness of any such documents
or information. The Transferee further acknowledges that it has not
relied and will not rely on the Bank to assess or keep under review on
its behalf the financial condition, creditworthiness, status or nature
of the Borrower or of any other party to the Agreement.
5. The Transferee hereby undertakes for the benefit of the Bank and each
of the other parties to the Agreement that it will perform its
obligations in accordance with the terms of the Agreement; the
Transferee will perform these obligations after delivery of this Notice
of Assignment or Transfer to the International Agent and to the
Borrower and satisfaction of the conditions (if any) having the effect
of putting into effect such assignment or transfer, including but not
limited to the related prior written approval of the Borrower.
6. The Bank makes no representation or warranty and assumes no
responsibility with respect to the legality, validity, effectiveness,
adequacy or applicability of the Agreement or any document relating
thereto. In addition, the Bank assumes no responsibility for the
financial condition of the Borrower or of any other party to the
Agreement or for the performance by the Borrower of any of its
obligations under the Agreement or any document relating thereto. Any
conditions and warranties, whether express or implied by law or
otherwise, are hereby excluded.
<PAGE>
3 TRANSLATION
7. The Bank remits to the International Agent the lump sum of FRF 100,000,
excluding taxes, to reimburse administrative costs incurred by the
International Agent by reason of the contemplated assignment or
transfer.
8. This Notice of Assignment or Transfer and the rights and obligations of
the parties hereunder shall be interpreted according to, and governed
by, the laws of the French Republic.
The Bank The Transferee
By: By:
Title: Title:
Date: Date:
**********************************
SCHEDULE
A. Bank's Commitment
Total Portion Transferred (which in accordance with Clause
6.2 of the Agreement shall be the equivalent in FCFA
of at least FRF 10,000,000)
B. Bank's Advance(s)
Amount Portion Transferred
<PAGE>
TRANSLATION
APPENDIX 10.1.1
PAYMENT SCHEDULE
<PAGE>
TRANSLATION
APPENDIX 10.1.2.1
USE AND AMORTIZATION TABLE
<PAGE>
TRANSLATION
APPENDIX 10.1.2.3.A
DIVISION OF PROJECT REVENUES
<TABLE>
<CAPTION>
Until December 31, 2003 During 36 months During 60 months after the
(or repayment in full of after the repayment in repayment in full of the
the financing of the full of the financing of financing of the Equipment
Equipment) the Equipment in in question
question (as provided in (as provided in the
the BCT Contract) BCT Contract)
<S> <C> <C> <C>
Phase 2 O.P.T.B.: 50% - O.P.T.B.: 50%
(GSM Revenues) Titan: 50% Titan: 50%
Phases 1, 3, and 5 O.P.T.B.: 40% O.P.T.B.: 50%
(Non-GSM Revenues) Titan: 60% Titan: 50%
Phase 4 N/A N/A N/A
</TABLE>
<PAGE>
TRANSLATION
APPENDIX 10.1.2.3 B
- --------------------------------------------------------------------------------
O.P.T.B. ACCOUNT
PLEDGE AGREEMENT
- --------------------------------------------------------------------------------
BY AND BETWEEN THE UNDERSIGNED:
1) OFFICE DES POSTES ET TELECOMMUNICATIONS OF BENIN, a state-owned
enterprise with a registered capital of FCFA 7,065,000,000, charged with
the exclusive supply of all telecommunications services in the territory
of Benin, having its registered office at 01 BP 5959 Cotonou, Republic of
Benin, created by decree No. 89-156 dated April 25, 1989, represented by
Mr. Barthelemy Agnan, duly authorized for the purpose hereof by decision
of the Board of Directors dated ______________,
hereinafter referred to as "O.P.T.B.",
PARTY OF THE FIRST PART,
AND:
2) BANK OF AFRICA BENIN, a Benin stock corporation (SOCIETE ANONYME) with a
stated capital of FCFA 3,600,000,000, having its registered office at 08
BP 0879 Tri Postal Avenue Jean-Paul II, Cotonou, Republic of Benin,
registered with the Registry of Commerce of Cotonou under number 15,053 B
represented by Mr. Rene Formey de Saint Louvent, General Manager
(DIRECTEUR GENERAL), duly authorized for the purpose hereof,
acting on its own behalf and on behalf of the Banks, the Arranger, the
International Agent and the Local Agent, a list of which is contained in
ATTACHMENT 1 hereto,
hereinafter referred to as the "Local Agent",
PARTY OF THE SECOND PART.
RECITALS:
1. Within the framework of a telecommunications development project in
Benin covered by a BUILD CO-OPERATE TRANSFER agreement dated August 17,
1999, with O.P.T.B., and in order to finance the purchase of equipment
to be manufactured by Alcatel Contracting S.A. and assistance in
connection with said equipment, Titan Africa, Inc.
<PAGE>
2 TRANSLATION
(hereinafter the "Borrower") has obtained from a syndicate of Benin and
WAEMU (UEMOA) banks, which participate in both cash management and risk
(hereinafter the "Banks"), a facility in CFA Francs in an amount whose
equivalent value is FRF 300,000,000 (three hundred million French
francs) (hereinafter referred to as "Facility") based on the terms and
conditions set forth in the loan facility agreement dated December 10,
1999 (hereinafter referred to as the "Agreement").
2. The Agreement provides for repayment of the amounts due under the
Facility from Net Revenues after the domiciliation by O.P.T.B. of the
Project Revenues on a Domiciliation Account, and then the transfer of
said Net Revenues to a Pledged Project Account opened in the name of
the Borrower on the books of the Local Agent. This account has been
opened under number ______________.
3. The Agreement also provides that O.P.T.B.'s share of Distributable
Revenues under the BCT Contract will be transferred to an account
opened in O.P.T.B.'s name on the books of the Local Agent (hereinafter
the "O.P.T.B.
Account")
4. As one of the conditions precedent to the Agreement's taking effect, it
has been provided that the O.P.T.B. Account be pledged in favor of the
Banks, the Arranger, the International Agent and the Local Agent.
5. Terms starting with a capital letter and not defined herein have the
same meaning as defined in the Agreement.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PLEDGE
In accordance with Clause 10.1.2.3 of the Agreement, O.P.T.B. hereby assigns the
balance of the Pledged O.P.T.B. Account to the Banks, Arranger, International
Agent and Local Agent in order to guarantee all amounts owed by the Borrower to
the Banks, Arranger, International Agent and Local Agent under the Agreement, in
principal, interest, late-payment interest, costs, fees and incidental expenses,
and in the order of priority set forth in Clause 10.4 of the Agreement.
ARTICLE 2 - OPERATION OF PLEDGED O.P.T.B. ACCOUNT
2.1. O.P.T.B. irrevocably undertakes during the term hereof and until all
amounts owed by the Borrower to the Banks, Arranger, International Agent
and Local Agent under the Agreement have been entirely repaid, or paid,
to transfer to the Pledged O.P.T.B. Account the entirety of its share of
the Distributable Revenues under the BCT Contract and the Agreement.
2.2. O.P.T.B. shall not transfer its share of the Distributable Revenues
credited to the Pledged O.P.T.B. Account until after the first Payment
Date following the date on which said share was credited to the Pledged
O.P.T.B. Account; after said Payment
<PAGE>
3 TRANSLATION
Date, the share in question can be debited from said Account. If, on that
Payment Date, the Local Agent considers that the amounts in the Pledged
Project Account are insufficient to ensure the repayment of amounts due
and payable by the Borrower under the Agreement, it shall be entitled to
refuse the transfer request presented by O.P.T.B. and, if necessary,
transfer from the Pledged O.P.T.B. Account any amount necessary to ensure
the payment of amounts due and payable to the Banks, Arranger,
International Agent and Local Agent by the Borrower under the Agreement.
O.P.T.B. shall not have any recourse against the Borrower for any amount
that the Local Agent may debit from the Pledged O.P.T.B. Account.
2.3 The parties agree that the claims of the Banks, Arranger, International
Agent and Local Agent against O.P.T.B. under the Agreement and O.P.T.B.'s
claims against the Local Agent in connection with the balance of the
Pledged O.P.T.B. Account are interdependent [and are intended to benefit
from an automatic right of set-off].
2.4. The Pledged O.P.T.B. Account shall in no event be overdrawn, and O.P.T.B.
and the Local Agent undertake not to take actions which could cause said
account to be overdrawn.
ARTICLE 3 - INTEREST
All funds credited to the Pledged O.P.T.B. Account with the Local Agent shall
bear interest at rates defined by separate agreement between the O.P.T.B. and
the Local Agent.
ARTICLE 4 - INFORMATION
The Local Agent shall provide the O.P.T.B., with a copy to the International
Agent:
- a monthly statement of accumulated interest within a week following
the end of the month in question
- a monthly account statement within a week following the end of the
month in question
- at O.P.T.B.'s request, information on the balance of the Pledged
O.P.T.B. Account during the term of the loan covered by the
Agreement.
ARTICLE 5 - NOTICES AND DOMICILE
All notices, agreements and communications relating hereto shall be drafted in
French and sent by facsimile, international air courier service or tested telex
to:
<PAGE>
4 TRANSLATION
<TABLE>
<S> <C>
O.P.T.B.
Address : 01 BP 5959 Cotonou, Republic of Benin
Telex : 5206
Fax : 00.229.31.49.42
Attn. : Mr. Barthelemy Agnan
Local Agent : Bank of Africa Benin
Address : 08 BP 0879 Tri Postal Avenue Jean-Paul II, Cotonou, Republic of Benin
Telex : 5079
Attn. : Mr. Rene Formey de Saint Louvent, Directeur General
International Agent: AMB - Banque Belgolaise
Address : 6 avenue Velasquez - 75008 Paris
Telex : 641-088
Attn. : Mr. Idelphonse Affogbolo
</TABLE>
The Local Agent elects domicile at its registered office.
The Local Agent's election of domicile shall not bar application of the
provisions in the first paragraph of this Article.
ARTICLE 6 - REGISTRATION AND SERVICE
This deed may be registered and served on the Local Agent.
Any bearer hereof shall be invested with all powers necessary to record and
serve notice of this pledge.
The costs of serving this pledge shall be borne by O.P.T.B.
ARTICLE 7 - GOVERNING LAW AND JURISDICTION
7.1. This agreement is governed by the law of Benin.
7.2. Any dispute regarding in particular the validity, interpretation or
performance of this Agreement shall be referred to the courts of
Cotonou. The O.P.T.B. herewith acknowledges that the Local Agent,
acting on its own behalf and on behalf of the Banks, Arranger,
International Agent and Local Agent, is entitled to file a claim
before any other Benin court that may have [subject-matter]
jurisdiction.
<PAGE>
5 TRANSLATION
7.3. O.P.T.B. waives any claim to jurisdictional or enforcement
immunity to which it may be entitled in respect of itself or its
assets.
Executed in Cotonou on December 10, 1999
in five originals
- -------------------- --------------------
O.P.T.B. Bank of Africa Benin
Mr. Barthelemy Agnan Mr. Rene Formey de Saint Louvent
<PAGE>
6 TRANSLATION
ATTACHMENT 1: LIST OF THE BANKS, THE ARRANGER,
THE INTERNATIONAL AGENT AND THE LOCAL AGENT
AMB
(Arranger)
Banque Belgolaise
(International Agent)
Bank of Africa Benin
(Local Agent)
Banque Ouest Africaine pour le Developpement
Banque Internationale du Benin
Continental Bank Benin
ECO Bank Benin
Bank of Africa Benin
<PAGE>
TRANSLATION
APPENDIX 11.1.4
- --------------------------------------------------------------------------------
PROJECT ACCOUNT PLEDGE AGREEMENT
- --------------------------------------------------------------------------------
BY AND AMONG THE UNDERSIGNED:
1) TITAN AFRICA, INC., a company organized under the laws of the State of
Delaware (United States of America) having its principal offices at 3033
Science Park Road, San Diego, California 92121 (United States of
America), incorporated on December 16, 1998, represented by Mr. Ray H.
Guillaume, in his capacity as Assistant Treasurer, duly authorized for
the purposes hereof,
hereinafter referred to as the "Borrower",
PARTY OF THE FIRST PART,
2) OFFICE DES POSTES ET TELECOMMUNICATIONS OF BENIN, a state-owned enterprise
with a registered capital of FCFA 7,065,000,000, charged with the
exclusive supply of all telecommunications services in the territory of
Benin, having its registered office at 01 BP 5959 Cotonou, Republic of
Benin, created by decree No. 89-156 dated April 25, 1989, represented by
Mr. Barthelemy Agnan, duly authorized for the purpose hereof by a decision
of the Board of Directors dated __________________________,
hereinafter referred to as "O.P.T.B.",
PARTY OF THE SECOND PART,
3) BANK OF AFRICA BENIN, a company organized under the laws of Benin with a
capital of 3,600,000,000 having its registered office at 08 BP 0879 Tri
Postal Avenue Jean-Paul II, Cotonou, Republic of Benin registered with the
Registry of Commerce of Cotonou under number 15,053 B, represented by Mr.
Rene Formey de Saint Louvent, General Manager (DIRECTEUR GENERAL), duly
authorized for the purpose hereof,
acting in its own name and on behalf of the Banks, the Arranger, the
International Agent and the Local Agent of which a list is attached hereto
as ATTACHMENT 1.
hereinafter referred to as "Local Agent",
PARTY OF THE THIRD PART,
RECITALS:
1. Within the framework of a telecommunications development project in
Benin covered by a Build Co-Operate Transfer agreement dated August
17, 1999 with the O.P.T.B., and in order to finance the purchase of
equipment to be manufactured by Alcatel Contracting S.A. and
assistance in connection with said equipment, the Borrower has
obtained from a syndicate of Benin and WAEMU (UEMOA) banks,
<PAGE>
2 TRANSLATION
which participate in both cash management and risk (hereinafter
the "Banks"), a facility in CFA Francs in an amount whose
equivalent value is FRF 300,000,000 (three hundred million French
francs) (hereinafter the "Facility") based on the conditions set
forth in the loan facility agreement dated December 10, 1999
(hereinafter referred to as the "Agreement").
2. The Agreement provides for repayment of the amounts due by virtue of
the Agreement from Net Revenues. Therefore, O.P.T.B. irrevocably
undertakes to domicile all of the Project Revenues on the
Domiciliation Account and to transfer the Net Revenues to the Project
Account opened in the name of the Borrower on the books of the Local
Agent. This account has been opened under number ____________.
3. As one of the conditions precedent to the Agreement's taking effect,
it has been provided that the Project Account be pledged in favor of
the Banks, Arranger, International Agent and Local Agent.
4. Terms starting with a capital letter and not defined herein have
the same meanings as defined in the Agreement.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PLEDGE
Subject to Clause 11.1.4, paragraph 2, of the Agreement, the Borrower herewith
pledges to the Banks, Arranger, International Agent and Local Agent the credit
balance of the Pledged Project Account, in order to guarantee all amounts owed
to the Banks, Arranger, International Agent and Local Agent by the Borrower
under the Agreement, in principal, interest, late-payment interest, costs, fees
and incidental expenses and in the order set forth in Clause 10.4 of the
Agreement.
ARTICLE 2 - OPERATION OF PLEDGED ACCOUNT
2.1. O.P.T.B. irrevocably undertakes until all amounts owed by the Borrower to
the Banks, Arranger, International Agent and Local Agent under the
Agreement as well as all amounts owed by O.P.T.B. to Titan for the Titan
Equipment financing have been entirely repaid, or paid, to transfer the
entirety of the Net Revenues to the Pledged Project Account.
2.2. Subject to Clause 10.1.2 of the Agreement, the Local Agent shall at the
date of each Payment Date, debit the balance of the Pledged Project
Account (i) in the amount of all payments due and payable by the Borrower
under the Agreement and transfer the amount to the Titan Africa Facility
Account, and (ii) in an amount equal to the amounts due and payable to
Titan by O.P.T.B. for the Titan Equipment financing, and transfer this
amount, on O.P.T.B.'s behalf, in accordance with Titan's instructions.
<PAGE>
3 TRANSLATION
Upon the occurrence of an event of acceleration as provided for
in Article 16 of the Agreement, the Local Agent shall be entitled
to debit the balance of the Pledged Project Account in the amount
due and payable under the Agreement, in accordance with said
Article 16 of the Agreement.
Any balance remaining in the Pledged Project Account will be
transferred to the Borrower and, as applicable, to O.P.T.B., in
accordance with Clause 10.1.2.3 of the Agreement.
2.3. The Pledged Project Account shall in no event be overdrawn and
O.P.T.B. and the Local Agent undertake not to take any actions
that would cause such account to be overdrawn.
2.4 The pledge created hereby shall be automatically cancelled upon
repayment or payment of all amounts owed by the Borrower under the
Agreement, and the balance of the Pledged Project Account will be
immediately paid to the Borrower and, as the case may be, to
O.P.T.B., free of any claim, guaranty or encumbrance whatsoever in
favor of the Banks, Arranger, International Agent and Local Agent.
The parties agree that the terms of Clause 10.2 of the Agreement
are expressly incorporated herein. In the case of any
inconsistency between the Agreement and this agreement, it is
expressly agreed among the parties that the terms of the Agreement
shall prevail among the parties.
ARTICLE 3 - INTEREST
All funds credited to the Pledged Project Account with the Local Agent shall
bear interest at rates defined by separate agreement between the Borrower and
the Local Agent.
ARTICLE 4 - INFORMATION
The Local Agent shall provide the Borrower, with a copy for O.P.T.B. and the
International Agent:
- a monthly statement of accumulated interest, within a week after the
end of the month in question,
- a monthly account statement, within a week after the end of the month
in question,
- at the Borrower's request, information on the balance in the Pledged
Project Account during the term of the loan granted pursuant to the
Agreement.
ARTICLE 5 - NOTICES AND DOMICILE
All notices, agreements and communications relating hereto shall be sent in
French, with a copy in English if the Borrower is the addressee, and sent by
facsimile, air mail, international air courier or tested telex to:
<PAGE>
4 TRANSLATION
O.P.T.B. : O.P.T.B.
Address : 01 BP 5959 Cotonou, Republic of Benin
Telex : 5206
Fax : 00 229 31 49 42
Attn. : Mr. Barthelemy Agnan
Local Agent: Bank of Africa Benin
Address : 08 BP 0879 Tri Postal Avenue Jean-Paul II, Cotonou,
Republic of Benin
Telex : 5079
Attn. : Mr. Rene Formey de Saint Louvent
Borrower : Titan Africa, Inc.
Address : 3033 Science Park Road, San Diego, California 92121
Telex : 00 1 858 552 9802
Attn. : Mr. Ray H. Guillaume
International Agent: AMB - Banque Belgolaise
Address : 6, avenue Velasquez - 75008 Paris
Telex : 641-088
Attn. : Mr. Idelphonse Affogbolo
The Local Agent elects domicile at its registered office.
For the purpose of this Agreement, the Borrower irrevocably appoints:
Agnes Campbell, Esq.
Cabinet Campbell, Maga
BP 111 RP Cotonou
Republic of Benin
as its agent to receive, on its behalf, all summons and other legal instruments
which may be served during any legal proceedings, with copy for informational
purposes only to Fabrice Rue, Esq., Cariddi, Mee, Rue, Avocats Associes, 12 rue
de la Paix, 75002 Paris, telephone (0)1 42 61 57 71, fax (0)1 42 61 79 21.
The Borrower's election of domicile shall not bar application of the provisions
in the first paragraph of this Article.
ARTICLE 6 - RECORDATION AND SERVICE OF PROCESS
This deed may be recorded and served on the Local Agent.
<PAGE>
5 TRANSLATION
A bearer hereof shall be vested with all powers necessary to record and serve
notice of this pledge.
The cost of serving this pledge shall be borne by the Borrower.
ARTICLE 7 - GOVERNING LAW AND JURISDICTION
7.1. This agreement is governed by the law of Benin.
7.2. Any dispute regarding, in particular, the validity, interpretation or
performance of this Agreement shall be referred to the courts of
Cotonou, the Borrower and O.P.T.B. herewith acknowledging that the
Local Agent is entitled to file suit in any other court in Benin that
may have [subject-matter] jurisdiction.
7.3. The Borrower and O.P.T.B., each on its own behalf, waive any claim to
jurisdictional or enforcement immunity to which it may be entitled in
respect of itself or its assets.
Executed in Cotonou, December 10, 1999
in five originals
- ------------------------------- --------------------
O.P.T.B. Bank of Africa Benin
Mr. Barthelemy Agnan Mr. Rene Formey de Saint Louvent
- ----------------
Titan Africa, Inc.
Mr. Ray H. Guillaume
<PAGE>
6 TRANSLATION
ATTACHMENT 1: LIST OF THE BANKS, THE ARRANGER,
THE INTERNATIONAL AGENT AND THE LOCAL AGENT
AMB
(Arranger)
Banque Belgolaise
(International Agent)
Bank of Africa Benin
(Local Agent)
Banque Ouest Africaine pour le Developpement
Banque Internationale du Benin
Continental Bank Benin
ECO Bank Benin
Bank of Africa Benin
<PAGE>
TRANSLATION
APPENDIX 11-2
- --------------------------------------------------------------------------------
FIRST DEMAND GUARANTY
- --------------------------------------------------------------------------------
BY AND BETWEEN:
OFFICE DES POSTES ET TELECOMMUNICATIONS DU BENIN, a state-owned enterprise with
autonomous legal status organized under the laws of Benin, having its registered
office at 01 BP 5959 Cotonou, Republic of Benin, created by decree No. 89-156
dated April 25, 1989, represented by Mr. Barthelemy Agnan, duly authorized for
the purpose hereof, by a decision of its Board of Directors dated
________________,
(hereinafter referred to as the "Guarantor" or "O.P.T.B.")
PARTY OF THE FIRST PART,
AND:
BANK OF AFRICA BENIN, a Benin stock corporation (SOCIETE ANONYME) with a stated
capital of FCFA 3,600,000,000 having its registered office at 08 BP 0879 Tri
Postal Avenue Jean-Paul II, Cotonou, Republic of Benin, registered with the
Registry of Commerce of Cotonou under number 15,053-B represented by Mr. Rene
Formey de Saint Louvent, General Manager (DIRECTEUR GENERAL), duly authorized
for the purpose hereof,
acting in its own name and on behalf of the Banks, Arranger, International Agent
and Local Agent, of which the list is attached hereto as ATTACHMENT 1.
(hereinafter referred to as the "Beneficiary")
PARTY OF THE SECOND PART.
<PAGE>
2 TRANSLATION
RECITALS:
For the purpose of a vast investment program designed to increase the capacity
of its telephony network and the accessibility of telecommunications services
for the Benin population, O.P.T.B., which has a monopoly on the supply of all
telecommunications services in Benin territory, has awarded The Titan
Corporation, a company organized under the laws of the State of Delaware, a
BUILD, CO-OPERATE AND TRANSFER contract dated August 17, 1999 (hereinafter
referred to as the "BCT Contract"), that was transferred to Titan Africa, Inc.,
incorporated on December 16, 1998 in the State of Delaware (United States of
America), (hereinafter the "Borrower"), the supply to O.P.T.B. of turnkey
telecommunications equipment designed to extend and modernize fixed, traditional
and cellular telephony networks and to provide technical assistance with the
installation and operation of said equipment.
In order to perform its undertakings in connection with Phases 2 to 5 of the BCT
Contract, the Borrower has signed a Master Agreement for supplies and services
with Alcatel Contracting S.A. (hereinafter "ALCO"), a 95%-held Alcatel
subsidiary, to supply the required equipment and to provide O.P.T.B. with
technical assistance during the first months of operation. The coming into force
of the Master Agreement is subject to the execution of a credit agreement to
finance Phases 2 to 5 of the Project.
In order to finance Phases 2 to 5 of the BCT Contract, the Borrower has, under
an agreement dated December 10, 1999 (hereinafter the "Agreement") concluded a
loan in an amount with the equivalent value of FRF 300,000,000 with a syndicate
of Banks, for which the Beneficiary is the Local Agent, of which the final
payment date is set for December 31, 2003.
By way of condition precedent to the drawdowns, the Agreement provides that
Guarantor shall grant to the Beneficiary on behalf of the Banks, Arranger,
International Agent and Local Agent an unconditional and irrevocable first
demand guaranty on the part of the Guarantor covering the performance of all the
Borrower's undertakings in favor of the Banks, Arranger, International Agent and
Local Agent under the Agreement according to the terms hereafter.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PURPOSE OF THE GUARANTY
The Banks have granted the Borrower a Facility on the terms and conditions of
the Agreement, of which the Guarantor represents and warrants it has full
knowledge, by virtue of which the Guarantor agrees to grant a guaranty to the
Banks, Arranger, International Agent and Local Agent.
The Guarantor undertakes autonomously, unconditionally and irrevocably, to pay
the Beneficiary immediately on first demand any amount of which the Beneficiary
demands payment during the term of validity of this guaranty, up to the amount
in principal, increased by interest, late-payment interest, costs, fees and
incidental expenses, owed by the Borrower to the Banks, Arranger, International
Agent and local Agent based on the Agreement up to a total amount in CFA Francs
equivalent to FRF 360,000,000.
<PAGE>
3 TRANSLATION
ARTICLE 2 - TERMS OF EXERCISE OF GUARANTY
The Beneficiary shall be entitled to call this guaranty at any time from the
Effective Date as defined in Article 6 below.
Any demand by the Beneficiary shall:
(i) be addressed in French to the Guarantor by any means, confirmed by
tested telex or registered letter with return receipt requested, at the
following address:
O.P.T.B.
01 BP 5959
Cotonou
Republic of Benin
(ii) mention that the amounts available in the Pledged Project Account being
insufficient to pay in their entirety all amounts due under the
Agreement during or upon expiration of any interest period, the
Borrower has not fulfilled its payment obligation towards the
Beneficiary, on behalf of the Banks, Arranger, International Agent and
Local Agent on the due dates stipulated in the Agreement;
(iii) specify the amount payment of which is demanded.
ARTICLE 3 -GUARANTOR'S SPECIFIC OBLIGATIONS
The Guarantor undertakes to inform the Beneficiary of any event which might
alter its situation in respect of this first demand guaranty undertaking.
ARTICLE 4 - SCOPE OF GUARANTY
The Guarantor acknowledges that this first demand guaranty undertaking is a
direct, irrevocable and unconditional commitment on its part, which is
autonomous and independent from the Agreement as well as from the Borrower's
obligations under the Agreement.
The Guarantor expressly undertakes to perform its obligations under this
guaranty, even in the event that the Borrower is prevented from performing its
obligations due to a moratorium, any laws or regulations, or proceedings seeking
to enforce either an undertaking or a court judgment.
The Guarantor shall refrain from raising against the Beneficiary any exception
which the Borrower could raise against the Banks, Arranger, International Agent
and Local Agent in connection with the Agreement or any exception based on the
validity of the Borrower's incorporation or existence or capacity to carry on
its activities or perform its obligations, the
<PAGE>
4 TRANSLATION
lack of authorizations that are or become necessary and, more generally, any
fact or legal or regulatory provision.
The Guarantor undertakes not to claim novation in the event of a change in the
Borrower's legal status.
ARTICLE 5 -GUARANTOR'S WARRANTIES AND REPRESENTATIONS
The Guarantor warrants and represents that:
- - it has the capacity to grant this first demand guaranty and to perform
the resulting obligations;
- - the signatory was duly authorized to grant hereby a first demand
guaranty in the name of the Guarantor;
- - the execution of this first demand guaranty and its resulting
performance hereof do not violate its Articles of Incorporation, nor
any laws, decrees or other regulatory or administrative provisions
applicable to it and do not violate a contract or any instrument to
which it is a party or by which it is bound;
- - all authorizations necessary for the issuance of this first demand
guaranty, and in particular that of its Board of Directors, have been
obtained.
ARTICLE 6 - TERM OF GUARANTY
The deadline for making a demand under this first demand guaranty shall be on
January 31, 2004, inclusive.
This guaranty shall be valid from the date on which this agreement is executed
(hereinafter the Effective Date) and until payment in full to the Beneficiary of
all amounts due under said guaranty.
ARTICLE 7 - GOVERNING LAW AND JURISDICTION
This guaranty is governed by Benin law.
Failing amicable settlement, any dispute regarding, in particular, the validity
or performance of this guaranty shall be referred exclusively to the courts of
Cotonou.
<PAGE>
5 TRANSLATION
Notwithstanding the foregoing, the Guarantor herewith grants the Beneficiary the
right to file a claim before any other court in Benin that may have
[subject-matter] jurisdiction.
The Guarantor expressly waives, to the extent necessary, any privilege of
jurisdictional or enforcement immunity which it may be granted by the court
petitioned in accordance with the preceding paragraph, or by any court
petitioned to enforce an order issued by such a court.
In the event that payment of a sentence in a foreign currency, after necessary
conversion to FCFA, does not reach the amount owed, the Guarantor shall still
owe the Beneficiary the remainder on behalf of the Banks, Arranger,
International Agent and Local Agent.
ARTICLE 8 - DOMICILE
For the purpose of performance hereof, the parties elect domicile at the
addresses first mentioned above herein.
Any notice or other communication to be made in connection with this guaranty
shall be sent by registered letter with return receipt requested or tested telex
to the above addresses.
In the event that either of the parties changes its address, it shall inform the
other party thereof by registered letter with return receipt requested or tested
telex. Failing such notice, the other party shall be deemed to have validly sent
all notices or communications related to this guaranty to the last known address
for which it has received due notice.
ARTICLE 9 - COSTS
All legal and extra-judicial costs generated by performance of obligations
resulting from this guaranty shall be borne by the Guarantor.
Executed in Cotonou,
On December 10, 1999,
In two originals
- --------------------- --------------------------------
For O.P.T.B. For the Beneficiary
represented by Mr. Barthelemy Agnan represented by Mr. Rene Formey
de Saint Louvent
<PAGE>
6 TRANSLATION
- --------------------------------------------------------------------------------
ATTACHMENT 1
- --------------------------------------------------------------------------------
LIST OF THE BANKS, THE ARRANGER,
THE INTERNATIONAL AGENT AND THE LOCAL AGENT
AMB
(Arranger)
Banque Belgolaise
(International Agent)
Bank of Africa Benin
(Local Agent)
Banque Ouest Africaine pour le Developpement
Banque Internationale du Benin
Continental Bank Benin
ECO Bank Benin
Bank of Africa Benin
<PAGE>
TRANSLATION
APPENDIX 11.3.1A
- --------------------------------------------------------------------------------
ALCATEL EQUIPMENT LIEN AGREEMENT
- --------------------------------------------------------------------------------
BY AND BETWEEN:
TITAN AFRICA, INC., a company organized under the laws of the State of Delaware
(United States of America) having its principal office at 3033 Science Park
Road, San Diego, California 92121 (United States), incorporated on December 16,
1998, represented by Mr. Ray H. Guillaume in his capacity as Assistant
Treasurer, duly authorized for the purpose hereof,
hereinafter referred to as the "Lienor"
PARTY OF THE FIRST PART,
AND:
BANK OF AFRICA BENIN, a company organized under the laws of Benin, with a
registered capital of FCFA 3,600,000,000, having its principal office at 08 BP
0879 Tri Postal, Avenue Jean-Paul II, Cotonou, Republic of Benin, registered
with the Registry of Commerce of Cotonou under n(degree) 15,053 B, represented
by Mr. Rene Formey de Saint Louvent, duly authorized for the purpose hereof.
Acting on behalf of the Banks, Arranger, International Agent and Local Agent,
the list of which is annexed hereto as ATTACHMENT 1.
hereinafter referred to as the "Beneficiary"
PARTY OF THE SECOND PART.
RECITALS:
The Lienor has requested the Banks to grant a facility in FCFA with an
equivalent value of FRF 300,000,000 (hereinafter the "Facility") under an
agreement (the "Agreement"), signed on December 10, 1999, among the Lienor,
Banks, Arranger, International Agent, Local Agent and O.P.T.B. to help cover its
borrowing requirements in connection with the purchase of equipment to be
manufactured by Alcatel Contracting S.A. (hereinafter the "Alcatel Equipment")
in connection with a telecommunications equipment project covered by a BUILD
CO-OPERATE AND TRANSFER (BCT) contract between the Lienor and O.P.T.B. dated
August 17, 1999.
Said Agreement sets forth the Lienor's irrevocable undertaking to grant a lien
on the equipment financed by means of the Facility in order to guarantee payment
to the Banks,
<PAGE>
2 TRANSLATION
Arranger, International Agent and Local Agent of all amounts due by the Borrower
under the Agreement.
Terms starting with a capital letter and not defined herein have the same
meaning as defined in the Agreement.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PURPOSE
In order to secure and guarantee payment and repayment, in principal, interest,
late-payment interest, costs, fees and incidental expenses, of all amounts owed
by the Lienor, now or in the future to the Banks, Arranger, International Agent
and Local Agent under the Agreement, up to an amount with the equivalent value
in FCFA of two hundred fifty million French francs (FRF 250,000,000) in
principal, interest, late-payment interest, costs, fees and incidental expenses,
the Lienor grants as a commercial lien in favor of the Banks, Arranger,
International Agent and Local Agent, the Alcatel Equipment as and upon the
transfer of their title to the Lienor. A list of the Alcatel Equipment is in
ATTACHMENT 2 hereto.
The conditions for repayment of amounts in principal, interest, late-payment
interest, costs, fees and incidental expenses owed by the Borrower to the Banks,
Arranger, International Agent and Local Agent under the Agreement, and in
particular by application of Articles 10 and 16 of the Agreement, are in
ATTACHMENT 3 hereto.
ARTICLE 2 - OWNERSHIP OF ALCATEL EQUIPMENT
The Alcatel Equipment covered by this Agreement is or shall be the Lienor's
property at the date on which the lien is created and the Lienor acknowledges
same and warrants and represents that other than the lien created in favor of
the Banks, Arranger, International Agent and Local Agent, they are unencumbered
and will remain unencumbered from any other restriction and in particular,
without limitation, liens, sureties, or guaranties.
The Lienor, which is the current or future owner of said Alcatel Equipment,
undertakes to inform the Local Agent of any potential changes which may effect
ownership of the Alcatel Equipment covered hereby.
ARTICLE 3 - INSURANCE OF ALCATEL EQUIPMENT
In application of Article 94 of the Uniform Act on the Organization of Sureties
adopted on April 17, 1997 by the States party to the OHADA Treaty, the Alcatel
Equipment, being the Lienor's property, shall be insured and shall remain
insured in conformity with Clause 11.3.5 of the Agreement with Factory Mutual
Insurance Company under policy number UA-725.
The insurance policy taken out by the Lienor to cover this Alcatel Equipment
shall designate the Local Agent as the first beneficiary, in the name of and on
behalf of the Banks, Arranger, International Agent and Local Agent.
The Lienor agrees to provide the Local Agent with an insurance certificate as
provided in Clauses 11.3.5 and 14.6 of the Agreement relating to the liened
Alcatel Equipment as well as
<PAGE>
3 TRANSLATION
transportation of the Alcatel Equipment as from the transfer of the risk to the
Lienor in accordance with the Master Agreement.
The Lienor states that it shall be personally responsible for the value of the
Alcatel Equipment to be declared for insurance purposes.
ARTICLE 4 - WAREHOUSES
The Alcatel Equipment will be received at O.P.T.B.'s warehouses in Calavi or
directly at O.P.T.B.'s installation sites in Benin.
ARTICLE 5 - LIENOR'S OBLIGATIONS
The Lienor undertakes to:
- - Adopt all commercially reasonable measures to have O.P.T.B. ensure the
surveillance of the Alcatel Equipment in these warehouses from the moment when
it enters until the moment when it leaves said warehouses or on O.P.T.B.'s
installation sites.
- - Maintain effective access to the aforementioned warehouses or sites, the
subject hereof, for the purposes of the inspections provided for in Clause
11.3.2 of the Agreement.
- - Inform the Local Agent of the measures reasonably necessary to safeguard said
Alcatel Equipment.
- - Not to dispose of any of the Alcatel Equipment unless with the Local Agent's
express written permission, unless pursuant to Article 6 hereof, to the transfer
of the Alcatel Equipment to O.P.T.B. or to the delivery of said Alcatel
Equipment pursuant to enforcement of a court or administrative decision; such
delivery automatically entailing total and definitive release from all
commitments undertaken in connection with said Alcatel Equipment.
- - To the extent that it is reasonably practicable, have affixed to the Alcatel
Equipment a plate indicating the clerk of the commercial court where recordation
took place, and the recordation date and number. The plate must be mounted as a
fixture and clearly visible as soon as the suppliers have delivered the Alcatel
Equipment to the Lienor. The plate may not be voluntarily destroyed, removed or
recovered by the Lienor before the lien is lifted or recordation has been
expunged.
The parties agree further that the Lienor, who shall remain the owner of said
Alcatel Equipment, shall bear all costs inherent in its storage and protection
in connection with this agreement.
ARTICLE 6 - TRANSFER
The Lienor will be authorized, subject to applicable formalities provided under
Benin law and by the uniform acts of OHADA, to transfer the pledged Alcatel
Equipment to a wholly-owned subsidiary of Titan, incorporated in conformity with
Benin law.
The prior authorization of the lien beneficiary required by Article 97 of the
Uniform Act for the Organization of Sureties mentioned above is considered to be
granted hereby.
<PAGE>
4 TRANSLATION
This subsidiary of the Lienor will substitute itself for the Lienor in the
performance of the obligations resulting herefrom.
ARTICLE 7 -FORECLOSURE OF LIEN
In the event of a default in payment of the amounts due under the Agreement and
fifteen (15) days after notice served by the Local Agent on the Lienor by a
process server, remaining uncured, and subject to the terms of Article 16 of the
Agreement, the Local Agent, on behalf of the Banks, Arranger, International
Agent and Local Agent, may proceed with the forced public sale of the Equipment,
in order to obtain the foreclosure of its lien on the Alcatel Equipment in
accordance with the provisions of article 56.1 of the Uniform Act on the
Organization of Sureties.
ARTICLE 8 - TERM
The Lienor grants this lien to the Local Agent, on behalf of the Banks,
Arranger, International Agent and Local Agent until repayment in full of all
amounts due to the Banks, Arranger, International Agent and Local Agent by the
Borrower under the Agreement, in principal, interest, late-payment interest,
costs, fees and incidental expenses, and it will automatically become null and
void upon once said repayment is made in full.
Further, the Local Agent undertakes to take any measures or actions necessary in
order to obtain the release of the lien on the Alcatel Equipment as soon as said
repayment is made in full.
ARTICLE 9 - DOMICILE
For the performance of this agreement which, by express agreement, is governed
by the laws of Benin, the parties elect domicile in the jurisdiction of the
court of first instance of Cotonou, at the following addresses:
The Lienor:
Agnes Campbell, Esq.
Cabinet Campbell, Maga,
B.P. 111
RP Cotonou
Republic of Benin
with copy for information only to Fabrice Rue, Esq., Cabinet Cariddi Mee Rue,
Avocats Associes, 12 rue de la Paix, 75002 Paris, telephone:
00.33.1.42.61.57.71, fax: 00.33.1.42.61.79.21.
The Local Agent elects domicile at its registered office as first above written.
<PAGE>
5 TRANSLATION
ARTICLE 10 - RECORDATION - FORMALITIES
Within fifteen (15) Days from the execution hereof, the Local Agent, on behalf
of the Banks, Arranger, International Agent and Local Agent, shall, at the
Lienor's expense, register this deed with the Tax Authority and, at the Lienor's
expense, make recordation at the registry of commerce and credit at the clerk of
the court of first instance of Cotonou. It is expressly agreed as between the
parties that any default by the Local Agent in fulfilling the formalities
provided for by this agreement shall not constitute an event of acceleration
under Clause 16(9) of the Agreement.
All duties, taxes, levies, fines, penalties and other incidental expenses or
costs that may arise from this lien and its performance shall be borne by the
Lienor.
ARTICLE 11 - GOVERNING LAW AND JURISDICTION
This agreement is governed by the laws of Benin. The parties agree that any
litigation concerning the validity, performance or interpretation of this
agreement will be submitted to the courts of Cotonou, the Local Agent retaining
the option to file its action before any other Benin court that may have
[subject-matter] jurisdiction.
For the performance of this agreement which, by express agreement, is governed
by the laws of Benin, the parties elect domicile at their respective addresses
as set forth in the premises of this agreement, and submit to the jurisdiction
of the courts of Cotonou. The Local Agent reserves the right to file a claim
before any Benin Court having [subject-matter] jurisdiction at its discretion.
Executed in Cotonou, on December 10, 1999
in six copies (including two for recordation and one for the registry of
commerce and credit).
TITAN AFRICA, INC.(1) BANK OF AFRICA BENIN
- -------------------- ------------------
Mr. Ray H. Guillaume Mr. Rene Formey de Saint
Its Assistant Treasurer Louvent
Its General Manager
(DIRECTEUR GENERAL)
(l) Precede signature with the hand-written words "for lien" and affix the
company stamp.
<PAGE>
6 TRANSLATION
ATTACHMENT 1: LIST OF BANKS, THE ARRANGER,
THE INTERNATIONAL AGENT, AND THE LOCAL AGENT
Africa Merchant Bank 6, Avenue Velasquez - 75008 Paris, France
(Arranger)
Banque Belgolaise Cantersteen I - 1000 Bruxelles, Belgique
(International Agent)
Bank of Africa Benin (Local Agent) 08 BP
0879 Tri Postal Avenue Jean-Paul II
BP 2020 Cotonou - Republique du
Benin
Banque Ouest Africaine pour le 68, Avenue de la Liberation
Developpement BP 1172 - Lome (Togo)
Banque Internationale du Benin Carrefour des 3 Banques, Avenue Giran
03 BP - 2098 Jericho Cotonou
Republique du Benin
Continental Bank Benin Carrefour des 3 Banques Avenue Jean-Paul II
BP 2020 Cotonou
Republique du Benin
Eco Bank Benin Rue du Gouverneur Bayol
BP 1280 Cotonou
Republique du Benin
Bank of Africa Benin 08 BP 0879 Tri
Postal Avenue Jean-Paul II BP 2020
Cotonou - Republique du Benin
<PAGE>
7 TRANSLATION
ATTACHMENT 2: LIST OF ALCATEL EQUIPMENT
<PAGE>
8 TRANSLATION
ATTACHMENT 3: PAYMENT SCHEDULE
AND EVENTS OF ACCELERATION
Upon the request of a Majority of the Banks, and after notifying the Borrower,
the Local Agent shall be entitled to refuse any new Drawdown under the Agreement
and/or to demand immediate (re)payment of all outstanding principal, interest,
late-payment interest, costs, fees and incidental expenses and all other amounts
due under this Agreement, without summons, reminder or any judicial or
extra-judicial formality, upon the occurrence of any following events, unless
such event no longer exists on the date the Local Agent notifies the Borrower of
the acceleration event and/or refuses a new Drawdown:
1) In the event that the Borrower fails to pay any amount due under the
Agreement on its due date, if the Borrower does not remedy such
non-performance within 15 Days after notice is given to it to remedy
such non-performance;
2) In the event that one or more of the representations and warranties
made by the Borrower in connection with this Agreement ceases to be
accurate or in force;
3) In the event that one or more of the obligations of or covenants
undertaken by the Borrower or the Guarantor in connection with this
Agreement ceases to be valid or in force;
4) In the event that any license to import into Benin with respect to any
material portion of the Equipment ceases to be substantially valid or
in force;
5) In the event that any event occurs which substantially affects the
Project and jeopardizes repayment of the Facility;
6) In the event that the Borrower does not perform one or more of the
other obligations under this Agreement within fifteen (15) days after
notice requiring it to remedy such non-performance;
7) In the event of a change in the Borrower's ownership structure or a
merger, spin-off or dissolution of the Borrower;
8) In the event of discontinuation of the Borrower's business; or a
significant change in the Borrower's core business; or the Borrower's
court-ordered liquidation; or
9) In the event that any of the guarantees listed in Clauses 11.1 to 11.4
ceases to be valid and enforceable under the terms of the Agreement in
whole or in part and for any reason whatsoever, except in the event
that the Local Agent does not fulfill the formalities set forth in
APPENDIX 11.3.1A and in APPENDIX 11.3.1B.
<PAGE>
TRANSLATION
APPENDIX 11.3.1B
- --------------------------------------------------------------------------------
ADDITIONAL ALCATEL EQUIPMENT LIEN AGREEMENT
- --------------------------------------------------------------------------------
BY AND BETWEEN:
TITAN AFRICA, INC., a company organized under the laws of the State of Delaware
(United States of America) having its principal office at 3033 Science Park
Road, San Diego, California 92121 (United States), incorporated on December 16,
1998, represented by Mr. Ray H. Guillaume, in his capacity as Assistant
Treasurer, duly authorized for the purpose hereof,
hereinafter referred to as the "Lienor"
PARTY OF THE FIRST PART,
AND:
BANK OF AFRICA BENIN, a company organized under the laws of Benin, with a
registered capital of FCFA 3,600,000,000, having its principal office at 08 BP
0879 Tri Postal, Avenue Jean-Paul II, Cotonou, Republic of Benin, registered
with the Registry of Commerce of Cotonou under number 15,053 B, represented by
Mr. Rene Formey de Saint Louvent duly authorized for the purpose hereof,
acting in the name of and on behalf of the Banks, Arranger, International Agent
and Local Agent, the list of which is attached hereto as ATTACHMENT 1.
hereinafter referred to as the "Beneficiary"
PARTY OF THE SECOND PART.
RECITALS:
The Lienor has requested the Banks to grant a facility in FCFA with an
equivalent value of FRF 300,000,000 (hereinafter the "Facility") under an
agreement (the "Agreement"), signed on December 10, 1999, between the Lienor,
Banks, Arranger, International Agent, Local Agent and O.P.T.B. to help cover its
borrowing requirements in connection with the purchase of equipment to be
manufactured by Alcatel Contracting S.A. (hereinafter the "Alcatel Equipment")
as part of a telecommunications equipment project covered by a BUILD CO-OPERATE
AND TRANSFER (BCT) contract between the Lienor and O.P.T.B. dated August 17,
1999.
Said Agreement sets forth the Lienor's irrevocable undertaking to grant a lien
on the equipment financed by means of the Facility in order to guarantee payment
to the Banks,
<PAGE>
2 TRANSLATION
Arranger, International Agent and Local Agent of all amounts due by the Borrower
under the Agreement.
Terms starting with a capital letter and not defined herein have the same
meaning as defined in the Agreement.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PURPOSE
In order to secure and guarantee payment and repayment in principal, interest,
late-payment interest, costs, fees and incidental expenses, of all amounts owed
by the Lienor, now or in the future, to the Banks, Arranger, International Agent
and Local Agent under the Agreement, up to an addition amount with the
equivalent value in FCFA of fifty million French francs (FRF 50,000,000) in
principal, interest, late-payment interest, costs, fees and incidental expenses,
the Lienor grants as a commercial lien in favor of the Banks, Arranger,
International Agent, and Local Agent, the Alcatel Equipment as and upon the
transfer of their title to the Lienor. A list of the Alcatel Equipment is in
ATTACHMENT 2 hereto.
The conditions for repayment of amounts in principal, interest, late-payment
interest, costs, fees and incidental expenses owed by the Borrower to the Banks,
Arranger, International Agent and Local Agent under the Agreement, and in
particular by application of Articles 10 and 16 of the Agreement, are in
ATTACHMENT 3 hereto.
ARTICLE 2 - OWNERSHIP OF ALCATEL EQUIPMENT
The Alcatel Equipment covered by this Agreement is or shall be the Lienor's
property at the date on which the lien is created and the Lienor acknowledges
same and warrants and represents that other than the lien created in favor of
the Banks, Arranger, International Agent and Local Agent, it is unencumbered and
will remain unencumbered from any other restriction and in particular, without
limitation, liens, sureties, or guaranties.
The Lienor, which is the current or future owner of said Alcatel Equipment,
undertakes to inform the Local Agent of any potential changes which may effect
ownership of the Alcatel Equipment covered hereby.
ARTICLE 3 - INSURANCE OF ALCATEL EQUIPMENT
In application of Article 94 of the Uniform Act on the Organization of Sureties
adopted on April 17, 1997 by the States party to the OHADA Treaty, the Alcatel
Equipment, being the Lienor's property, shall be insured and shall remain
insured in conformity with Clause 11.3.5 of the Agreement with Factory Mutual
Insurance Company under policy number UA-725.
The insurance policy taken out by the Lienor to cover said Alcatel Equipment
shall designate the Local Agent as the first beneficiary, in the name of and on
behalf of the Banks, Arranger, International Agent and Local Agent.
The Lienor agrees to provide the Local Agent with an insurance certificate as
provided in Clauses 11.3.5 and 14.6 of the Agreement relating to the liened
Alcatel Equipment as well as
<PAGE>
3 TRANSLATION
transportation of the Alcatel Equipment as from the transfer of the risk to the
Constituant in accordance with the Master Agreement.
The Lienor warrants and represents that it shall be personally responsible for
the value of the Alcatel Equipment to be declared for insurance purposes.
ARTICLE 4 - WAREHOUSES
The Alcatel Equipment will be received at O.P.T.B.'s warehouses in Calavi or
directly at O.P.T.B.'s installation sites in Benin.
ARTICLE 5 - LIENOR'S OBLIGATIONS
The Lienor undertakes to:
- - Adopt all commercially reasonable measures to have O.P.T.B. ensure the
surveillance of the Alcatel Equipment in said warehouses from the moment when it
enters until the moment when it leaves said warehouses or at the O.P.T.B.'s
installation sites.
- - Maintain effective access to the aforementioned warehouses or sites, the
subject hereof, for the purposes of the inspections provided for in Clause
11.3.2 of the Agreement.
- - Inform the Local Agent of the measures reasonably necessary to safeguard said
Alcatel Equipment.
- - Not to dispose of any of the Alcatel Equipment unless with the Local Agent's
express written permission, unless pursuant to Article 6 hereof, to the transfer
of the Alcatel Equipment to O.P.T.B. or to the delivery of said Alcatel
Equipment by virtue of a court or administrative decision, such delivery
automatically entailing total and definitive release from all commitments
undertaken in connection with said Alcatel Equipment.
- - To the extent that it is reasonably practicable, have affixed to the Alcatel
Equipment a plate indicating the clerk of the commercial court where recordation
took place, and the recordation date and number. The plate must be mounted as a
fixture and clearly visible as soon as the suppliers have delivered the Alcatel
Equipment to the Lienor. The plate may not be voluntarily destroyed, removed or
recovered by the Lienor before the lien is lifted or recordation has been
expunged.
The parties agree further that the Lienor, who shall remain the owner of said
Alcatel Equipment, shall bear all costs inherent in its storage and protection
in connection with this agreement.
ARTICLE 6 - TRANSFER
The Lienor will be authorized, subject to applicable formalities provided under
Benin law and by the uniform acts of the OHADA, to transfer the pledged Alcatel
Equipment to a wholly-owned subsidiary of Titan, incorporated in conformity with
Benin law.
The prior authorization of the lien beneficiary required by Article 97 of the
Uniform Act for the Organization of Sureties mentioned above is considered to be
granted by this agreement.
<PAGE>
4 TRANSLATION
This subsidiary of the Lienor will substitute itself for the Lienor in the
performance of the obligations resulting herefrom.
ARTICLE 7 -FORECLOSURE OF LIEN
In the event of a default in payment of the amounts due by the Borrower under
the Agreement and fifteen (15) Days after notice served by the Local Agent on
the Lienor by a process server, remaining uncured, and subject to the terms of
Article 16 of the Agreement, the Local Agent, on behalf of the Banks, Arranger,
International Agent and Local Agent, may proceed with the forced public sale of
the Alcatel Equipment, in order to obtain the foreclosure of its lien on the
Alcatel Equipment in accordance with the provisions of Article 56.1 of the
Uniform Act on the Organization of Sureties.
ARTICLE 8 - TERM
The Lienor grants this lien to the Local Agent, on behalf of the Banks,
Arranger, International Agent and Local Agent until repayment in full of all
amounts due to the Banks, Arranger, International Agent and Local Agent by the
Borrower under the Agreement in principal, interest, late-payment interest,
costs, fees and incidental expenses, and it will automatically become null and
void once said repayment is made in full.
Further, the Local Agent undertakes to take any measure or action necessary in
order to obtain the release of the lien on the Alcatel Equipment as soon as said
repayment is made in full.
ARTICLE 9 - EFFECTIVE DATE
This agreement will take effect only after the Board of Directors of the
B.O.A.D. has authorized the B.O.A.D.'s participation in the Facility for the
FCFA equivalent of FRF 50,000,000 (fifty million French francs).
ARTICLE 10 - DOMICILE
For the performance of this agreement which, by express agreement, is governed
by the laws of Benin, the parties elect domicile in the jurisdiction of the
court of first instance of Cotonou, at the following addresses:
The Lienor:
Agnes Campbell, Esq.
Cabinet Campbell, Maga,
B.P. 111
RP Cotonou
Republic of Benin
<PAGE>
5 TRANSLATION
with copy for information only to Fabrice Rue, Esq., Cabinet Cariddi Mee Rue,
Avocats Associes, 12 rue de la Paix, 75002 Paris, telephone:
00.33.1.42.61.57.71, fax: 00.33.1.42.61.79.21.
The Local Agent elects domicile at its registered office as first above written.
ARTICLE 11 - RECORDATION - FORMALITIES
Within fifteen (15) Days from the execution of this agreement, the Local Agent,
on behalf of the Banks, Arranger, International Agent and Local Agent, shall, at
the Lienor's expense, register this deed with the Tax Authority and, also at the
Lienor's costs, make recordation at the registry of commerce and credit at the
court of first instance of Cotonou. It is expressly agreed as between the
parties that any default by the Local Agent in fulfilling the formalities
provided for by this agreement shall not constitute an event of acceleration
under Clause 16(9) of the Agreement.
All duties, taxes, levies, fines, penalties and other incidental expenses or
costs that may arise from this lien and its performance, shall be borne by the
Lienor.
ARTICLE 12 - GOVERNING LAW AND JURISDICTION
This agreement is governed by the laws of Benin. The parties agree that any
litigation concerning the validity, performance or interpretation of this
agreement will be submitted to the courts of Cotonou, the Local Agent retaining
the option to file its action before any other Benin court that may have
[subject-matter] jurisdiction.
For the performance of this agreement which, by express agreement, is governed
by the laws of Benin, the parties elect domicile at their respective addresses
as set forth in the premises of this agreement, and submit to the jurisdiction
of the courts of Cotonou. The Local Agent reserves the right to file a claim
before any Benin Court having [subject-matter] jurisdiction at its discretion.
Executed in Cotonou, on December 10, 1999
in six copies (including two for registration, and one for the registry of
commerce and credit.
TITAN AFRICA, INC.(1) BANK OF AFRICA BENIN
- -------------------- ------------------------
Mr. Ray H. Guillaume Mr. Rene Formey de Saint
Its Assistant Treasurer Louvent
Its General Manager
(DIRECTEUR GENERAL)
(l) Precede signature with the hand-written words "for lien" and affix the
company stamp.
<PAGE>
6 TRANSLATION
ATTACHMENT 1: LIST OF BANKS, THE ARRANGER,
THE INTERNATIONAL AGENT, AND THE LOCAL AGENT
Africa Merchant Bank 6, Avenue Velasquez - 75008 Paris, France
(Arranger)
Banque Belgolaise Cantersteen I - 1000 Bruxelles, Belgique
(International Agent)
Bank of Africa Benin 08 BP 0879 Tri Postal Avenue Jean-Paul II
(Local Agent) BP 2020 Cotonou - Republique du Benin
Banque Ouest Africaine pour le 68, Avenue de la Liberation
Developpement BP 1172 - Lome (Togo)
Banque Internationale du Benin Carrefour des 3 Banques, Avenue Giran
03 BP - 2098 Jericho Cotonou
Republique du Benin
Continental Bank Benin Carrefour des 3 Banques Avenue Jean-Paul II
BP 2020 Cotonou
Republique du Benin
Eco Bank Benin Rue du Gouverneur Bayol
BP 1280 Cotonou
Republique du Benin
Bank of Africa Benin 08 BP 0879 Tri Postal Avenue Jean-Paul II
BP 2020 Cotonou - Republique du Benin
<PAGE>
7 TRANSLATION
ATTACHMENT 2: LIST OF ALCATEL EQUIPMENT
<PAGE>
8 TRANSLATION
ATTACHMENT 3: PAYMENT SCHEDULE
AND EVENTS OF ACCELERATION
Upon the request of a Majority of the Banks, and after notifying the Borrower,
the Local Agent shall be entitled to refuse any new Drawdown under the Agreement
and/or to demand immediate (re)payment of all outstanding principal, interest,
late-payment interest, costs, fees and incidental expenses and all other amounts
due under this Agreement, without summons, reminder or any judicial or
extra-judicial formality, upon the occurrence of any following events, unless
such event no longer exists on the date the Local Agent notifies the Borrower of
the acceleration event and/or refuses a new Drawdown:
1) In the event that the Borrower fails to pay any amount due under the
Agreement on its due date, if the Borrower does not remedy such
non-performance within 15 Days after notice is given to it to remedy
such non-performance;
2) In the event that one or more of the representations and warranties
made by the Borrower in connection with this Agreement ceases to be
accurate or in force;
3) In the event that one or more of the obligations of or covenants
undertaken by the Borrower or the Guarantor in connection with this
Agreement ceases to be valid or in force;
4) In the event that any license to import into Benin with respect to any
material portion of the Equipment ceases to be substantially valid or
in force;
5) In the event that any event occurs which substantially affects the
Project and jeopardizes repayment of the Facility;
6) In the event that the Borrower does not perform one or more of the
other obligations under this Agreement within fifteen (15) days after
notice requiring it to remedy such non-performance;
7) In the event of a change in the Borrower's ownership structure or a
merger, spin-off or dissolution of the Borrower;
8) In the event of discontinuation of the Borrower's business; or a
significant change in the Borrower's core business; or the Borrower's
court-ordered liquidation; or
9) In the event that any of the guarantees listed in Clauses 11.1 to 11.4
ceases to be valid and enforceable under the terms of the Agreement in
whole or in part and for any reason whatsoever, except in the event
that the Local Agent does not fulfill the formalities set forth in
APPENDIX 11.3.1A and in APPENDIX 11.3.1B.
<PAGE>
TRANSLATION
APPENDIX 11.4
- --------------------------------------------------------------------------------
TITAN AFRICA FACILITY ACCOUNT
PLEDGE AGREEMENT
- --------------------------------------------------------------------------------
BY AND BETWEEN THE UNDERSIGNED:
1) TITAN AFRICA, INC., a company organized under the laws of the State of
Delaware (United States of America) having its principal offices at 3033
Science Park Road, San Diego, California 92121 (United States of
America), incorporated on December 16, 1998, represented by Mr. Ray H.
Guillaume, in his capacity as Assistant Treasurer, duly authorized for
the purpose hereof,
hereinafter referred to as the "Borrower",
PARTY OF THE FIRST PART,
2) BANK OF AFRICA BENIN, a company organized under the laws of Benin with a
capital of FCFA 3,600,000,000 having its registered office at 08 BP 0879
Tri Postal Avenue Jean-Paul II, Cotonou, Republic of Benin, registered
with the Registry of Commerce of Cotonou under number 15,053 B,
represented by Mr. Rene Formey de Saint Louvent, General Manager
(DIRECTEUR GENERAL), duly authorized for the purpose hereof,
acting in its own name and on behalf of the Banks, a list of which is
attached hereto as ATTACHMENT 1.
hereinafter referred to as the "Local Agent",
PARTY OF THE SECOND PART.
RECITALS:
1. The Borrower wishes to have access to a facility (hereinafter the
"Facility") to finance the realization of a telecommunications
development project in Benin under a BUILD CO-OPERATE TRANSFER
contract with the Office des Postes et Telecommunications du Benin
(hereinafter referred to as "O.P.T.B.") dated August 17, 1999, and to
execute to this end an agreement dated December 10, 1999 with the
Banks, Arranger, International Agent, Local Agent and O.P.T.B.
(hereinafter the "Agreement").
<PAGE>
2 TRANSLATION
2. It has been agreed to open an account pledged in favor of the Banks
intended to receive the funds in FCFA made available to the Borrower
by the Local Agent in FCFA and the repayments made by the Borrower.
Known as the Titan Africa Facility Account, this account is opened in
the Borrower's name on the Local Agent's books under number
_______________.
3. One of the conditions precedent to the coming into force of the
Agreement is that this account must be pledged.
4. Terms starting with a capital letter and not defined herein have the
same meaning as defined in the Agreement.
NOW THEREFORE IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1 - PLEDGE
Subject to Clause 5.5 of the Agreement, the Borrower herewith pledges the
balance of the Titan Africa Facility Account to the Banks, in order to guarantee
all amounts owed by the Borrower to the Banks under the Agreement, in principal,
interest, late-payment interest, costs, fees and incidental expenses.
ARTICLE 2 - OPERATION OF PLEDGED ACCOUNT
2.1. At the time of a Drawdown of the loan under the Agreement, the Titan
Africa Facility Account shall be credited with the amounts lent by
the Banks. This account shall subsequently be debited pursuant to the
terms of the Agreement. However, the Local Agent reserves the right
not to make such debits should one or more of the acceleration events
provided for in Article 16 of the Agreement occur.
2.2. The Titan Africa Facility Account shall in no event be overdrawn and
the Borrower and the Local Agent undertake not to take actions which
could cause said account to be overdrawn.
2.3 The pledge created hereby shall be automatically cancelled upon
repayment or payment of all amounts owed by the Borrower under the
Agreement, and the balance of the Titan Africa Project Account will
be immediately paid to the Borrower free of any claim, surety or
encumbrance whatsoever in favor of the Banks, Arranger, International
Agent and Local Agent.
The parties agree that the terms of Clause 10.2 of the Agreement are
expressly incorporated herein. In the case of any inconsistency
between the Agreement and
<PAGE>
3 TRANSLATION
this agreement, it is expressly agreed between the parties
that the terms of the Agreement shall prevail between the
parties.
ARTICLE 3 - INTEREST
All funds credited to the Titan Africa Facility Account with the Local Agent
shall bear interest at rates defined by separate agreement between the Borrower
and the Local Agent.
ARTICLE 4 - INFORMATION
The Local Agent shall provide the Borrower with:
- a monthly statement of accumulated interest, within a week
after the end of the month in question,
- a monthly account statement, within a week after the end of
the month in question,
- at the Borrower's request, information on the balance of the
Titan Africa Facility Account during the term of the loan
under the Agreement.
ARTICLE 5 - NOTICES AND DOMICILE
All notices, agreements and communications relating hereto shall be sent in
French, with a copy in English if the addressee is the Borrower, and sent by
facsimile, air mail, international express courier or tested telex to:
The Borrower : Titan Africa, Inc.
Address : 3033 Science Park Road, San Diego, California
92121, U.S.A.
Telephone : 001 (858) 552 9786
Fax : 001 (858) 552 9802
Attn. : Mr. Ray H. Guillaume
Local Agent : Bank of Africa Benin
Address : 08 BP 0879 Tri Postal Avenue Jean-Paul II,
Cotonou, Republic of Benin
Telex : 5079
Attn. : Mr. Rene Formey de Saint Louvent
For the purpose of this Agreement, the Borrower irrevocably appoints:
Agnes Campbell, Esq.
Cabinet Campbell, Maga
BP 111, RP Cotonou
Republic of Benin
<PAGE>
4 TRANSLATION
as its agent to receive, on its behalf, all summons and other legal instruments
that may be served during any legal proceedings, with a copy for information
only to Fabrice Rue, Esq., Cariddi, Mee, Rue, Avocats Associes, 12 rue de la
Paix, 75002 Paris, telephone 00 (33)1 42 61 57 71, fax 00 (33)1 42 61 79 21.
The Borrower's election of domicile shall not bar application of the provisions
in the first paragraph of this Article.
The Local Agent elects domicile at its registered office.
ARTICLE 6 - REGISTRATION AND SERVICE
This deed may be registered and served on the Local Agent.
A bearer hereof shall be invested with all powers necessary to register and
serve notice of this pledge.
The costs of serving this pledge shall be borne by the Borrower.
ARTICLE 7 - GOVERNING LAW AND JURISDICTION
7.1. This agreement is governed by Benin law.
7.2. Any dispute regarding, in particular, the validity, interpretation or
performance of this Agreement shall be referred to the courts of
Cotonou, the Borrower acknowledging that the Local Agent is entitled
to file a claim before any other Benin court that may have
[subject-matter] jurisdiction.
7.3. The Borrower waives any claim to jurisdictional or enforcement
immunity to which it may be entitled in respect of itself or its
assets.
Executed in Cotonou, December 10, 1999
in two originals
- -------------------- --------------------
Bank of Africa Benin Titan Africa, Inc.
Mr. Rene Formey de Saint Louvent Mr. Ray H. Guillaume
<PAGE>
5 TRANSLATION
ATTACHMENT 1: LIST OF BANKS
Banque Ouest
Africaine pour le
Developpement
Banque Internationale
du Benin
Continental Bank Benin
Eco Bank Benin
Bank of Africa
Benin
<PAGE>
TRANSLATION
APPENDIX 11.5
[letterhead paper]
Cotonou, __________
His Excellency the Finance Minister
Cotonou
Excellency,
Within the framework of an investment program designed to increase the capacity
of the telephony network and to improve access to telecommunications services
for the Benin population, O.P.T.B. has entrusted Titan Africa, Inc. (hereinafter
"Titan"), under a BUILD CO-OPERATE AND TRANSFER agreement dated August 17, 1999,
with the task of supplying O.P.T.B. turnkey telecommunications equipment
designed to extend and modernize fixed, traditional and cellular telephony
networks and to provide technical assistance for the installation and operation
of this equipment.
Part of the equipment covered by the contract must be manufactured by Alcatel
Contracting SA. and, to finance its manufacture, Titan has obtained from a
syndicate of Benin and WAEMU (UEMOA) banks, for which Banque Belgolaise is the
International Agent, a loan facility in CFA Francs with the equivalent value of
FRF 300,000,000, which is to be repaid from revenues generated by the operation
of said equipment, which will be domiciled on an account opened on the books of
a local bank.
Within this framework, O.P.T.B. was also led to issue an independent and
autonomous first demand guaranty to guarantee the facility repayment obligations
incumbent on Titan.
The foreseeable term of the facility's operation makes it necessary for
O.P.T.B.'s obligations resulting therefrom to remain binding in the event of a
change in the legal or regulatory framework of the telecommunications sector and
O.P.T.B.'s spin-off for privatization purposes.
To this end, we request your undertaking, in favor of Banque Belgolaise, to
include in the obligations of the buyer of O.P.T.B. shares and/or assets within
the framework of the privatization operations, the continuation of the
obligations undertaken by O.P.T.B. in connection with the BCT Contract or in
application thereof, in particular those undertaken with Bank Belgolaise.
<PAGE>
2 TRANSLATION
We would be grateful if you would send your reply directly to Banque Belgolaise,
6 avenue Velasquez, Paris, to the attention of Mr. Idelphonse Affogbolo, with
copies to us.
In looking forward to a favorable reply to our request,
We remain, most respectfully yours,
- ------------------------------- ------------------------------
O.P.T.B. Titan Africa, Inc.
Represented by Mr. Barthelemy Agnan Represented by Mr. Ray H. Guillaume
cc: Mr. Idelphonse Affogbolo (Banque Belgolaise)
<PAGE>
TRANSLATION
APPENDIX 11.6
[letterhead paper]
Cotonou, __________
His Excellency the Finance Minister
Cotonou
Excellency,
Within the framework of an investment program designed to increase the capacity
of the telephony network and to improve access to telecommunications services
for the Benin population, O.P.T.B. has entrusted Titan Africa, Inc. (hereinafter
"Titan"), under a BUILD CO-OPERATE AND TRANSFER agreement dated August 17, 1999,
with the task of supplying turnkey telecommunications equipment designed to
extend and modernize fixed, traditional and cellular telephony networks and to
provide technical assistance with the installation and operation of this
equipment.
Part of the equipment covered by the contract must be manufactured by Alcatel
Contracting S.A. and, to finance its manufacture, Titan has obtained from a
syndicate of Benin and WAEMU (UEMOA) banks, for which Banque Belgolaise is the
International Agent, a loan facility in CFA Francs with the equivalent value of
FRF 300,000,000, which is to be repaid from operating revenues generated by the
operation of said equipment, which revenues will be domiciled on an account
opened on the books of a local bank.
Within this framework, the amounts in FCFA used to pay Alcatel Contracting SA
and for payment of the fees owed to the International Agent will need to be
converted into French francs or Euros and transferred outside of Benin.
Accordingly, we are respectfully requesting that you grant prior authorization
in favor of Titan to carry out said conversion and transfer operations whenever
necessary during the entire term of the Facility in order to realize such
operations as required until repayment in full.
We are entirely at your disposal and at the disposal of your staff as you
proceed with examining our request, in particular to provide additional
information.
<PAGE>
2 TRANSLATION
We would be grateful if you would send your reply directly to Banque Belgolaise,
6 avenue Velasquez, Paris, to the attention of Mr. Idelphonse Affogbolo, with
copies to us.
In looking forward to a favorable reply to our request,
We remain, most respectfully yours,
- ------------------------------- -----------------------------------
O.P.T.B. Titan Africa, Inc.
Represented by Mr. Barthelemy Agnan Represented by Mr. Ray H. Guillaume
cc : Mr. Idelphonse Affogbolo (Banque Belgolaise)
<PAGE>
TRANSLATION
APPENDIX 14-8A
FORM OF LEGAL OPINION TO BE PROVIDED BY THE BORROWER
[letterhead]
Cotonou, December 10, 1999
AMB - Banque Belgolaise
6, avenue Velasquez
75008 Paris
ATTN. MESSRS. IDELPHONSE AFFOGBOLO AND
JOEL KRIEF
LEGAL OPINION
Dear Sirs,
This opinion is provided to you in order to certify the compliance with the law
of Benin of the Loan Facility Agreement and its appendices dated December 10,
1999 (hereinafter the "Agreement"), which Banque Belgolaise, a stock corporation
(SOCIETE ANONYME) with a registered capital of BEF 1,000,000,000, having its
registered office at Cantersteen I, 1000 Brussels, Belgium, acting through its
Paris branch, registered in the Paris Registry of Commerce and Companies under
number B 411.858.731 and domiciled at 6, avenue Velasquez, 75008 Paris, and its
investment banking division "Africa Merchant Bank", has concluded with Titan
Africa, Inc., a stock corporation organized under the laws of the State of
Delaware (United States of America), having its registered office at 3033
Science Park Road, San Diego, California 92121 (United States of America),
incorporated on December 16, 1998.
The terms defined in the Agreement used in this legal opinion have the same
meanings as they have in the Agreement.
<PAGE>
2 TRANSLATION
Accordingly, I have examined:
1) An executed version of the Agreement, of which the 21
appendices are as follows:
- - APPENDIX 1.A: Powers of Attorney of the Banks' Representatives;
- - APPENDIX 1.B: Amount and Percentage of the Banks' Participations;
- - APPENDIX 1.C: Alcatel Equipment List;
- - APPENDIX 1.D: Titan Equipment List;
- - APPENDIX 1.E: Excerpt from the Financial Model;
- - APPENDIX 4.1A: Form of First Drawdown Notice;
- - APPENDIX 4.1B: Form of Drawdown Notice;
- - APPENDIX 6.2: Form of Notice of Assignment or Transfer;
- - APPENDIX 10.1.1: Payment Schedule;
- - APPENDIX 10.1.2.1: Use and Amortization Table;
- - APPENDIX 10.1.2.3A: Division of Project Revenues;
- - APPENDIX 10.1.2.3B: O.P.T.B. Account Pledge Agreement;
- - APPENDIX 11.1.4: Project Account Pledge Agreement;
- - APPENDIX 11.2: Form of First Demand Guaranty of Guarantor;
- - APPENDIX 11.3.1A: Alcatel Equipment Lien Agreement;
- - APPENDIX 11.3.1B: Additional Alcatel Equipment Lien Agreement;
- - APPENDIX 11.4: Titan Africa Facility Account Pledge Agreement;
- - APPENDIX 11.5: Form of letter from the Borrower and O.P.T.B. to the
Finance Minister of Benin with respect to the
continuity of O.P.T.B.'s commitments;
- - APPENDIX 11.6: Form of letter from the Borrower and O.P.T.B. to the
Finance Minister of Benin with respect to the
transferability of amounts in FCFA;
- - APPENDIX 14.8A: Form of legal opinion to be provided by the Borrower.
<PAGE>
3 TRANSLATION
- - APPENDIX 14.8B: Form of legal opinion to be provided by OPTB.
2) The Constitution of the Republic of Benin;
3) All treaties, laws, rules, government orders, decrees, regulations, judgments
and other documents the consultation of which I considered necessary for the
opinion expressed below.
I am authorized to practice law in Benin and do not express an opinion
concerning any other law than Benin law.
In the light of the foregoing and based on Benin law concepts that I consider
important:
I - I certify, first, that:
a) The Borrower has the power and authority, under the laws of Benin, to
execute and perform the Agreement and in particular to borrow by virtue
thereof and, in general, to comply with the provisions of the Agreement
to be performed or complied with by said Borrower,
b) No authorization from a government entity in Benin is necessary to
execute or perform the Agreement or to ensure its validity, legality or
admissibility as evidence, or to establish lender's rights,
c) The Borrower's execution and performance of the Agreement do not violate
the Constitution, laws, government orders, regulations and decrees of
Benin, the international treaties to which Benin is a party, notably the
OHADA Treaty, uniform acts under OHADA or Benin public policy,
d) The Agreement, duly executed by the Borrower, will constitute a valid
legal obligation, that is binding on the Borrower and may be enforced
against said Borrower on its terms,
e) The Borrower is not entitled, by virtue of the Constitution, or the laws,
government orders and decrees of Benin or the international treaties to
which Benin is a party, to any jurisdictional or enforcement immunity for
any legal proceedings (whether summons, writ, order, prejudgment seizure
or attachment, enforcement seizure, enforcement of a judgment or any
other proceeding). Recognition of the absence of jurisdictional or
enforcement immunity and acceptance of the jurisdiction of the French
courts in the district of the Paris Court of Appeals are irrevocably
binding on the Borrower and a judgment pronounced by such a court in
connection with the Agreement may be enforced by the courts of Benin (a
judicial co-operation agreement existing between France and Benin),
f) No tax, levy, duty, rebate, charge or withholding is imposed on the
Borrower by Benin or any political subdivision or tax authority thereof
(i) because of the execution or delivery of the Agreement or any other
document to be supplied by virtue of said Agreement with the exception of
what is stated in paragraph II herebelow, or (ii) on any payment to be
made by the Borrower in accordance with the Agreement,
g) To make sure that the Agreement can be applied or admitted in Benin as
evidence, it is not necessary to file or register the Agreement or any
other document with a court or
<PAGE>
4 TRANSLATION
any other authority in Benin or pay a stamp duty or similar tax in
connection with the Agreement,
h) The Agreement is in legally valid form under the law of Benin for the
purpose of enforcing it against the Borrower under Benin law,
i) The choice of French law as the principal governing law of the
Agreement is valid under the laws of Benin.
II - Secondly, Clause 11.3.1. of the Agreement stipulated that the Borrower
will grant the Banker, Arranger, International Agent and Local Agent, on
the terms of the Alcatel Equipment Lien Agreement and Additional Alcatel
Equipment Lien Agreement, liens on the Equipment corresponding to Phases
2 to 5 of the project covered by the BCT Contract, subject to the
formalities set forth in paragraph d) herebelow.
a) The Borrower has the power and authority, under the laws of Benin, to
execute and perform lien agreements as set forth in Appendices 11.3.1A
and 11.3.1B,
b) The lien provisions stipulated in Appendices 11.3.1A and 11.3.1B, duly
signed by the Borrower, will constitute a valid legal obligation that
will be binding on the Borrower on their terms,
c) The Borrower is not entitled, by virtue of the Constitution or the laws,
government orders, regulations and decrees of Benin or the international
treaties to which Benin is a party, to any jurisdictional or enforcement
immunity for any judicial proceedings (whether summons, writ, order,
prejudgment seizure or attachment, enforcement seizure, enforcement of a
judgment or any other proceeding).
d) To ensure that a lien agreement under the terms set forth in Appendices
11.3.1A and 11.3.1B can be applied or admitted in Benin as evidence, said
agreement must be evidenced by notarized or private deed duly recorded
with the [office of the clerk of court] subject to recordation and stamp
taxes. The lien agreement must then be registered with the registry of
commerce and credit at the court of first instance of Cotonou.
This legal opinion is established exclusively for Banque Belgolaise and its
advisors.
Yours sincerely,
Signature
<PAGE>
TRANSLATION
APPENDIX 14-8B
FORM OF LEGAL OPINION TO BE PROVIDED BY O.P.T.B.
[letterhead]
Cotonou, December 10, 1999
AMB - Banque Belgolaise
6, avenue Velasquez
75008 Paris
ATTN. MESSRS. IDELPHONSE AFFOGBOLO AND
JOEL KRIEF
LEGAL OPINION
Dear Sirs,
This opinion is provided to you in order to certify the compliance with the law
of Benin of the Loan Facility Agreement and its appendices dated December 10,
1999 (hereinafter the "Agreement"), which Banque Belgolaise, a stock corporation
(SOCIETE ANONYME) with a registered capital of BEF 1,000,000,000, having its
registered office at Cantersteen I, 1000 Brussels, Belgium, acting through its
Paris branch, registered in the Paris Registry of Commerce and Companies under
number B 411.858.731 and domiciled at 6, avenue Velasquez, 75008 Paris, and its
investment banking division "Africa Merchant Bank", has concluded with Titan
Africa, Inc., a stock corporation organized under the laws of the State of
Delaware (United States of America), having its registered office at 3033
Science Park Road, San Diego, California 92121 (United States of America),
incorporated on December 16, 1998.
The terms defined in the Agreement used in this legal opinion have the same
meanings as they have in the Agreement.
<PAGE>
2 TRANSLATION
Accordingly, I have examined:
1) An executed version of the Agreement, of which the 21 appendices are as
follows:
- - APPENDIX 1.A: Powers of Attorney of the Banks' Representatives;
- - APPENDIX 1.B: Amount and Percentage of the Banks' Participations;
- - APPENDIX 1.C: Alcatel Equipment List;
- - APPENDIX 1.D: Titan Equipment List;
- - APPENDIX 1.E: Excerpt from the Financial Model;
- - APPENDIX 4.1A: Form of First Drawdown Notice;
- - APPENDIX 4.1B: Form of Drawdown Notice;
- - APPENDIX 6.2: Form of Notice of Assignment or Transfer;
- - APPENDIX 10.1.1: Payment Schedule;
- - APPENDIX 10.1.2.1: Use and Amortization Table;
- - APPENDIX 10.1.2.3A: Division of Project Revenues;
- - APPENDIX 10.1.2.3B: O.P.T.B. Account Pledge Agreement;
- - APPENDIX 11.1.4: Project Account Pledge Agreement;
- - APPENDIX 11.2: Form of First Demand Guaranty of Guarantor;
- - APPENDIX 11.3.1A: Alcatel Equipment Lien Agreement;
- - APPENDIX 11.3.1B: Additional Alcatel Equipment Lien Agreement;
- - APPENDIX 11.4: Titan Africa Facility Account Pledge Agreement;
- - APPENDIX 11.5: Form of letter from the Borrower and O.P.T.B. to the
Finance Minister of Benin with respect to the
continuity of O.P.T.B.'s commitments;
- - APPENDIX 11.6: Form of letter from the Borrower and O.P.T.B. to the
Finance Minister of Benin with respect to the
transferability of amounts in FCFA;
- - APPENDIX 14.8A: Form of legal opinion to be provided by the Borrower.
- - APPENDIX 14.8B: Form of legal opinion to be provided by O.P.T.B.
<PAGE>
3 TRANSLATION
2) The Constitution of the Republic of Benin;
3) All treaties, laws, rules, government orders, decrees, regulations, judgments
and other documents the consultation of which I considered necessary for the
opinion expressed below.
I am authorized to practice law in Benin and do not express an opinion
concerning any other law than Benin law.
In the light of the foregoing and based on Benin law concepts that I consider
important:
I - I certify, first, that:
a) O.P.T.B. has the power and authority, under the laws of Benin, to
execute and perform the Agreement, in particular, to comply with the
provisions of the Agreement to be performed or complied with by
O.P.T.B.,
b) No authorization from a government entity in Benin is necessary to execute
or perform the Agreement or to ensure its validity, legality or
admissibility as evidence, or to establish lender's rights,
c) The O.P.T.B.'s execution and performance of the Agreement do not violate
the Constitution, laws, government orders, regulations and decrees of
Benin, the international treaties to which Benin is a party, notably the
OHADA Treaty, uniform acts under OHADA or Benin public policy,
d) The Agreement, duly executed by O.P.T.B., will constitute a valid legal
obligation that is binding on O.P.T.B. and may be enforced against it in
accordance with its terms,
e) O.P.T.B. is not entitled, by virtue of the Constitution, or the laws,
government orders and decrees of Benin or the international treaties to
which Benin is a party, to any jurisdictional or enforcement immunity for
any legal proceedings (whether summons, writ, order, prejudgment seizure
or attachment, enforcement seizure, enforcement of a judgment or any other
proceeding). Recognition of the absence of jurisdictional or enforcement
immunity and acceptance of the jurisdiction of the French courts in the
district of the Paris Court of Appeals are irrevocably binding on O.P.T.B.
and a judgment pronounced by such a court in connection with the Agreement
may be enforced by the courts of Benin (a judicial co-operation agreement
existing between France and Benin),
f) No tax, levy, duty, rebate, charge or withholding is imposed on O.P.T.B.
by Benin or any political subdivision or tax authority thereof (i)
because of the execution or delivery of the Agreement or any other
document to be supplied by virtue of said Agreement with the exception of
what is stated in paragraph II herebelow, or (ii) on any payment to be
made by O.P.T.B. in accordance with the Agreement,
g) To make sure that the Agreement can be applied or admitted in Benin as
evidence, it is not necessary to file or register the Agreement or any
other document with a court or any other authority in Benin or pay a
stamp duty or similar tax in connection with the Agreement,
<PAGE>
4 TRANSLATION
h) The Agreement is in legally valid form under the law of Benin for the
purpose of enforcing it against O.P.T.B. under Benin law,
i) The choice of French law as the principal governing law of the
Agreement is valid under the laws of Benin.
II - Secondly, Clause 11.2 of the Agreement providing [SIC] that O.P.T.B.
will give the Banks, Arranger, International Agent and Local Agent, in the
terms of the Form of First Demand Guaranty attached to the Agreement, an
independent and autonomous first demand guaranty for the payment of all
amounts owed by the Borrower under the Agreement, including and without
limitation, in principal, interest, late-payment interest, costs, fees and
accessories.
a) O.P.T.B. has the power and authority, under the laws of Benin, to
execute and perform a first demand guaranty in the terms of Appendix
11.2,
However, under the terms of O.P.T.B.'s bylaws, only the board of directors
can grant such guaranty. It may be executed by a power of attorney granted
by the General Manager (DIRECTEUR GENERAL) of O.P.T.B. which is the
executive representative of O.P.T.B.,
b) The first demand guaranty in the form of Appendix 11.2, duly executed by
O.P.T.B. will constitute a legal obligation, valid and binding on the
same, in accordance with the terms thereof,
c) O.P.T.B. is not entitled, under the Constitution or the laws, government
orders and decrees of Benin, or the international agreements to which
Benin is a party, from any jurisdictional or enforcement immunity for any
legal proceeding (whether it be for a summons, an order, a pre-judgment
seizure or attachment, an enforcement seizure, enforcement of a judgment
or any other proceeding).
d) To ensure that a first demand guaranty in the terms set forth in Appendix
11.2 can be applied or admitted in Benin as evidence, it is not necessary
to file or register the document in which it is recorded or any other
document with a court or any other authority in Benin or pay stamp duty or
similar tax in connection with said agreement. However, the guaranty can
be filed with a notary public.
III - Thirdly, I certify that Clause 10.1.2.3 providing [SIC] that O.P.T.B.
shall grant in favor of the Banks, Arranger, International Agent and Local
Agent a pledge of the O.P.T.B. Account opened on the books of the Local
Agent and on which shall be immediately paid the O.P.T.B.'s share of the
Distributable Revenues, in accordance with the Form of the O.P.T.B.
Account Pledge Agreement in Appendix 10.1.2.3B of the Agreement,
a) The O.P.T.B. has the power and authority, under the laws of Benin, to
execute and perform an account pledge agreement in the terms of Appendix
10.1.2.3B, subject to O.P.T.B.'s board of directors' consent to such
pledge and grant of signature power to its General Manager (DIRECTEUR
GENERAL).
b) The pledge on the account in the terms of Appendix 10.1.2.3B, duly
executed by O.P.T.B. will constitute a legal obligation, valid and
binding on O.P.T.B. in accordance with its terms.
<PAGE>
5 TRANSLATION
c) O.P.T.B. is not entitled, under the Constitution or the laws, government
orders and decrees of Benin, or the international Agreements to which
Benin is a party, to any jurisdictional or enforcement immunity for any
legal proceeding (whether it be for a summons, an order, a pre-judgment
seizure or attachment, an enforcement seizure, enforcement of a
judgment or any other proceeding).
d) To ensure that a pledge agreement in the terms set forth in Appendix
10.1.2.3B can be applied or admitted in Benin as evidence, it is not
necessary to file or register the document in which it will be recorded or
any other document with a court or any other authority in Benin or pay
stamp duty or similar tax in connection with said agreement.
However, the pledge can be recorded at the [clerk of the court] in
Cotonou upon payment of tax.
This legal opinion is established exclusively for Banque Belgolaise and its
advisors.
Yours sincerely,
Signature
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
THE TITAN CORPORATION,
M T ACQUISITION CORP.,
WILLIAM C. LINDSEY, INC.
(D/B/A LINCOM CORPORATION)
AND
THE PRINCIPAL SHAREHOLDER OF WILLIAM C. LINDSEY, INC.
DATED AS OF JANUARY 28, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER................................................................................1
SECTION 1.01 The Merger.......................................................................1
SECTION 1.02 Effective Time; Closing Date.....................................................2
SECTION 1.03 Effect of the Merger.............................................................2
SECTION 1.04 Articles of Incorporation; Bylaws................................................2
SECTION 1.05 Directors and Officers...........................................................2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.......................................3
SECTION 2.01 The Merger.......................................................................3
SECTION 2.02 Conversion of Company Common Stock...............................................3
SECTION 2.03 Acquiror to Deliver Cash.........................................................5
SECTION 2.04 [Intentionally Omitted]..........................................................5
SECTION 2.05 Holdback Consideration; Determination of Closing Adjustment......................5
SECTION 2.06 Conversion of Acquiror Sub Shares................................................7
SECTION 2.07 Closing..........................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY...............................................8
SECTION 3.01 Organization and Qualification...................................................8
SECTION 3.02 Subsidiaries.....................................................................8
SECTION 3.03 Articles of Incorporation and Bylaws.............................................9
SECTION 3.04 Capitalization...................................................................9
SECTION 3.05 Authority; Binding Obligation....................................................9
SECTION 3.06 No Conflict; Required Filings and Consents.......................................10
SECTION 3.07 Intellectual Property............................................................11
SECTION 3.08 Financial Statements and Condition...............................................12
SECTION 3.09 Absence of Certain Developments..................................................13
SECTION 3.10 Absence of Undisclosed Liabilities...............................................14
SECTION 3.11 Litigation; Disputes.............................................................15
SECTION 3.12 Real Property Leases.............................................................15
SECTION 3.13 Other Agreements; No Default.....................................................16
SECTION 3.14 Labor Relations..................................................................16
SECTION 3.15 Pension and Benefit Plans........................................................17
SECTION 3.16 Taxes and Tax Matters............................................................18
SECTION 3.17 Insurance........................................................................20
SECTION 3.18 Arrangements With Related Parties................................................20
SECTION 3.19 Books and Records................................................................20
SECTION 3.20 Assets...........................................................................20
i
<PAGE>
SECTION 3.21 Board Recommendation.............................................................21
SECTION 3.22 Directors and Officers...........................................................21
SECTION 3.23 State Takeover Statutes; Certain Charter Provisions..............................21
SECTION 3.24 Environmental Matters............................................................21
SECTION 3.25 Y2K Compliance...................................................................22
SECTION 3.26 Government Contracts and Other Commitments.......................................22
SECTION 3.27 Relations with Governments.......................................................24
SECTION 3.28 Broker's Fees....................................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB..............................24
SECTION 4.01 Organization and Qualification...................................................25
SECTION 4.02 Reliance on Financial Information................................................25
SECTION 4.03 Authority; Binding Obligation....................................................25
SECTION 4.04 No Conflict; Required Filings and Consents.......................................25
SECTION 4.05 No Prior Activities of Acquiror Sub..............................................26
ARTICLE V PRE-CLOSING COVENANTS.....................................................................27
SECTION 5.01 Conduct of Business of Company Until Effective Time..............................27
SECTION 5.02 Best Efforts to Satisfy Conditions...............................................29
SECTION 5.03 Other Actions....................................................................29
SECTION 5.04 Certain Tax Matters..............................................................29
SECTION 5.05 Access and Information...........................................................30
SECTION 5.06 Notification Filing Required under HSR Act.......................................30
SECTION 5.07 Access to Company and Company Subsidiary Information.............................30
SECTION 5.08 Exon-Florio Notice; Mitigation of FOCI...........................................30
ARTICLE VI ADDITIONAL AGREEMENTS....................................................................31
SECTION 6.01 Shareholder Approval.............................................................31
SECTION 6.02 Appropriate Action; Consents; Filings............................................31
SECTION 6.03 Disclosure.......................................................................33
SECTION 6.04 Public Announcements.............................................................33
SECTION 6.05 Obligations of Acquiror Sub......................................................33
SECTION 6.06 Transaction Expenses.............................................................33
SECTION 6.07 Key Employees....................................................................34
ARTICLE VII CONDITIONS PRECEDENT....................................................................34
SECTION 7.01 Conditions to Obligations of Each Party Under This Reorganization
Agreement..................................................................34
SECTION 7.02 Additional Conditions to Obligations of Acquiror and Acquiror Sub................35
SECTION 7.03 Additional Conditions to Obligations of Company..................................36
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................................................37
SECTION 8.01 Termination......................................................................37
ii
<PAGE>
SECTION 8.02 Effect of Termination............................................................38
SECTION 8.03 [Intentionally Omitted]..........................................................38
SECTION 8.04 Amendment........................................................................38
SECTION 8.05 Extension; Waiver................................................................38
ARTICLE IX SURVIVAL OF REPRESENTATIONS; REMEDIES....................................................38
SECTION 9.01 Survival of Representations......................................................38
SECTION 9.02 Indemnification by Principal Shareholder; Right to Offset........................39
SECTION 9.03 Third Party Claims...............................................................41
SECTION 9.04 No Recourse Against the Company..................................................42
SECTION 9.05 Remedies Cumulative..............................................................42
ARTICLE X GENERAL PROVISIONS........................................................................43
SECTION 10.01 Notices.........................................................................43
SECTION 10.02 Headings........................................................................44
SECTION 10.03 Severability....................................................................44
SECTION 10.04 Entire Agreement................................................................44
SECTION 10.05 Assignment......................................................................44
SECTION 10.06 Parties in Interest.............................................................45
SECTION 10.07 Mutual Drafting.................................................................45
SECTION 10.08 Governing Law...................................................................45
SECTION 10.09 Counterparts....................................................................45
SECTION 10.10 Singular and Plural.............................................................45
ARTICLE XI DEFINITIONS..............................................................................46
</TABLE>
EXHIBITS
EXHIBIT A [Intentionally Omitted]
EXHIBIT B Shareholders of Company
EXHIBIT C Form of Indemnification Promissory Note
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, dated as of January 28, 2000
(this "Reorganization Agreement"), is entered into by and among The Titan
Corporation, a corporation organized under the laws of the State of Delaware
("Acquiror"), M T Acquisition Corp., a corporation organized under the laws of
the State of California ("Acquiror Sub"), William C. Lindsey, Inc. (d/b/a LinCom
Corporation), a corporation organized under the laws of the State of California
("Company"), and William C. Lindsey, an individual (the "Principal Shareholder")
("Acquiror," "Acquiror Sub," "Principal Shareholder" and "Company" individually
hereinafter referred to as "Party" and collectively hereinafter referred to as
the "Parties");
WHEREAS, Acquiror Sub, upon the terms and subject to the conditions of
this Reorganization Agreement and in accordance with the California General
Corporation Law ("California Law"), will merge with and into Company (the
"Merger");
WHEREAS, the Board of Directors of Company has (i) determined that the
Merger is advisable and fair to the holders of Company Common Stock (as defined
in Section 3.04 of this Reorganization Agreement) and is in the best interests
of such Shareholders, (ii) advised, authorized, approved and adopted this
Reorganization Agreement and the Agreement of Merger and the transactions
contemplated hereby and the thereby and (iii) recommended approval and adoption
of this Reorganization Agreement and the Agreement of Merger by the Shareholders
of Company (the "Company Shareholders");
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger is advisable and in the best interests of Acquiror and its stockholders
and the Boards of Directors of Acquiror and Acquiror Sub and the sole
shareholder of Acquiror Sub have advised, authorized, approved and adopted this
Reorganization Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Reorganization Agreement, and intending to be legally bound hereby, the Parties
agree as follows.
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER
Upon the terms and subject to the conditions set forth in this Reorganization
Agreement, and in accordance with California Law, at the Effective Time (as
defined in Section 1.02 of this Reorganization Agreement) Acquiror Sub shall be
merged with and into Company, with
<PAGE>
Company being the surviving corporation (hereinafter sometimes called
"Surviving Corporation") in the Merger. Upon consummation of the Merger, the
separate corporate existence of Acquiror Sub shall cease, and Surviving
Corporation shall continue to exist as a California corporation.
SECTION 1.02 EFFECTIVE TIME; CLOSING DATE
Subject to the provisions of Section 2.07 of this Reorganization Agreement, as
promptly as practicable after the satisfaction or, if permissible, waiver of the
conditions set forth in Article VII of this Reorganization Agreement, the
Parties shall cause the Merger to be consummated by filing the Agreement of
Merger consistent with applicable California Law (the "Agreement of Merger"),
and any other appropriate documents with the Secretary of State, in such form as
required by, and executed in accordance with the relevant provisions of,
California Law (the date and time of such filing being the "Effective Time").
The day on which the Effective Time shall occur shall hereinafter be referred to
as the "Closing Date."
SECTION 1.03 EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger shall be as provided in Section
1107 and other applicable provisions of California Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Acquiror Sub
shall vest in Surviving Corporation, and all debts, liabilities and duties of
Company and Acquiror Sub shall become the debts, liabilities and duties of
Surviving Corporation.
SECTION 1.04 ARTICLES OF INCORPORATION; BYLAWS
(a) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time, the articles of incorporation of Acquiror Sub shall
continue unchanged and shall be the articles of incorporation of Surviving
Corporation until thereafter amended as provided by Law and such articles of
incorporation, except that Acquiror Sub's articles of incorporation shall be
amended as necessary at the Effective Time to indicate that the name of the
Surviving Corporation is LinCom Corporation.
(b) Unless otherwise determined by Acquiror prior to the Effective
Time, at the Effective Time, the bylaws of Acquiror Sub shall continue unchanged
and shall be the bylaws of Surviving Corporation until thereafter amended as
provided by Law, the articles of incorporation of Surviving Corporation and such
bylaws.
SECTION 1.05 DIRECTORS AND OFFICERS
At the Effective Time, the initial officers and directors of Surviving
Corporation shall be the officers and directors of Acquiror Sub, each to hold
office in accordance with the articles of incorporation and bylaws of Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
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ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 THE MERGER
Subject to the terms and conditions of this Reorganization Agreement, in
accordance with California Law, at the Effective Time, Acquiror Sub shall merge
into Company, with Company being the Surviving Corporation in the Merger. Upon
consummation of the Merger, the corporate existence of Acquiror Sub shall cease
and Company shall continue to exist as a California corporation.
SECTION 2.02 CONVERSION OF COMPANY COMMON STOCK
At the Effective Time, by virtue of the Merger and without any action on the
part of the Parties hereto or the holders of the Company Common Stock (as
defined in Section 3.04 of this Reorganization Agreement):
(a) OUTSTANDING COMMON STOCK. Subject to the provisions of this
Reorganization Agreement, each share of Company Common Stock, issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in Section 2.02(e) of this Reorganization Agreement) and any
shares described in Section 2.02(d) of this Reorganization Agreement) shall be
converted into the right to receive:
(i) An amount equal to (x) the Adjusted Merger Consideration
($23,000,000 as adjusted by the Cash Adjustment, less the amounts set forth in
Section 2.02(a)(ii) and (iii) and as further described in the definitions in
Article XI), DIVIDED BY (y) the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (the "Outstanding Common
Stock") (the aggregate cash amount payable with respect to such shares of
Company Common Stock pursuant to this Section 2.02(a)(i), the "Cash
Consideration");
(ii) An amount equal to (x) One Million Dollars ($1,000,000)
(or such lesser amount as may be payable to the former holders of the Company
Common Stock pursuant to Section 2.05), DIVIDED BY (y) the Outstanding Common
Stock, which amount shall secure the payment of the Closing Adjustment (as
defined in Section 2.05(b) of this Reorganization Agreement) (such amount the
"Holdback Consideration"); and
(iii) The right to receive a portion of the proceeds pursuant
to the Indemnification Promissory Note $2,000,000 (as defined in Section 7.02(f)
of this Reorganization Agreement) equal to (x) the total proceeds payable
pursuant to the Indemnification Promissory Note (subject to set off pursuant to
Section 9.02 of this Reorganization Agreement), DIVIDED BY, (y) the Outstanding
Common Stock (the principal amount of the Indemnification Promissory Note
together with the Cash Consideration and the Holdback Consideration, the "Merger
Consideration").
(b) At the Effective Time, all shares of Company Common Stock shall (i)
be converted into the right to receive the cash or a portion of the
Indemnification Promissory Note as determined in accordance with this Article
II, (ii) no longer be outstanding, (iii) automatically be canceled and
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(iv) cease to exist, and each certificate previously representing any such
shares of Company Common Stock (each a "Certificate") shall thereafter represent
the right to receive the Merger Consideration determined in accordance with
Sections 2.02(a) of this Reorganization Agreement.
(c) At the Effective Time, all shares of Company Common Stock that are
owned by Company as treasury stock and all shares of Company Common Stock that
are owned directly or indirectly by Acquiror, any of its Subsidiaries, Company,
or any Company Subsidiary, other than (i) any shares of Company Common Stock
held directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by Persons
other than Acquiror, any of its Subsidiaries, Company, or any Company
Subsidiary, and (ii) any shares of Company Common Stock held by Acquiror, any of
its Subsidiaries, Company, or any Company Subsidiary, in respect of a debt
previously contracted, shall be canceled and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(d) Notwithstanding anything in this Reorganization Agreement to the
contrary and unless otherwise provided by applicable law, shares of Company
Common Stock that are issued and outstanding immediately prior to the Effective
Time and that are owned by Company Shareholders who have properly demanded
payment of the fair market value of their stock (the "Dissenting Shares") within
the meaning of Section 1301 of California Law shall not be converted into the
right to receive the Merger Consideration unless and until such Company
Shareholders shall have failed to perfect or shall have effectively withdrawn
their demand, or lost their right of payment under applicable law. If any such
Company Shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right of payment, each share of Company Common Stock held
by such Company Shareholder shall thereupon be deemed converted into the right
to receive and exchangeable for, at the Effective Time, the Merger Consideration
pursuant to Sections 2.02 of this Reorganization Agreement. Subject to the terms
and conditions of this Reorganization Agreement, at and after the Effective
Time, any holder of shares of Company Common Stock who complies with Section
1301 of California Law (a "Company Dissenting Shareholder") shall be entitled to
obtain payment from Surviving Corporation of the fair market value of such
Company Dissenting Shareholder's shares of Company Common Stock as determined
pursuant to Article 13 of California Law; PROVIDED, HOWEVER, that, to the extent
permissible under California Law, no such payment shall be made unless and until
such Company Dissenting Shareholder has surrendered to the Exchange Agent the
Certificate representing the shares of Company Common Stock for which payment is
being made.
(e) Company shall give Acquiror (i) prompt notice of any written notice
of intent to demand payment for shares filed pursuant to Section 1301 of
California Law received by Company, withdrawals of such notices, and any other
instruments served in connection with such notices pursuant to the relevant
provisions of California Law and received by Company and (ii) the opportunity to
direct all negotiations and proceedings with respect to such notices under
California Law consistent with the obligations of Company thereunder. Company
shall not, except with the prior written consent of Acquiror (which shall not be
unreasonably withheld), (A) make any payment with respect to any such notice,
(B) offer to settle or settle any such notices or (C) waive any failure to
timely deliver a written notice in accordance with the California Law.
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SECTION 2.03 ACQUIROR TO DELIVER CASH
Immediately after the Effective Time, Acquiror shall deliver to the Company
Shareholders (other than the Dissenting Shareholders) the Cash Consideration by
wire transfer of immediately available funds payable to each Company Shareholder
(other than the Dissenting Shareholders) in the proportion of each Company
Shareholder's ownership of the Company Common Stock identified in EXHIBIT B and
to such accounts that are identified by such Company Shareholders not less than
two (2) business day s prior to the Closing Date in exchange for the
Certificates.
SECTION 2.04 [INTENTIONALLY OMITTED]
SECTION 2.05 HOLDBACK CONSIDERATION; DETERMINATION OF CLOSING ADJUSTMENT
(a) HOLDBACK CONSIDERATION. Within ten (10) business days of the final
determination of the Closing Adjustment pursuant to Section 2.05(b), Acquiror
shall pay to the former holders of Company Common Stock, the Holdback
consideration LESS the Closing Adjustment, if any.
(b) DETERMINATION OF CLOSING ADJUSTMENT. The "Closing Adjustment" shall
equal (i) the amount by which (A) the cash, PLUS (B) the fair market value of
the marketable securities, PLUS (C) the account receivable payable by NASA (or
by the University of Houston based upon its contract with NASA) to the Company
in an amount equal to approximately $870,000 (provided such account receivable
has not been paid prior to Closing), and MINUS (D) the Transaction Expenses
(provided such Transaction Expenses have not been paid) of the Company and the
Company Subsidiary on the Closing Date is greater than or less than Four Million
Dollars ($4,000,000) (after taking into consideration the adjustments made in
computing the Adjusted Merger Consideration based on the estimate of the Closing
Adjustment required to be delivered to Acquiror pursuant to Section 7.02(g) of
this Reorganization Agreement), PLUS (ii) an amount equal to the amount by which
the "accounts receivable" on the Company's balance sheet dated January 22, 2000
is less than the amount determined to be the "accounts receivable" of the
Company as a result of the audit of the consolidated financial statements of the
Company as of the Closing Date by Arthur Andersen LLP, the Acquiror's
independent public accountants, (determined using the same accounting method as
used by the Company prior to December 31, 1999), PLUS (iii) an amount by which
the "current liabilities" on the Company's balance sheet dated as of January 22,
2000 is less than the "current liabilities" of the Company as determined by
Arthur Andersen LLP, if any (determined in accordance with GAAP) as hereinafter
provided; PROVIDED, HOWEVER, no adjustment shall be made to the Closing
Adjustment as a result of the operation of clauses (ii) and (iii) if the
difference between the Company's determination of the amounts identified by the
Company in clauses (ii) and (iii) and Arthur Anderson LLP's audit of such
amounts does not exceed $100,000. The Company will use its best efforts to close
its books and records for the period ending on the Closing Date within twenty
(20) days after the Closing Date and shall deliver to the Acquiror or, at the
request of the Acquiror, to Acquiror and Arthur Andersen LLP, such books and
records as shall be requested by Acquiror or Arthur Andersen LLP to enable
Arthur Andersen LLP to perform an audit of the items identified in clause (i) of
the preceding sentence as of the Closing Date and of the items identified in
clauses (ii) and (iii)
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of the preceding sentences as of January 22, 2000 and to determine the amount
of the Closing Adjustment based thereon. Upon receipt of such books and
records, the Acquiror shall use its best efforts to cause Arthur Andersen LLP to
complete an audit of such items and to calculate the amount of the Closing
Adjustment within thirty (30) days following receipt of the books and records of
the Company. Acquiror shall deliver to the Shareholders' Representative a copy
of such audits and the amount of the Closing Adjustment promptly upon receipt of
such items from Arthur Andersen LLP. The Shareholders' Representative shall have
the right to review and copy the computations and workpapers used in connection
with the preparation of the such audits and the computation of the Closing
Adjustment. If the Shareholders' Representative disagrees with the Closing
Adjustment, the Shareholders' Representative shall so notify the Acquiror in
writing within ten (10) days after the date of receipt of the such audits and
the computation of the Closing Adjustment, specifying in detail any point of
disagreement; PROVIDED, HOWEVER, if the Shareholders' Representative fails to
notify the Acquiror in writing of the Shareholders' Representative's
disagreement within such ten (10) day period, the determination of the Closing
Adjustment shall be final, conclusive and binding on the Parties for purposes of
determining the amount of the Holdback Consideration to be released to the
former holders of Company Common Stock pursuant to Section 2.05(a), but shall
not limit Acquiror's other rights pursuant to this Reorganization Agreement or
any other document delivered in connection with this Reorganization Agreement.
The Acquiror and the Shareholders' Representative shall negotiate in good faith
to resolve any such disagreement. If any such disagreement cannot be resolved by
the Acquiror and the Shareholders' Representative within fifteen (15) days after
the Shareholders' Representative has received notice from the Acquiror in
accordance with the preceding sentence of the existence of such disagreement,
the Acquiror and the Shareholders' Representative shall jointly select a
nationally recognized independent public accounting firm (which has not
performed any service since January 1, 1996 for either the Company or the
Acquiror or any of their respective Affiliates (the "Accounting Firm")), to act
as an arbitrator to resolve as expeditiously as possible all points of
disagreement with respect to the Closing Adjustment (or, in the event they are
unable to agree, either may request the Los Angeles, CA office of the American
Arbitration Association to make such selection, which shall be final and binding
on the Parties). All determinations made by the Accounting Firm with respect to
the Closing Adjustment shall be final, conclusive and binding on the Parties
hereto for purposes of determining the amount of the Holdback Consideration to
be paid to the former holders of Company Common Stock, but shall not limit
Acquiror's other rights pursuant to this Reorganization Agreement or any other
document delivered in connection with this Reorganization Agreement. The fees
and expenses of the Accounting Firm shall be borne by the non-prevailing Party.
(c) APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. The Principal
Shareholder shall, by virtue of the Merger, be appointed attorney-in-fact and
authorized and empowered to act, for and on behalf of any or all of the Company
Shareholders (with full power of substitution in the premises), in connection
with the provisions of this Section 2.05 as they relate to the Company and the
Company Shareholders generally, and such other matters as are reasonably
necessary for the consummation of the transactions contemplated hereby
including, without limitation, (i) to review all determinations of the Closing
Adjustment and, to the extent deemed appropriate, dispute, question the accuracy
of, compromise, settle or otherwise resolve any and all such determinations,
(ii) to compromise on their behalf with Acquiror any claims asserted thereunder,
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(iii) to authorize payments to be made with respect to the Closing Adjustment,
(iv) to execute and deliver on behalf of the Company Shareholders any documents
or agreement contemplated by or necessary or desirable in connection with this
Reorganization Agreement and (v) to take such further actions including
coordinating and administering post-closing matters related to the rights and
obligations of the Company Shareholders as are authorized in this Reorganization
Agreement (the above named representative, as well as any subsequent
representative of the Company Shareholders appointed by the Company Shareholders
being referred to herein as the "Shareholders' Representative"). The
Shareholders' Representative shall not be liable to any Company Shareholder,
Acquiror, the Surviving Corporation or their respective Affiliates or any other
Person with respect to any action taken or omitted to be taken by the
Shareholders' Representative in his role as Shareholders' Representative under
or in connection with this Reorganization Agreement unless such action or
omission results from or arises out of fraud, gross negligence, willful
misconduct or bad faith on the part of the Shareholders' Representative.
Acquiror, Acquiror Sub and the Surviving Corporation shall be entitled to rely
on such appointment and treat such Shareholders' Representative as the duly
appointed attorney-in-fact of each Company Shareholder. Each Company Shareholder
who votes in favor of the Merger pursuant to the terms hereof, by such vote and
without any further action, and each Company Shareholder who receives Merger
Consideration in connection with the Merger, by acceptance thereof and without
any further action, confirms such appointment and authority.
(d) RECORD RETENTION. Acquiror, the Company and the Shareholder
Representative agree that following the Closing through the date of the final
determination of the Closing Adjustment that they will not destroy any records
pertaining to the final determination of the Closing Adjustment.
SECTION 2.06 CONVERSION OF ACQUIROR SUB SHARES
Each share of capital stock of Acquiror Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one fully
paid and nonassessable share of common stock of Surviving Corporation.
SECTION 2.07 CLOSING
Subject to the terms and conditions of this Reorganization Agreement, the
closing of the Merger (the "Closing") will take place after the satisfaction of
the latest to occur or, if permissible, waiver of the conditions set forth in
Article VII of this Reorganization Agreement. The scheduled closing date will
take place as soon as practicable (but, in any event, no later than the first
business day following the tenth (10th) day) after the satisfaction of the
latest to occur or, if permissible, waiver, of the conditions set forth in
Article VII of this Reorganization Agreement; PROVIDED, HOWEVER, the Closing
shall not occur prior to March 3, 2000; PROVIDED, FURTHER, HOWEVER, if the
conditions set forth in Article VII of this Reorganization Agreement are
satisfied or waived in the month of March, 2000, the Closing shall occur on the
first Friday in the first three full weeks of March 2000 following the payment
of the accounts receivable payable by 3COM Corp. to the Company in an amount of
approximately $375,000 (the "Scheduled Closing Date"), at the offices of Hogan &
Hartson L.L.P., Biltmore Tower, 500 South Grand Avenue,
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Suite 1900, Los Angeles, California 90071, unless another date or place is
agreed to in writing by the Parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as specifically set forth in the Disclosure Letter delivered by Company
to Acquiror prior to the execution and delivery of this Reorganization Agreement
(the "Company Disclosure Letter") and referenced in the Company Disclosure
Letter to the Section(s) of this Article III to which such disclosure applies,
Company hereby represents, warrants to and agrees with Acquiror and Acquiror Sub
as follows, in each case as of the date of this Reorganization Agreement and as
of the Closing Date:
SECTION 3.01 ORGANIZATION AND QUALIFICATION
Company is a corporation duly organized, validly existing and in good standing
under California Law, and has the full and unrestricted corporate power and
authority to own, operate and lease its Assets, to carry on its business as
currently conducted, to execute and deliver this Reorganization Agreement and to
carry out the transactions contemplated hereby. Company is duly qualified to
conduct business as a foreign corporation and is in good standing in the states,
countries and territories listed in the Company Disclosure Letter and in each
jurisdiction where the nature of its business or the ownership, operation or
leasing of its Assets makes such qualification necessary.
SECTION 3.02 SUBSIDIARIES
Section 3.02 of the Company Disclosure Letter lists each Company Subsidiary.
Neither Company nor any Company Subsidiary has any equity investment or other
interest in, nor has Company or any Company Subsidiary made advances or loans to
any Person (other than intra-company transactions between or among Company and a
Company Subsidiary). Section 3.02 of the Company Disclosure Letter sets forth
(a) the authorized capital stock or other equity interests of each Company
Subsidiary and (b) the percentage of the issued and outstanding capital stock or
other equity interests of each Company Subsidiary owned by Company. All of such
shares of capital stock or other equity interests of each Company Subsidiary
have been duly authorized and validly issued and are outstanding, fully paid and
nonassessable and are owned by Company free and clear of all Encumbrances other
than Encumbrances arising under applicable securities Laws. Each Company
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its state or jurisdiction of organization (as listed
in Section 3.02 of the Company Disclosure Letter), and has the requisite
corporate or limited liability company power and authority to own, operate and
lease its Assets and to carry on its business as currently conducted. Each
Company Subsidiary is duly qualified to conduct business as a foreign Person and
is in good standing in each jurisdiction where the nature of its business or the
ownership, operation or the leasing of its Assets makes such qualification
necessary.
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SECTION 3.03 ARTICLES OF INCORPORATION AND BYLAWS
Company has furnished to Acquiror a true and complete copy of the articles of
incorporation of Company and each Company Subsidiary, as currently in effect on
the date of this Reorganization Agreement, and a true and correct copy of
Company's bylaws and the bylaws of each Company Subsidiary, as currently in
effect on the date of this Reorganization Agreement, and in each case certified
by the corporate secretary of the Company and each such Company Subsidiary, as
appropriate. Neither the Company nor any Company Subsidiary is in violation of
any of the provisions of its respective articles of organization or bylaws.
SECTION 3.04 CAPITALIZATION
The authorized capital stock of Company consists of 5,000,000 shares of common
stock, no par value per share, of which 910,000 shares of common stock (the
"Company Common Stock") are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable. Section 3.04 of the
Company Disclosure Letter sets forth the names and addresses of all holders of
record of Company Common Stock and the number and class of shares held by each
such Shareholder. No other shares of Company Common Stock have been reserved for
any purpose. There are no outstanding securities convertible into or
exchangeable for Company Common Stock, any other securities of any Company, or
any capital stock or other securities of any Company Subsidiary and no
outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of such stock or other securities of Company or
any Company Subsidiary. There are no outstanding Agreements affecting or
relating to the voting, issuance, purchase, redemption, registration, repurchase
or transfer of Company Common Stock, any other securities of Company, or any
capital stock or other securities of any Company Subsidiary, except as
contemplated hereunder. Each of the outstanding shares of Company Common Stock
and of capital stock of, or other equity interests in, each Company Subsidiary
was issued in compliance with all applicable federal and state Laws concerning
the issuance of securities. There are no obligations, contingent or otherwise,
of Company or any Company Subsidiary to provide funds to, make any investment
(in the form of a loan, capital contribution or otherwise) in, or provide any
guarantee with respect to, any Person other than Company or any Company
Subsidiary. There are no Agreements pursuant to which any Person (other than
Company or any Company Subsidiary) is or may be entitled to receive any of the
revenues or earnings, or any payment based thereon or calculated in accordance
therewith, of Company or any Company Subsidiary.
SECTION 3.05 AUTHORITY; BINDING OBLIGATION
The execution and delivery by Company of this Reorganization Agreement, the
execution and delivery by Company of all other Agreements, documents,
certificates or other instruments contemplated hereby, and the consummation by
Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Company are necessary to authorize this Reorganization Agreement
and the other Agreements, documents, certificates or other instruments
contemplated hereby, or to consummate the transactions contemplated hereby and
thereby, other than the approval and adoption of this Reorganization Agreement
by Company in accordance with
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California Law and Company's articles of incorporation and bylaws. This
Reorganization Agreement has been duly executed and delivered by Company and
constitutes a legal, valid and binding obligation of Company, enforceable in
accordance with its terms, except as such enforceability may be subject to the
effects of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar Laws affecting creditors' rights generally
and subject to the effects of general equitable principles (whether considered
in a proceeding in equity or at law).
SECTION 3.06 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution, delivery and performance by Company of this
Reorganization Agreement and all other Agreements, documents, certificates or
other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Company of the transactions contemplated hereby and thereby, do not and will
not: (i) conflict with, or violate any provision of, the articles of
incorporation or bylaws of Company; (ii) subject to (A) obtaining the requisite
approval and adoption of this Reorganization Agreement by the Company
Shareholders in accordance with California Law and Company's articles of
incorporation and bylaws and (B) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, the
applicable Governmental Entity pursuant to the applicable requirements, if any,
of the HSR Act, and the filing and recordation of the Agreement of Merger and
the articles of merger as required by California Law, conflict with or violate
any Law applicable to Company or any Company Subsidiary, or any of their Assets;
(iii) conflict with, result in any breach of, or constitute a default (or an
event that with notice or lapse of time or both would become a default) or
result in the termination or acceleration, or create in another Person, a put
right, purchase obligation or similar right under any Agreement to which Company
or any Company Subsidiary is a party or by which Company or any Company
Subsidiary, or any of their Assets, may be bound; or (iv) result in or require
the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, Company
or any Company Subsidiary or any of the Assets now owned or hereafter acquired
by Company; except for any such conflict or violation described in clause (ii)
above, any such conflict, breach or default described in clause (iii) above, or
any such creation, imposition or acceleration described in clause (iv) above
that would not have a Company Material Adverse Effect and that would not prevent
Company from consummating the Merger on a timely basis.
(b) The execution, delivery and performance by Company and each Company
Subsidiary of this Reorganization Agreement and all other Agreements, documents,
certificates or other instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by Company and each Company Subsidiary of the transactions
contemplated hereby and thereby, do not and will not: (i) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Person not party to this Reorganization Agreement, except (A) pursuant to the
applicable requirements, if any, of the HSR Act and Laws of other Governmental
Entities, (B) the filing and recordation of the Agreement of Merger and the
articles of merger as required by California Law and (C) where the failure to
obtain any consent, approval, authorization or permit or to make any filing or
notification otherwise required to be disclosed hereunder would not have a
Company Material
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Adverse Effect; or (ii) result in or give rise to any penalty, forfeiture,
Agreement termination, right of termination, amendment or cancellation, or
restriction on business operations of Company or any Company Subsidiary that
would have a Company Material Adverse Effect.
(c) Except as set forth in Section 3.06 of the Company Disclosure
Letter, all returns, reports, statements and other documents required to be
filed by the Company or any Company Subsidiary with any Governmental Entity have
been filed in a timely manner and complied with and are true, correct and
complete in all material respects (and any related fees required to be paid have
been paid in full). All material records of every type and nature relating to
the business, operations or Assets of the Company and each Company Subsidiary
have been maintained in all material respects in accordance with good business
practices and the rules of any Governmental Entity and are maintained at the
Company or Company Subsidiary.
(d) No Governmental Entity or any other Person has notified Company or
any Company Subsidiary that such Governmental Entity or other Person intends to
object to the transactions contemplated hereunder which shall include for this
purpose any objection to the operations of the business of Company or any
Company Subsidiary as part of Acquiror. The Company is not aware of any fact or
circumstance related to it or to any Company Subsidiary that would reasonably be
expected to (i) cause the filing of any objection to any application for any
Governmental consent required hereunder, (ii) lead to any delay in processing
such application or (iii) require any waiver of any Governmental rule, policy or
other applicable law.
SECTION 3.07 INTELLECTUAL PROPERTY
(a) Section 3.07 of the Company Disclosure Letter identifies each
registered item of Intellectual Property (i) owned by Company or any Company
Subsidiary, (ii) owned by any third party and used by Company or any Company
Subsidiary pursuant to license, sublicense or other Agreement or (iii) otherwise
used by Company or any Company Subsidiary and not otherwise generally used by
Persons similarly situated (including, in each case, specification of whether
each such item is owned, licensed or used by Company or any Company Subsidiary).
In addition, neither Company nor any Company Subsidiary has licensed (as
licensor), sublicensed (as sublicensor) or entered into any other agreement with
respect to the use of any Intellectual Property except: (A) in the course of
distributing software products of Company and any Company Subsidiary; or (B) to
the U.S. Government pursuant to a government contract or to a subcontract under
a government contract.
(b) The Company and each Company Subsidiary either owns or has adequate
rights to use all of the Intellectual Property that is necessary to, and
currently used for, its business as now conducted or currently proposed to be
conducted, and such Intellectual Property is free and clear of Encumbrances. The
Company has previously furnished to Acquiror evidence of either ownership by the
Company or a Company Subsidiary of or license rights to use its Intellectual
Property.
(c) There are no pending or, to Company's knowledge, threatened claims
against Company or any Company Subsidiary alleging that the conduct of its
business infringes any Intellectual Property rights of others that would have a
Company Material Adverse Effect. Neither the Intellectual Property of Company
nor any Company Subsidiary is subject to any
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mortgage, lien, pledge, encumbrance, security interest, deed of trust, option,
order, decree or judgment. The business of Company and each Company Subsidiary
as now conducted or proposed to be conducted does not infringe any third-party
Intellectual Property rights.
(d) To the Company's knowledge, no third party is infringing upon any
of the Company's or any Company Subsidiary's Intellectual Property, and neither
the Company nor any Company Subsidiary has notified any third party that it
believes such third party is interfering with, infringing, or misappropriating
any of the Company's or any Company Subsidiary's Intellectual Property or
engaging in any act of unfair competition. The Company and each Company
Subsidiary have the right to bring an action for the infringement of all of its
Intellectual Property that is owned by the Company or any Company Subsidiary.
(e) Company and each Company Subsidiary has taken all steps that are
required to protect Company and each Company Subsidiary's rights in confidential
information and trade secrets of Company and each Company Subsidiary or provided
by any other Person to Company or any Company Subsidiary. Without limiting the
foregoing, Company and each Company Subsidiary has and enforces a policy
requiring each employee, director, consultant and contractor to execute a
confidentiality and non-disclosure agreement substantially in the form
previously provided to Acquiror, and each present and former employee, director,
consultant and contractor has executed such an agreement.
(f) The operation of the business of the Company and each Company
Subsidiary as it currently is conducted or currently proposed to be conducted as
of and limited to the period prior to the Closing Date by the Company and each
Company Subsidiary does not and will not and will not when conducted by the
Acquiror or the Surviving Corporation in substantially the same manner following
the Closing, infringe or misappropriate any Intellectual Property right of any
person, violate any right of any person (including any right to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction.
(g) Neither this Reorganization Agreement nor the transactions
contemplated by this Reorganization Agreement, will result in (i) either
Acquiror or the Surviving Corporation granting to any third party any right to
or with respect to any Intellectual Property right owned by, or licensed to,
either of them, (ii) either Acquiror's or the Surviving Corporation's being
bound by, or subject to, any non-compete or other restriction on the operation
or scope of their respective businesses, or (iii) either Acquiror's or the
Surviving Corporation's being obligated to pay any royalties or other amounts to
any third party in excess of those payable by Acquiror's or the Surviving
Corporation's, respectively, prior to the Closing.
SECTION 3.08 FINANCIAL STATEMENTS AND CONDITION
(a) Company has prepared the consolidated balance sheets of Company and
the Company Subsidiaries as of the end of the fiscal year ending in each of
1997, 1998, and 1999 (collectively, the "Company Balance Sheet") and the
consolidated statements of income, Seller's equity and changes in financial
position for each of such fiscal years (The Company Balance Sheet and such
consolidated statements of income, Company's equity and changes in financial
position are hereinafter referred to collectively as the "Company Financial
Statement"). A true
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and complete copy of the Company Financial Statement has been delivered to
Acquiror and is attached as an exhibit to, and constitutes an integral part of,
the Company Disclosure Letter.
(b) The Company Financial Statement, including, without limitation, the
notes thereto, (i) has been prepared in accordance with the books and records of
Company and its Subsidiaries and (ii) presents fairly the consolidated financial
position of Company and its Subsidiaries and their consolidated results of
operations and cash flows applied on a basis consistent with prior accounting
periods.
(c) Company does not expect any year-end audit adjustments for the
current fiscal year ending June 30, 2000. To the knowledge of Company, there are
no anticipated material charges or write-offs of a non-recurring nature for the
fiscal year ending June 30, 2000.
SECTION 3.09 ABSENCE OF CERTAIN DEVELOPMENTS
Since June 30, 1999:
(a) the business of Company and each Company Subsidiary has been
conducted in all material respects only in the Ordinary Course of Business;
(b) neither Company nor any Company Subsidiary has become liable in
respect of any guarantee or has incurred or otherwise become liable in respect
of any debt, except for borrowings, letters of credit and bankers' acceptances
in the Ordinary Course of Business under credit facilities in existence on June
30, 1999;
(c) neither Company nor any Company Subsidiary has mortgaged, pledged
or subjected to any lien any of their respective property, business or assets,
except for purchase money or similar security interests granted in connection
with the purchase of equipment or supplies in the Ordinary Course of Business in
an amount not exceeding $10,000 in the aggregate;
(d) neither Company nor any Company Subsidiary has made any
declaration, setting aside or payment of any dividend or other distribution with
respect to, or repurchase of, any of their respective capital stock or other
equity interests, other than a cash dividend of $0.065 per share or an aggregate
amount of $59,150 paid on December 21, 1999;
(e) neither Company nor any Company Subsidiary has (i) acquired or
leased from any other Person any material assets, or sold or leased to any other
Person or otherwise disposed of any material assets (in each case except for
assets acquired or sold in the Ordinary Course of Business in connection with
goods and services provided to customers), other than the sale to certain
officer's of the Company of the vehicles at their current Blue Book Value as
further identified on Section 3.09 to the Company Disclosure Letter; (ii)
entered into any contractual obligation relating to (A) the purchase or sale of
any capital stock, partnership interest or other equity interest in any Person,
(B) the purchase of assets constituting a business or (C) any merger,
consolidation or other business combination; (iii) entered into or amended any
lease of real property or material personal property (whether as lessor or
lessee); (iv) canceled or compromised any debt or claim other than accounts
receivable in the Ordinary Course of
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Business; (v) sold, transferred, licensed or otherwise disposed of any
material intangible assets other than in the Ordinary Course of Business; (vi)
waived or released any right of substantial value; (vii) instituted, settled or
agreed to settle any material action; or (viii) entered into or consummated any
transaction with any Affiliate;
(f) there has been no loss, destruction or damage to any material item
of property of Company or any Company Subsidiary, whether or not insured, which
has had or could reasonably be expected to have a Company Material Adverse
Effect;
(g) other than in the Ordinary Course of Business and consistent with
past practices, neither Company nor any Company Subsidiary has made any changes
in the rate of compensation payable or paid, or agreed or orally promised to
pay, conditionally or otherwise, any extra compensation, or severance or
vacation pay, to any director, officer, employee, consultant or agent of Company
or any Company Subsidiary;
(h) there has been no material labor trouble (including any work
slowdown, stoppage or strike) involving Company or any Company Subsidiary or any
material change in any of their respective personnel or the terms and conditions
of the employment of such personnel;
(i) neither Company nor any Company Subsidiary has made any change in
(x) its methods of accounting or accounting practices, or (y) its pricing
policies or payment or credit practices or failed to pay any creditor any amount
owed to such creditor when due or granted any extensions or credit other than in
the Ordinary Course of Business;
(j) neither Company nor any Company Subsidiary has terminated or closed
any material facility, business or operation;
(k) neither Company nor any Company Subsidiary has made any material
loan, advance or capital contributions to, or any other investment in, any
Person other than travel advances previously disclosed to Acquiror;
(l) neither Company nor any Company Subsidiary has adopted or increased
any benefits under any Plan in any material manner;
(m) neither Company nor any Company Subsidiary has written up or
written down any of its respective material assets;
(n) neither Company nor any Company Subsidiary has terminated or
amended, or failed in any material respect to perform obligations or suffered
the occurrence of any default under any material contractual obligation; and
(o) neither Company nor any Company Subsidiary has entered into any
contractual obligation to do any of the things referred to elsewhere in this
Section 3.09.
SECTION 3.10 ABSENCE OF UNDISCLOSED LIABILITIES
To the knowledge of Company, there are no material liabilities or obligations
(whether absolute or contingent, matured or unmatured, known or unknown) of
Company or any Company
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Subsidiary, including but not limited to liabilities for Taxes and that are
not reflected, or reserved against, in the Company Financial Statement, except
for those that may have been incurred after June 30, 1999 in the Ordinary Course
of Business or that are not material in amount either individually or
collectively. Since June 30, 1999, neither Company nor any Company Subsidiary
has incurred any material liabilities or obligations (whether absolute or
contingent, matured or unmatured, known or unknown) other than in the Ordinary
Course of Business. Additionally, all bonuses and incentive compensation
(including, without limitation, all compensation-related expenses) have been
accrued on the Company Financial Statement based on GAAP and consistent with
past practices.
SECTION 3.11 LITIGATION; DISPUTES
(a) Company has not received notice of, and there is no pending, or, to
the knowledge of Company, threatened, any action, suit, claim, arbitration,
proceeding or investigation against, affecting or involving Company or any
Company Subsidiary or their respective businesses or Assets, or the transactions
contemplated by this Reorganization Agreement, at law or in equity, or before or
by any domestic or foreign court, arbitrator or Governmental Entity that, alone
or in the aggregate, would have a Company Material Adverse Effect. Neither
Company nor any Company Subsidiary is (i) operating under or subject to any
order, award, writ, injunction, decree or judgment of any court, arbitrator or
Governmental Entity or (ii) in default with respect to any order, award, writ,
injunction, decree or judgment of any court, arbitrator or Governmental Entity.
(b) Company and each Company Subsidiary have complied and are in
compliance in all material respects with all laws, ordinances, regulations,
awards, orders, judgments, decrees and injunctions applicable to Company and
each Company Subsidiary and their respective businesses or Assets, including all
federal, state and local laws, ordinances, regulations and orders pertaining to
employment or labor, safety, health, zoning and other matters. Company and each
Company Subsidiary have obtained and hold all permits, licenses and approvals
(none of which has been materially modified or rescinded and all of which are in
full force and effect) from all government authorities necessary in order to
own, use and maintain their respective Assets and to conduct their respective
businesses as presently conducted.
SECTION 3.12 REAL PROPERTY LEASES
Section 3.12 of the Company Disclosure Letter lists each real property lease
under which Company or any Company Subsidiary is the lessee or lessor. Company
and each Company Subsidiary are the owners and holders of the leasehold estates
purported to be granted to them by the leases listed in Section 3.12 of the
Company Disclosure Letter. Each such lease is in full force and effect and, to
the knowledge of Company, constitutes a legal, valid and binding obligation of,
and is legally enforceable in all material respects against, the respective
parties thereto. Company and each Company Subsidiary have in all material
respects performed all material obligations thereunder required to be performed
by any of them to date. To the knowledge of Company, no party is in default in
any material respect under any of the foregoing, and there has not occurred any
event which (whether with or without notice, lapse of time or the
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happening or occurrence of any other event) would constitute such a material
default. Neither Company nor any Company Subsidiary owns or holds interests in
any Real Property.
SECTION 3.13 OTHER AGREEMENTS; NO DEFAULT
Sections 3.12 and 3.13 of the Company Disclosure Letter list each Agreement
(other than Agreements solely between Company and any Company Subsidiary) to
which Company or any Company Subsidiary is a party or by which Company or any
Company Subsidiary, or any of their respective Assets, is bound, and which (i)
involves expenditures or receipts by Company or any Company Subsidiary (other
than contracts, commitments or Agreements which do not require payments or yield
receipts of more than $25,000) in any twelve (12) month period or more than
$50,000 in the aggregate); or (ii) contain covenants that limit the freedom of
Company or any Company Subsidiary to engage in a line of business or to compete
with any third party (Agreements listed pursuant to clauses (i) and (ii) above,
collectively the "Company Contracts"). Each Company Contract is in full force
and effect, constitutes a valid and binding obligation of and is legally
enforceable in accordance with its terms against Company and, to the knowledge
of Company, the Company Contracts are valid, binding and enforceable obligations
of the other parties thereto, except as such enforceability may be subject to
the effects of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar Laws affecting creditors' rights generally
or subject to the effects of general equitable principles (whether considered in
a proceeding in equity or at law). Company has complied with all of the
provisions of such Company Contracts and is not in default thereunder, and there
has not occurred any event which (whether with or without notice, lapse of time,
or the happening or occurrence of any other event) would constitute such a
default, and the execution of this Reorganization Agreement by Company and its
performance hereunder will not cause, or result in, a breach or default under
any Company Contract. There has not been (A) any failure by Company or, to the
knowledge of Company, any other party to any such Company Contract to comply
with all material provisions thereof, (B) any default by Company or, to the
knowledge of Company, any other party thereunder, or (C) to the knowledge of
Company (X) any threatened cancellation thereof or (Y) any outstanding dispute
thereunder. Neither Company nor any Company Subsidiary is a guarantor or
otherwise liable for any liability or obligation (including indebtedness) of any
other Person other than any Company Subsidiary.
SECTION 3.14 LABOR RELATIONS
There are no collective bargaining or other labor union Agreements to which
Company or any Company Subsidiary is a party. There are, and for the past two
(2) years have been, no strikes, work stoppages, union organization efforts or
lawsuits (other than grievance proceedings) pending or, to the knowledge of
Company, threatened or reasonably anticipated between Company or any Company
Subsidiary and (a) any current or former employees of Company or any Company
Subsidiary or (b) any union or other collective bargaining unit representing
such employees. Company and any Company Subsidiary have complied and are in
compliance with all Laws relating to employment or the workplace, including,
without limitation, Laws relating to wages, hours, collective bargaining, safety
and health, work authorization, equal employment opportunity, immigration,
withholding, unemployment compensation, worker's compensation,
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employee privacy and right to know, except where the failure so to comply
would not have a Company Material Adverse Effect.
SECTION 3.15 PENSION AND BENEFIT PLANS
(a) Company has delivered to Acquiror prior to the execution of this
Reorganization Agreement true and complete copies (or written descriptions,
where no written plan exists) (and, where applicable, the most recent actuarial,
valuation or annual (Form 5500 with attachments) reports with respect thereto)
of all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plans, employment or change in control agreements, medical, vision, dental or
other health plans, life insurance plans and other employee benefit plans or
fringe benefit plans, programs, arrangements or Agreements, including, without
limitation, all Company Benefit Plans. No Company Benefit Plan is or has been a
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA or could
subject Company or any Company Subsidiary to liability under Sections 4063 or
4064 of ERISA. Company has set forth in the Company Disclosure Letter (i) a list
of all of the Company Benefit Plans, (ii) a list of the Company Benefit Plans
that are Company Pension Plans, (iii) a list of the Company Benefit Plans that
are Company Stock Plans, and (iv) a list of the number of shares covered by,
exercise prices for, and holders of, all stock options granted and available for
grant under the Company Stock Plans.
(b) From their inception, all Company Benefit Plans have been and are
in compliance (in form and in operation) with the applicable terms of ERISA and
the Code and any other applicable Laws, including the terms of such plans.
(c) All liabilities (contingent or otherwise) under any Company Benefit
Plan are fully accrued or reserved against in the Company Financial Statement in
accordance with GAAP. Each Company Pension Plan that is subject to Title IV of
ERISA or Section 412 of the Code satisfies the minimum funding standards
(without regard to any waiver) provided for in Section 412 of the Code.
(d) Neither Company nor any Company Subsidiary has any obligations for
retiree health or other welfare benefits under any Company Benefit Plan or
otherwise, and there are no restrictions on the rights of Company or any Company
Subsidiary to unilaterally amend or terminate any such Company Benefit Plan at
any time without incurring any material liability thereunder.
(e) Neither the execution and delivery of this Reorganization Agreement
nor the consummation of the transactions contemplated hereby will (i) result in
any payment (including, without limitation, severance, golden parachute or
otherwise) becoming due to any person under any Company Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Company
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits.
(f) Each Company Benefit Plan which is intended to be qualified under
Section 401(a) or 401(k) of the Code or qualified as a voluntary employees'
beneficiary association under Sections 501(a) and 501(c)(9) of the Code has
received a favorable determination letter from the
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IRS that it is so qualified and so exempt, and no fact or event has occurred
that could adversely affect such qualified or exempt status.
(g) Company and each Company Subsidiary have not incurred any liability
under, and have complied in all respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder and do not
reasonably expect to incur any such liability as a result of actions taken or
not taken prior to the consummation of the Merger.
(h) With respect to each Company Benefit Plan that is a Multiemployer
Plan, (i) neither Company nor any Company Subsidiary has incurred any Withdrawal
Liability that has not been satisfied in full; (ii) if Company or any Company
Subsidiary were to experience a withdrawal or partial withdrawal from such plan,
no material Withdrawal Liability would be incurred; (iii) neither Company nor
any Company Subsidiary has received any notification, nor has any reason to
believe, that any such plan is in reorganization, has been terminated, or may
reasonably be expected to be in reorganization or to be terminated, and (iv)
neither Company nor any Company Subsidiary is liable or has been advised that it
is liable for any funding Taxes under sections 413(b)(6) or 4971 of the Code on
account of any accumulated funding deficiency of any Multiemployer Plan to which
Company or any Company Subsidiary has contributed or is required to contribute.
(i) Neither Company nor any Company Subsidiary is now or has ever been
a "substantial employer" as defined in Section 4001(a)(2) of ERISA.
SECTION 3.16 TAXES AND TAX MATTERS
(a) The Company and each Company Subsidiary have paid all Taxes due and
payable by any of them for or with respect to all periods up to and including
the date hereof (without regard to whether or not such Taxes are or were
disputed), whether or not shown on any Tax Return.
(b) The Company and each Company Subsidiary has filed on a timely basis
all Company Tax Returns that it was required to file. All such Company Tax
Returns were accurate and complete in all material respects. Except as described
in Section 3.16 of the Company Disclosure Letter, none of Company or any Company
Subsidiary is the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction where
Company or any Company Subsidiary does not file Company Tax Returns that any one
of them is or may be subject to taxation by that jurisdiction. None of Company
or any Company Subsidiary has given any currently effective waiver of any
statute of limitations in respect of Taxes or agreed to any currently effective
extension of time with respect to a Tax assessment or deficiency. There are no
security interests on any of the assets of Company or any Company Subsidiary
that arose in connection with any failure (or alleged failure) to pay any Tax.
(c) Company and each Company Subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party.
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(d) None of Company nor any Company Subsidiary has knowledge of any
facts or circumstances which could give rise to a reasonable expectation that
any authority may assess any additional Taxes for any period for which Company
Tax Returns have been filed. There is no dispute or claim concerning any
liability for taxes of Company or any Company Subsidiary either (i) claimed or
raised by any authority in writing or (ii) as to which Company has knowledge
based upon personal contact with any agent of such authority. Company and each
Company Subsidiary has delivered to the Acquiror copies of, and Section 3.16 of
the Company Disclosure Letter sets forth a complete and accurate list of,
Company Tax Returns filed with respect to the taxable periods of Company and any
Company Subsidiary ended on or after December 31, 1995; indicates those Company
Tax Returns that have been audited; and indicates those Company Tax Returns that
currently are the subject of an audit.
(e) The unpaid Taxes of Company and any Company Subsidiary (i) did not,
as of the date of any financial statements of Company and the Company
Subsidiaries furnished to Acquiror pursuant to Section 3.08 of this
Reorganization Agreement, exceed the reserve for any Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the such financial statements
(rather than in any notes thereto) and (ii) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Company or any Company Subsidiary in filing their
Company Tax Returns.
(f) None of Company or any Company Subsidiary has filed a consent under
Section 341(f) of the Code, concerning collapsible corporations. None of Company
or any Company Subsidiary has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company
and each Company Subsidiary has disclosed on its federal income Company Tax
Returns all positions taken therein that could reasonably be expected to give
rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code. None of Company or any Company Subsidiary is a party
to any Tax allocation or sharing agreement. None of Company or any Company
Subsidiary (A) has been a member of an "affiliated group," as defined in Section
1504(a) of the Code, filing a consolidated federal income Tax Return (other than
a group the common parent of which was Company) and (B) has any Liability for
the Taxes of any Person (other than any of Company) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
(g) Section 3.16 of the Company Disclosure Letter sets forth the
following information with respect to each of Company and each Company
Subsidiary (or, in the case of clause (ii) below, with respect to each of the
Company Subsidiary) as of the date hereof: (i) the tax basis of Company and each
Company Subsidiary in its assets; (ii) the basis of the shareholders of each
Company Subsidiary in such Company Subsidiary's stock (or the amount of any
excess loss account); and (iii) the amount of any net operating loss, net
capital loss, unused investment, foreign tax or other credit, or excess
charitable contribution allocable to Company or a Company Subsidiary; and (iv)
the amount of any deferred gain or loss allocable to Company or a Company
Subsidiary arising out of any "deferred intercompany transaction" as defined in
Treas. Reg. Section 1.1502-13(a)(2).
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SECTION 3.17 INSURANCE
Section 3.17 of the Company Disclosure Letter lists all policies of title,
asset, fire, hazard, casualty, liability, life, worker's compensation and other
forms of insurance of any kind owned or held by Company or any Company
Subsidiary. All such policies: (a) are with insurance companies reasonably
believed by Company to be financially sound and reputable; (b) are in full force
and effect; (c) are sufficient for compliance by Company and by each Company
Subsidiary with all requirements of Law and of all Agreements to which Company
or any Company Subsidiary is a party; (d) are valid and outstanding policies
enforceable against the insurer; (e) insure against risks of the kind
customarily insured against and in amounts customarily carried by companies
similarly situated and by companies engaged in similar businesses and owning
similar Assets; and (f) have the policy expiration dates set forth in Section
3.17 of the Company Disclosure Letter.
SECTION 3.18 ARRANGEMENTS WITH RELATED PARTIES
No present or former officer, director, Shareholder or Person known by the
Company to be an Affiliate of the Company or the any Company Subsidiary, nor any
Person known by the Company to be an Affiliate of such Person, is currently a
party to any transaction or agreement with the Company or the any Company
Subsidiary, including any agreement providing for any loans, advances, the
employment of, furnishing of services by, rental of its Assets from or to, or
otherwise requiring payments to, any such officer, director, Shareholder or
affiliate.
SECTION 3.19 BOOKS AND RECORDS
The books of account, stock records, minute books and other corporate and
financial records of Company and each Company Subsidiary are complete and
correct and have been maintained in accordance with reasonable business
practices for companies similar to Company and each Company Subsidiary, and
Company and each Company Subsidiary will have prior to Closing prepared and made
available to Acquiror the minutes for all meetings of the Board of Directors
and/or Shareholders of the Company and each Company Subsidiary held as of the
date hereof (or written consents in lieu of such meetings).
SECTION 3.20 ASSETS
Company and each Company Subsidiary have good, valid and marketable title to all
Assets respectively owned by them, including, without limitation, all material
Assets reflected in the Company Financial Statement and all Assets acquired by
Company or by any Company Subsidiary since June 30, 1999 (except for Assets
reflected in the Company Financial Statement or acquired since such date which
have been sold or otherwise disposed of in the Ordinary Course of Business),
free and clear of all Encumbrances other than Permitted Encumbrances. All
personal property of Company and each Company Subsidiary is in good operating
condition and repair and is suitable and adequate for the uses for which it is
intended or is being used. All Inventory of Company and each Company Subsidiary
(i) consists of items which are good and merchantable and of a quality and
quantity presently usable and salable in the Ordinary Course of
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Business and (ii) have been reflected in the Company Financial Statement in
accordance with the Company's historic accounting past practices.
SECTION 3.21 BOARD RECOMMENDATION
The Board of Directors of Company has unanimously adopted, in compliance with
California Law, a resolution advising, authorizing, approving and adopting this
Reorganization Agreement and the transactions contemplated hereby, and
recommending approval and adoption of this Reorganization Agreement and the
transactions contemplated hereby by the Company Shareholders. Company
Shareholders representing 96.7% of the Company Common Stock have adopted in
compliance with California Law a resolution authorizing, approving, and adopting
the Reorganization Agreement and the transactions contemplated hereby.
SECTION 3.22 DIRECTORS AND OFFICERS
Section 3.22 of the Company Disclosure Letter lists all current directors and
officers of Company and each Company Subsidiary, showing each such person's
name, positions, and annual remuneration, bonuses and fringe benefits paid by
Company or any Company Subsidiary for the current fiscal year and the most
recently completed fiscal year.
SECTION 3.23 STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS
The Board of Directors of Company has, to the extent such statutes are
applicable, taken all action (including appropriate approvals of the Board of
Directors of Company) necessary to exempt Company, each Company Subsidiary and
Affiliates, the Merger, this Reorganization Agreement and the transactions
contemplated hereby and thereby from the takeover provisions of California Law,
if any. To the knowledge of Company, no other state takeover statutes or Company
charter or bylaw provisions are applicable to the Merger or this Reorganization
Agreement and the transactions contemplated hereby or thereby.
SECTION 3.24 ENVIRONMENTAL MATTERS
Each of the Company and each Company Subsidiary is in material compliance with
all Environmental Laws. Neither the Company nor any Company Subsidiary has any
material liability under any Environmental Law, nor is any of the Company or any
Company Subsidiary responsible for any liability of any other person under any
Environmental Law. There are no pending or, to the knowledge of the Company,
threatened actions, suits, claims, legal proceedings or other proceedings based
on, and neither the Company nor any Company Subsidiary directly or indirectly
received any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request from
any Government Entity or any other person arising out of or attributable to: (i)
the current or past presence at any part of the real property owned or leased by
the Company or any Company Subsidiary (the "Real Property") of Hazardous
Materials (as defined below) or any substances that pose a hazard to human
health or an impediment to working conditions; (ii) the current or past release
or threatened release into the environment from the Real Property (including,
without limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any
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substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property; or (iv) any violation of Environmental Laws at any part
of the Real Property or otherwise arising from the Company's or any Company
Subsidiary's activities involving Hazardous Materials.
SECTION 3.25 Y2K COMPLIANCE
(a) Each of the Company's and each Company Subsidiary's products
(including products currently under development): (i) will record, store,
process, calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as the products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"); (ii) will lose no functionality with
respect to the introduction of records containing dates falling on or after
January 1, 2000; and (iii) will be interoperable with other products used and
distributed by Company or each Company Subsidiary, as applicable, that may
reasonably deliver records to, receive records from, or interact with the
Company's or Company Subsidiary's products, including but not limited to back-up
and archived data.
(b) All of the Company's and each Company's Subsidiary's Information
Technology (as defined below) is Year 2000 Compliant, and will not cause an
interruption in the ongoing operations of the Company's or any Company
Subsidiary's business on or after January 1, 2000. For purposes of the
foregoing, the term "Information Technology" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or any Company Subsidiary in the conduct of its
business, or purchased by the Company or any Company Subsidiary from third party
suppliers.
SECTION 3.26 GOVERNMENT CONTRACTS AND OTHER COMMITMENTS
(a) With respect to any contracts with Governmental Entities and
subcontracts (at any tier) under prime contracts with Governmental Entities to
which Company or any Company Subsidiary is a party (collectively, "Government
Contracts"): (A) such Government Contracts constitute valid and binding
obligations of Company or a Company Subsidiary, and the other party or parties
thereto, enforceable in accordance with their terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws or
equitable principles relating to creditors' rights generally; (B) Company and
each Company Subsidiary is in compliance in all material respects with the terms
of all Government Contracts to which it is a party and all laws, regulations and
contract provisions applicable to the obtaining, formation, pricing,
performance, billing, administration and other aspects of its Government
Contracts, including without limitation the False Claims Act, False Statements
Act, and Truth in Negotiations Act, except for such non-compliance that does not
have a Company Material Adverse Effect; (C) none of Company, any Company
Subsidiary, or to the knowledge of Company, any other party has terminated,
canceled or waived any material term or condition of
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any such Government Contract; (D) the cost accounting, pricing, estimating,
property and procurement systems relating to Company's and any Company
Subsidiary's Government Contracts are in compliance in all material respects
with applicable laws regulations and contract provisions, including without
limitation procurement integrity laws and regulations, cost principles and cost
accounting standards; and (E) Company and each Company Subsidiary is in
compliance in all material respects with all national security obligations,
including, without limitation, those specified in the National Industrial
Security Program.
(b) With respect to the Government Contracts to which Company or any
Company Subsidiary is a party, except as is reserved for on the Company
Financial Statement: (A) each billed account receivable represents a bona fide
claim against the government for sales, services performed or other charges
arising on or prior to the date hereof, and all the products delivered and
services performed which gave rise to such accounts were delivered or performed
in accordance with the applicable Government Contracts; (B) to the best of
Company's knowledge, each such billed account receivable is subject to no
defense, counterclaim or right to setoff and is fully collectable in the
Ordinary Course of Business consistent with past practices without cost in
collection efforts therefor; and (C) all unbilled or unreserved amounts included
in accounts receivable will, in the Ordinary Course of Business as currently
conducted consistent with past practices, mature into and become billed accounts
receivable in the same or greater amount and such receivables, when billed, will
be fully collectable in the Ordinary Course of Business consistent with past
practices.
(c) With respect to the Government Contracts to which Company or any
Company Subsidiary is a party, none of such Government Contracts has incurred or
currently projects cost overruns in an amount exceeding $50,000.
(d) With respect to the Government Contracts to which Company or any
Company Subsidiary is a party, neither Company nor any Company Subsidiary has
assigned or otherwise conveyed or transferred, or agreed to assign, to any
Person, any Government Contracts to which it is a party, or any account
receivable relating thereto, whether as a security interest or otherwise.
(e) With respect to any Government Property provided to or acquired by
the Company or any Company Subsidiary pursuant to the Government Contracts: (A)
the approximate value of such Government Property as of the date hereof is
$934,272; and (B) there exists no material deviation between the Government
Property as provided to or acquired by the Company or any Company Subsidiary and
the Government Property as currently possessed by the Company and any Company
Subsidiary
(f) Neither Company nor any Company Subsidiary has received any formal
notice or other written communication from the federal government within the
last three (3) years regarding its actual or threatened disqualification,
suspension or debarment from contracting with the federal government and, to the
knowledge of Company, no action for which Company or any Company Subsidiary has
received such notice prior to the last three (3) years is pending.
(g) To the knowledge of Company, there is no: (A) pending or threatened
investigation for fraud or other misconduct relating to Government Contracts to
which Company or any Company Subsidiary is a party; (B) existing or threatened
claim, cost disallowance,
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pricing adjustment, or adverse audit finding relating to any Government
Contract to which Company or any Company Subsidiary is a party; or (C)
termination for default or cure notice or show cause notice currently in effect,
relating to any Government Contract to which Company or any Company Subsidiary
is a party.
SECTION 3.27 RELATIONS WITH GOVERNMENTS
Neither the Company, any Company Subsidiary nor, to the knowledge of the
Company, any of the Company's or any Company Subsidiary's officers, directors,
employees or agents (or Shareholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of the Company or
any Company Subsidiary) have paid, given or received or have offered or promised
to pay, give or receive, any bribe or other unlawful payment of money or other
thing of value, any unlawful discount, or any other unlawful inducement, to or
from any person or Government Entity in the United States or elsewhere in
connection with or in furtherance of the business of the Company or any Company
Subsidiary (including, without limitation, any offer, payment or promise to pay
money or other thing of value (a) to any foreign official, political party (or
official thereof) or candidate for political office for the purposes of
influencing any act, decision or omission in order to assist the Company or any
Company Subsidiary in obtaining business for or with, or directing business to,
any person, or (b) to any person, while knowing that all or a portion of such
money or other thing of value will be offered, given or promised to any such
official or party for such purposes). Neither the business of the Company nor
any Company Subsidiary is in any manner dependent upon the making or receipt of
such payments, discounts or other inducements. Neither the Company nor any
Company Subsidiary has otherwise taken any action that would cause the Company
or any Company Subsidiary to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any applicable Laws of similar effect.
SECTION 3.28 BROKER'S FEES
Except as set forth in the Company Disclosure Letter, neither the Company nor
any Company Subsidiary has any liability or obligation to pay any fees or
commissions to any broker, finder, or similar agent with respect to the
transactions contemplated by this Reorganization Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as specifically set forth in the Disclosure Letter delivered by Acquiror
and Acquiror Sub to Company prior to the execution and delivery of this
Reorganization Agreement (the "Acquiror Disclosure Letter") and referenced in
the Acquiror Disclosure Letter to the Section(s) of this Article IV to which
such disclosure applies, Acquiror and Acquiror Sub hereby jointly and severally
represent, warrant to and agrees with Company as follows, in each case as of the
date of this Reorganization Agreement and as of the Closing Date:
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SECTION 4.01 ORGANIZATION AND QUALIFICATION
Acquiror is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware, and has the full and unrestricted
corporate power and authority to own, operate and lease its Assets, to carry on
its business as currently conducted, to execute and deliver this Reorganization
Agreement and to carry out the transactions contemplated hereby. Acquiror Sub is
a corporation duly organized, validly existing and in good standing under
California Law, and has full and unrestricted corporate power and authority to
own, operate and lease its Assets, to carry on its business as currently
conducted, to execute and deliver this Reorganization Agreement and to carry out
the transactions contemplated hereby. Each of Acquiror and Acquiror Sub is duly
qualified to conduct business as a foreign corporation and is in good standing
in the states, countries and territories in which the nature of the business
conducted by it or the character of the Assets owned, leased or otherwise held
by it makes such qualification necessary, except where the failure to be so
qualified would not have an Acquiror Material Adverse Effect.
SECTION 4.02 RELIANCE ON FINANCIAL INFORMATION
Acquiror has relied on the financial statements of the Company for periods prior
to the Closing Date. Acquiror has made its own evaluation of the backlog of
revenues due under any contract of the Company. No reliance has been placed on
any financial projections or forward looking statements made by Company or
Company Shareholders.
SECTION 4.03 AUTHORITY; BINDING OBLIGATION
Each of Acquiror and Acquiror Sub has the full and unrestricted corporate power
and authority to execute and deliver this Reorganization Agreement and to carry
out the transactions contemplated hereby. The execution and delivery by Acquiror
and Acquiror Sub of this Reorganization Agreement and all other Agreements,
documents, certificates or other instruments contemplated hereby, and the
consummation by Acquiror and Acquiror Sub of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action,
and no other corporate proceedings on the part of Acquiror or Acquiror Sub are
necessary to authorize this Reorganization Agreement and the other Agreements,
documents, certificates or other instruments contemplated hereby, or to
consummate the transactions contemplated hereby and thereby. This Reorganization
Agreement has been duly executed and delivered by Acquiror and Acquiror Sub and
constitutes a legal, valid and binding obligation of Acquiror and Acquiror Sub,
enforceable in accordance with its terms, except as such enforceability may be
subject to the effect of any applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar Laws affecting creditors'
rights generally and subject to the effect of general equitable principles
(whether considered in a proceeding in equity or at law).
SECTION 4.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS
(a) The execution, delivery and performance by Acquiror and Acquiror
Sub of this Reorganization Agreement and all other Agreements, documents,
certificates or other
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instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by Acquiror and Acquiror Sub of the transactions contemplated
hereby and thereby, do not and will not: (i) conflict with, or violate any
provision of, the certificate of incorporation or the bylaws of Acquiror, or the
articles of incorporation or the bylaws of Acquiror Sub; (ii) subject to
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, the applicable Governmental Entity pursuant to
the applicable requirements, if any, of the HSR Act and the filing and
recordation of the Agreement of Merger and the articles of merger as required by
California Law, conflict with or violate any Law applicable to Acquiror or
Acquiror Sub or any of their respective Assets; (iii) conflict with, result in
any breach of, constitute a default (or an event that with notice or lapse of
time or both would become a default) under any Agreement to which Acquiror or
Acquiror Sub is a party or by which Acquiror or Acquiror Sub or any of their
respective Assets may be bound; or (iv) result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, Acquiror or Acquiror Sub;
except for any such conflict or violation described in clause (ii) above, any
such conflict, breach or default described in clause (iii) above, or any such
creation, imposition or acceleration described in clause (iv) above that would
not have an Acquiror Material Adverse Effect and that would not prevent Acquiror
or Acquiror Sub from consummating the Merger on a timely basis.
(b) The execution, delivery and performance by Acquiror and Acquiror
Sub of this Reorganization Agreement and all other Agreements, documents,
certificates or other instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by Acquiror and Acquiror Sub of the transactions contemplated
hereby and thereby, do not and will not: (i) require any consent, approval,
authorization or permit of, or filing with or notification to, any Person not
party to this Reorganization Agreement, except (A) pursuant to the applicable
requirements, if any, of the HSR Act, (B) the filing and recordation of the
Agreement of Merger and the articles of merger as required by California Law and
(C) where the failure to obtain any consent, approval, authorization or permit
or to make any filing or notification otherwise required to be disclosed
hereunder would not have an Acquiror Material Adverse Effect; or (ii) result in
or give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
Acquiror or Surviving Corporation that would have an Acquiror Material Adverse
Effect.
SECTION 4.05 NO PRIOR ACTIVITIES OF ACQUIROR SUB
Acquiror Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Reorganization Agreement and has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
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ARTICLE V
PRE-CLOSING COVENANTS
SECTION 5.01 CONDUCT OF BUSINESS OF COMPANY UNTIL EFFECTIVE TIME
The Company hereby covenants and agrees that, from the date of this
Reorganization Agreement until the Effective Time, Company, unless otherwise
expressly contemplated by this Reorganization Agreement or consented to in
writing by Acquiror, will, and will cause each Company Subsidiary to, carry on
their respective businesses only in the Ordinary Course of Business, use their
respective best efforts to preserve intact their business organizations and
Assets, maintain their rights and franchises, retain the services of their
officers and employees and maintain their relationships with customers,
suppliers, licensors, licensees and others having business dealings with them,
and use their respective best efforts to keep in full force and effect liability
insurance and bonds comparable in amount and scope of coverage to that currently
maintained. Without limiting the generality of the foregoing, neither Company
nor any Company Subsidiary will:
(a) (i) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee; (ii) grant any severance
or termination pay (other than pursuant to the normal severance practices or
existing agreements of the Company in effect on the date of this Reorganization
Agreement) to, or enter into any severance agreement with, any director, officer
or employee, or enter into any employment agreement with any director, officer
or employee or otherwise without the prior written consent of Acquiror; (iii)
establish, adopt, enter into or amend any Company Benefit Plan or other
arrangement, except as may be required to comply with applicable Law; (iv) pay
any benefit not provided for under any Company Benefit Plan or other
arrangement; (v) grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or Company Benefit Plan or other
arrangement (including the grant of stock options, stock appreciation rights,
stock-based or stock-related awards, performance units or restricted stock, or
the removal of existing restrictions in any Company Benefit Plan or other
arrangement or agreement or awards made thereunder), (vi) take any action to
fund or in any other way secure the payment of compensation or benefits under
any agreement or (vii) promote or fire any director, officer or employee;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any Company Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Company Subsidiary, or any options, warrants or conversion or other
rights to acquire any shares of capital stock of the Company or any Company
Subsidiary or any such securities or obligations, or any other securities
thereof; (ii) effect any reorganization, recapitalization, merger or share
exchange; or (iii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock;
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(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury but excluding shares issuable upon the
exercise of options outstanding on the date hereof in accordance with their
terms as of the date hereof), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire,
any such shares, or amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the Assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any Assets of any other person (other than the purchase of assets from
suppliers or vendors in the Ordinary Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
subject to any Encumbrance or dispose of, or agree to sell, lease, exchange,
mortgage, pledge, transfer or otherwise subject to any Encumbrance or dispose
of, any of its Assets, except for sales, dispositions or transfers in the
Ordinary Course of Business;
(g) propose or adopt any amendments to its articles of incorporation,
bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes which would
reasonably be expected to result in a Company Material Adverse Effect, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns;
(i) make or agree to make any new capital expenditures which are not
included in the Company's 2000 capital budget, a copy of which was furnished to
Acquiror, to the extent that such new capital expenditures exceed in the
aggregate $100,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any Company
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any agreement having the economic effect of any of
the foregoing, except for borrowings incurred in the Ordinary Course of
Business, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person other than travel and payroll advances made to
employees in the Ordinary Course of Business;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payments, discharges or satisfactions, in the Ordinary
Course of Business which are materially in
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accordance with their terms, of liabilities reflected or reserved against in,
or contemplated by, the Company Financial Statement or waive any material
benefits of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company or any Company Subsidiary
is a party;
(l) waive, release or assign any rights or claims, or modify, amend or
terminate any agreement to which the Company or any Company Subsidiary is a
party;
(m) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting principles
or a Government Entity;
(n) take any action or fail to take any action that would have a
Company Material Adverse Effect prior to or after the Effective Time or a
material adverse effect after the Effective Time, or that would adversely affect
the ability of the Company or any Company Subsidiary prior to the Effective
Time, or Acquiror or any of its Subsidiaries after the Effective Time, to obtain
consents of third parties or approvals of Government Entities required to
consummate the transactions contemplated in this Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02 BEST EFFORTS TO SATISFY CONDITIONS
Acquiror and Company shall use their respective best efforts to cause all
conditions to the obligations of Acquiror and Company set forth in Article VII
of this Reorganization Agreement to be satisfied on or before the Closing Date.
SECTION 5.03 OTHER ACTIONS
Acquiror and Company shall not, and shall not permit any of their respective
Affiliates to, take any action that would, or that could reasonably be expected
to, result in (a) any of the representations and warranties of such Party set
forth in this Reorganization Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII of this Reorganization
Agreement not being satisfied.
SECTION 5.04 CERTAIN TAX MATTERS
From the date hereof until the Effective Time, Company and Company Subsidiary
(a) will prepare and timely file with the relevant Taxing authority all Company
Tax Returns required to be filed during such period ("Post-Signing Returns"),
which Post-Signing Returns shall be accurate in all material respects, or
permitted extensions with respect thereto, (b) will timely pay all Taxes due and
payable with respect to such Post-Signing Returns, (c) will pay or otherwise
make adequate provision for all Taxes payable by Company and Company Subsidiary
for which no Post-Signing Return is due prior to the Effective Time, and (d)
will promptly notify Acquiror of any action, suit, proceeding, claim or audit
pending against or with respect to Company or any Company Subsidiary in respect
of any Taxes.
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SECTION 5.05 ACCESS AND INFORMATION
For so long as this Reorganization Agreement is in effect, and subject to
applicable Laws, Company shall, and shall cause each Company Subsidiary to, (a)
afford to Acquiror and its officers, employees, accountants, consultants, legal
counsel and other representatives reasonable access during normal business
hours, subject to reasonable advance notice, to all of their respective
properties, Agreements, books, records and personnel and (b) furnish promptly to
Acquiror (i) a copy of each Agreement, document, certificate or other instrument
filed with, or received from any Governmental Entity and (ii) all other
information concerning their respective businesses, operations, prospects,
conditions (financial or otherwise), Assets, liabilities and personnel as
Acquiror may reasonably request.
SECTION 5.06 NOTIFICATION FILING REQUIRED UNDER HSR ACT
If required, the Parties shall make good faith efforts to complete and file
without delay, and in any event within thirty (30) days after the date of this
Reorganization Agreement, any notification filing required under the HSR Act
with respect to the transactions contemplated by this Reorganization Agreement.
The Parties shall in good faith take (or fully cooperate in the taking of) all
actions, and provide any additional information that may be, required or
reasonably requested in order to comply with the requirements of the HSR Act. If
a notification filing is required under the HSR Act, Acquiror and the Company
shall each pay half of all filings fees in connection therewith.
SECTION 5.07 ACCESS TO COMPANY AND COMPANY SUBSIDIARY INFORMATION
From the date hereof and through the Closing Date, Company shall, and shall
cause each Company Subsidiary and its accountants, counsel, investment bankers,
financial advisors, consultants and other representatives, to provide Acquiror
and Acquiror's accountants, counsel, investment bankers, financial advisors,
consultants and other representatives, upon reasonable notice, access to, and
make available, all books, contracts, records, reports, properties and
commitments of Company and each Company Subsidiary, including, without
limitation, Company's and each Company Subsidiary's tax returns and financial
statements, for Acquiror's use in connection with Acquiror's financing.
SECTION 5.08 EXON-FLORIO NOTICE; MITIGATION OF FOCI
(a) Acquiror promptly shall use reasonable, best efforts to obtain
confirmation from the staff of the Committee on Foreign Investment in the United
States ("CFIUS") that the Merger does not fall within the scope of transactions
for review under the "Exon-Florio" Amendment to the Defense Production Act, and,
if such confirmation is not obtained in a timely manner, Acquiror shall use its
reasonable, best efforts to prepare and file with CFIUS a notice under such
Amendment with respect to the Merger (the "Exon-Florio Notice") by February 15,
2000.
(b) If requested by any Governmental Entity in connection with its
consideration of the transactions contemplated by this Reorganization Agreement,
Acquiror shall agree to, and
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shall cause to be executed and delivered, reasonable Agreements or restrictions
designed to mitigate FOCI on Acquiror.
(c) Acquiror and Company shall use their respective reasonable, best
efforts, to obtain as soon as possible, and in any event prior to February 15,
2000, confirmation from the "Cognizant Agencies" (as such term is defined
herein) that they will not recommend that the Company's security clearances be
revoked, suspended or downgraded as a result of the Merger.
(d) For purposes of this Reorganization Agreement, the "Cognizant
Agencies" are: (i) the Defense Security Service of the Department of Defense;
(ii) the Chief, Counter Intelligence Acquisition Board of the Central
Intelligence Agency; (iii) the Chief, Security Policy Branch of the National
Reconnaissance Office; (iv) the Industrial Management Branch of the Federal
Bureau of Investigation; (v) the office in the National Security Agency
responsible for supervision of NISPOM compliance by contractors and
subcontractors of that Agency; and (vi) the office in the Drug Enforcement
Administration responsible for supervision of NISPOM compliance by contractors
and subcontractors of that Administration.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 SHAREHOLDER APPROVAL
Promptly after the date of this Reorganization Agreement, Company shall take all
additional action, if any, necessary in accordance with California Law and its
articles of incorporation and bylaws to secure the vote or consent of Company
Shareholders required by California Law to approve this Reorganization Agreement
and the transactions contemplated hereby. In all events, this Reorganization
Agreement shall be submitted to the Company Shareholders whether or not the
board of directors of the Company determines that this Reorganization Agreement
is no longer advisable and recommends that the Company Shareholders reject it.
SECTION 6.02 APPROPRIATE ACTION; CONSENTS; FILINGS
(a) Upon the terms and subject to the conditions set forth in this
Reorganization Agreement, the Parties shall use their reasonable best efforts to
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this
Reorganization Agreement as promptly as practicable, including without
limitation (i) executing and delivering any additional instruments necessary,
proper or advisable to consummate the transactions contemplated by, and to carry
out fully the purposes of, this Reorganization Agreement, (ii) obtaining from
any Governmental Entities any material Licenses required to be obtained or made
by Acquiror, or any of its Subsidiaries, or Company, or any Company Subsidiary,
in connection with the authorization, execution and delivery of this
Reorganization Agreement and the consummation of the transactions contemplated
herein, including, without limitation, the Merger, and (iii) making all
necessary filings, and thereafter making any other required submissions, with
respect to this Reorganization Agreement and the
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Merger required under (A) the HSR Act, (B) the Exon-Florio Amendment to the
Defense Production Act (if this transaction is determined by Acquiror to be
subject thereto) and the FOCI regulations of the Defense Security Service and
(C) any other applicable Law; PROVIDED that Acquiror and Company shall cooperate
with each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing Party and its advisors
prior to filing and discussing all reasonable additions, deletions or changes
suggested in connection therewith. Company and Acquiror shall furnish to each
other all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law in connection with
the transactions contemplated by this Reorganization Agreement.
(b) (i) Except as the Parties may otherwise agree, Company, each
Company Shareholder and Acquiror shall give (and, in the case of Company, shall
cause each Company Subsidiary to give, and, in the case of Acquiror, shall cause
its Subsidiaries to give) any notices to third parties, and use (and, in the
case of Company, shall cause each Company Subsidiary to use, and, in the case of
Acquiror, shall cause its Subsidiaries to use) their reasonable best efforts to
obtain any third-party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Reorganization
Agreement, (B) disclosed or required to be disclosed in the Company Disclosure
Letter or the Acquiror Disclosure Letter, as the case may be, or (C) required to
prevent a Company Material Adverse Effect or an Acquiror Material Adverse
Effect.
(ii) In the event that either Company, any Company Shareholder
or Acquiror shall fail to obtain any third-party consent, approval or waiver
described in Section 6.02(b)(i) of this Reorganization Agreement, such Party
shall use its reasonable best efforts, and shall take any such actions
reasonably requested by the other Parties, to minimize any adverse effect upon
Company or any Company Subsidiary and Acquiror or its Subsidiaries and their
respective businesses resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such consent, approval or
waiver.
(c) From the date of this Reorganization Agreement until the Effective
Time, Company, each Company Shareholder and Acquiror shall promptly notify each
other in writing of any pending or, to the knowledge of Company or any Company
Subsidiary or Acquiror or any one of its Subsidiaries, threatened action,
proceeding or investigation by any Governmental Entity or any other Person (i)
challenging or seeking damages in connection with the Merger or the conversion
of Company Common Stock into the Merger Consideration pursuant to the Merger or
the transactions contemplated hereunder or (ii) seeking to restrain or prohibit
the consummation of the Merger or the transaction contemplated hereunder or
otherwise limit the right of Acquiror or its Subsidiaries to own or operate all
or any portion of the businesses or Assets of Company or any Company Subsidiary.
Company and Acquiror shall cooperate with each other in defending any such
action, proceeding or investigation, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed.
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SECTION 6.03 DISCLOSURE
Prior to the Effective Time, each Party shall notify the other Parties
by written update to its respective Disclosure Letter of (i) any representation
or warranty made by it in connection with this Reorganization Agreement becoming
untrue or inaccurate, (ii) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would be likely to cause any condition to
the obligations of any Party to effect the Merger and the other transactions
contemplated by this Reorganization Agreement not to be satisfied or (iii) the
failure of Company, any Company Subsidiary, Acquiror or Acquiror Sub, as the
case may be, to comply with or satisfy any covenant, condition or Agreement to
be complied with or satisfied by it pursuant to this Reorganization Agreement
which would be likely to result in any condition to the obligations of any Party
to effect the Merger and the other transactions contemplated by this
Reorganization Agreement not to be satisfied; PROVIDED, HOWEVER, the delivery of
any notice pursuant to this Section 6.03(a) shall not cure any breach of any
representation or warranty requiring disclosure of such matter as of the date of
this Reorganization Agreement or otherwise limit or affect the rights and
remedies available hereunder to the Party receiving such notice.
SECTION 6.04 PUBLIC ANNOUNCEMENTS
Acquiror, Acquiror Sub and Company shall consult with each other before issuing
or making, and shall give each other the opportunity to review and comment upon,
any press release or other public statement with respect to the Merger and the
other transactions contemplated in this Reorganization Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by Law or any applicable listing
agreements.
SECTION 6.05 OBLIGATIONS OF ACQUIROR SUB
Acquiror shall take all action necessary to cause Acquiror Sub to perform its
obligations under this Reorganization Agreement and to consummate the Merger on
the terms and conditions set forth in this Reorganization Agreement.
SECTION 6.06 TRANSACTION EXPENSES
Except as set forth in Section 5.06 of this Reorganization Agreement (relating
to the payment of filing fees in connection with any notification filings under
the HSR Act), each Party to this Reorganization Agreement shall bear their own
expenses in connection herewith, including, without limitation, the fees of each
Party's respective legal counsel, financial advisors, accountants, brokers,
finders or investment bankers, but in no event shall such fees and expenses
(including, without limitation, the fees and expenses described in Section 3.28
of the Company Disclosure Letter) incurred by or on behalf of the Company exceed
$190,000 (the "Transaction Expenses"). In the event Acquiror or Acquiror Sub
shall pay any such expenses of Company or any Company Subsidiary following the
Closing, Acquiror or Acquiror Sub shall be entitled to offset any such expenses
an offset against the outstanding amount of principal and accrued but unpaid
interest under the Indemnification Promissory Note in the same manner as set
forth in
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Article IX of this Reorganization Agreement. In the event that the Transaction
Expenses are not paid prior to Closing, Acquiror agrees to promptly pay such
Transaction Expenses after Closing.
SECTION 6.07 KEY EMPLOYEES
Key Employees of the Company and any Company Subsidiary who continue to be
employed with the Surviving Corporation following the Merger, shall, during the
term of their employment, (i) be eligible to participate in Acquiror's incentive
compensation program, and will have the opportunity to participate in the
Acquiror's stock option plan, on terms consistent with similarly situated
employees of the Acquiror and its Affiliates and (ii) be entitled to receive a
portion of a $1,000,000 retention bonus pool which shall be payable upon terms
and conditions agreed upon by Acquiror and the Principal Stockholder, prior to
Closing.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
REORGANIZATION AGREEMENT
The respective obligations of each Party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by agreement of Acquiror and Company, in whole or in part, to the
extent permitted by applicable Law:
(a) SHAREHOLDER APPROVAL. This Reorganization Agreement and the Merger
shall have been approved and adopted by the requisite vote or consent of Company
Shareholders.
(b) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; PROVIDED, HOWEVER, that the Parties shall use their reasonable best
efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted; PROVIDED, FURTHER, that the failure to obtain a required
consent or approval of a Governmental Entity (other than that specified in
Section 7.01(c)) of this Reorganization Agreement shall not form the basis for
an assertion that this condition is not satisfied.
(c) HSR ACT. The applicable waiting period with respect to the Merger
and the other transactions contemplated hereby, together with any extensions
thereof, under the HSR Act shall have expired or been terminated.
(d) COMPANY SECURITIES. Except as set forth in the Company Disclosure
Letter, there shall be no other securities of Company outstanding that are
securities convertible into or exchangeable for Company Common Stock or any
other equity securities of Company and no
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outstanding options, rights (preemptive or otherwise), or warrants to purchase
or to subscribe for any shares of such stock or other equity securities of
Company.
(e) EXON-FLORIO; COGNIZANT AGENCY CONFIRMATION. (i) If an Exon-Florio
Notice shall have been filed as provided in Section 5.10(a), the thirty (30) day
notice period shall have expired or been earlier terminated without a
recommendation by CFIUS that a formal investigation of the Merger be commenced;
or (ii) if an Exon-Florio Notice shall not have been filed as provided in
Section 5.10(a), confirmation shall have been obtained from the Cognizant
Agencies that they will not recommend that the Company's security clearances be
revoked, suspended or downgraded as a result of the Merger, PROVIDED that if all
such confirmations are not obtained by February 15, 2000, Acquiror shall
consider, in good faith, whether to waive this condition with respect to
agencies with which the Company has contracts or subcontracts that Acquiror does
not consider to be material to the business of the Company.
SECTION 7.02 Additional Conditions to Obligations of Acquiror and Acquiror Sub
The obligations of Acquiror and Acquiror Sub to effect the Merger and the other
transactions contemplated in this Reorganization Agreement are also subject to
the satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived by Acquiror, in whole or in part, to the
extent permitted by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Company contained in this Reorganization Agreement shall be true
and correct as of the date of this Reorganization Agreement and shall be true
and correct (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Effective Time
as though made as of the Effective Time, except for (i) representations and
warranties which address matters only as of a particular date, which
representations and warranties shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of such date and (ii)
changes permitted by or consistent with this Reorganization Agreement. Acquiror
shall have received a certificate of the chief executive officer or chief
financial officer of Company to the foregoing effect.
(b) AGREEMENTS AND COVENANTS. Company shall have performed or complied
in all respects with all Agreements and covenants required by this
Reorganization Agreement to be performed or complied with by Company on or prior
to the Effective Time. Acquiror shall have received a certificate of the chief
executive officer or chief financial officer of Company (as to Company) to that
effect.
(c) OPINION OF COUNSEL. Acquiror shall have received from Rosenberg,
Herfel, Stethem & Bender, LLP, counsel to Company, an opinion dated the Closing
Date, which is reasonable and customary for transactions of the type
contemplated by this Reorganization Agreement.
(d) NO CHALLENGE. There shall not be pending any enforcement action or
similar proceeding by any state or federal Governmental Entity that is likely to
have a Company Material
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Adverse Effect or, if such action arises in connection with the transactions
contemplated hereby, an Acquiror Material Adverse Effect. Acquiror shall have
received a certificate of the chief executive officer or chief financial officer
of Company to the foregoing effect.
(e) COMPANY MATERIAL ADVERSE EFFECT. Since June 30, 1999, there shall
not have occurred a Company Material Adverse Effect (or any development that,
insofar as reasonably can be foreseen, is reasonably likely to result in any
Company Material Adverse Effect) not disclosed in the Company Disclosure Letter
as of the date hereof. Acquiror shall have received a certificate of the chief
executive officer or chief financial officer of Company to the foregoing effect.
(f) CONSENTS: Company and Company Subsidiary shall have procured all
consents of third-parties and Governmental Entities specified in Section 3.06 of
the Company Disclosure Letter. Acquiror shall have received a certificate of the
chief executive officer or chief financial officer of Company to the foregoing
effect.
(g) ESTIMATE OF CASH ADJUSTMENT AS OF CLOSING DATE. Acquiror shall have
received from Company five (5) days prior to the Closing Date an estimate of the
Cash Adjustment of the Company estimated as of the Closing Date and prepared on
a good faith basis. The Parties acknowledge and agree that the amounts set forth
on such estimate shall be used in computing the Adjusted Merger Amount.
(h) INDEMNIFICATION PROMISSORY NOTE. Acquiror shall have delivered to
the Company Shareholders a promissory note in substantially the form attached
hereto as EXHIBIT C (the "Indemnification Promissory Note").
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY
The obligations of Company to effect the Merger and the other transactions
contemplated by this Reorganization Agreement are also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived by Company, in whole or in part, to the extent
permitted by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Acquiror and Acquiror Sub contained in this Reorganization
Agreement shall be true and correct as of the date of this Reorganization
Agreement and shall be true and correct (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) as of the Effective Time as though made as of the Effective Time,
except for (i) representations and warranties which address matters only as of a
particular date, which representations and warranties shall be true and correct
in all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of such date
and (ii) changes permitted by or consistent with this Reorganization Agreement.
Company shall have received a certificate of the chief executive officer or
chief financial officer of Acquiror to the foregoing effect.
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(b) AGREEMENTS AND COVENANTS. Acquiror and Acquiror Sub shall have
performed or complied in all respects with all Agreements and covenants required
by this Reorganization Agreement to be performed or complied with by them on or
prior to the Effective Time except for such noncompliance that does not have an
Acquiror Material Adverse Effect. Company shall have received a certificate of
the chief executive officer or chief financial officer of Acquiror and Acquiror
Sub to that effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 TERMINATION
This Reorganization Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Reorganization Agreement and the Merger by Company
Shareholders:
(a) by mutual written consent of Acquiror and Company;
(b) (i) by Acquiror, if any of the conditions provided in Section 7.02
have not been met and such failure has not been cured within twenty (20)
business days following receipt by Company of written notice of such failure
describing the extent and nature thereof in reasonable detail, or to the extent
permitted by applicable law, such conditions have not been waived in writing by
Acquiror;
(ii) by Company and the Company Shareholder, if any of the
conditions provided in Section 7.03 have not been met and such failure has
not been cured within twenty (20) business days following receipt by Acquiror
of written notice of such failure describing the extent and nature thereof in
reasonable detail, or, to the extent permitted by applicable law, such
conditions have not been waived in writing by Company and the Company
Shareholder.
(c) by either Acquiror or Company and the Company Shareholder if any
decree, permanent injunction, judgment, order or other action by any court of
competent jurisdiction or any other federal or state (but not county or
municipal) Governmental Entity preventing or prohibiting consummation of the
Merger shall have been filed or in effect;
(d) by either Acquiror or Company if the Merger shall not have been
consummated by the earlier to occur of the Scheduled Closing Date or April 15,
2000; PROVIDED HOWEVER, that the right to terminate this Reorganization
Agreement under this Section 8.01(d) shall not be available to (i) Acquiror,
where Acquiror's failure to fulfill any obligation under this Reorganization
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, or (ii) Company, where Company's or any
Company Shareholder's failure to fulfill any obligation under this
Reorganization Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date;
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(e) by either Acquiror, or Company and the Company Shareholders, if any
of the conditions provided in Section 7.01 have not been met, or to the extent
permitted by applicable law, have not been waived by both Parties.
SECTION 8.02 EFFECT OF TERMINATION
In the event of termination of this Reorganization Agreement by either Acquiror
or Company as provided in Section 8.01 of this Reorganization Agreement, this
Reorganization Agreement shall forthwith become void and there shall be no
liability or obligation on the part of the Company Shareholder, Acquiror,
Acquiror Sub or Company or any of their respective directors or officers except
(i) nothing herein shall relieve any Party from liability for any breach hereof,
(ii) each Party shall be entitled to any remedies at law or in equity for such
breach and (iii) Sections 6.08 and 8.02 and Article IX of this Reorganization
Agreement shall remain in full force and effect and survive any termination of
this Reorganization Agreement.
SECTION 8.03 [INTENTIONALLY OMITTED]
SECTION 8.04 AMENDMENT
Subject to applicable Law, this Reorganization Agreement may be amended by the
Parties at any time prior to the Effective Time. This Reorganization Agreement
may not be amended except by an instrument in writing signed by the Parties.
SECTION 8.05 EXTENSION; WAIVER
At any time prior to the Effective Time, the Parties may (a) extend the time for
the performance of any of the obligations or other acts of the other Parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any Agreements, documents, certificates or other instruments
delivered pursuant hereto and (c) waive compliance with any of the Agreements or
conditions contained in this Reorganization Agreement. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
Party or Parties to be bound thereby. The failure of any Party to assert any of
its rights under this Reorganization Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; REMEDIES
SECTION 9.01 SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants, indemnities and other agreements
made by any party to this Reorganization Agreement herein, shall be deemed made
on and as of the Effective Time as though such representations, warranties,
covenants, indemnities and other agreements were
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made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall survive for a period of
twelve (12) months after the Effective Time; PROVIDED, HOWEVER, that the
representations set forth in Section 3.05 (Authority; Binding Obligation),
Section 3.15 (Pension and Benefit Plans), Section 3.16 (Taxes and Tax Matters)
and Section 3.24 (Environmental Matters) shall survive until the expiration of
the applicable statute of limitations. Notwithstanding anything herein to the
contrary, any representation, warranty, covenant, agreement or indemnity which
is the subject of a claim which is asserted in writing prior to the expiration
of the applicable period set forth above shall survive solely with respect to
such claim until the final resolution thereof.
SECTION 9.02 INDEMNIFICATION BY PRINCIPAL SHAREHOLDER; RIGHT TO OFFSET
(a) The Principal Shareholder (and the other Company Shareholders only
to the extent of their interest in the Indemnification Promissory Note) hereby
agrees indemnify, defend and hold Acquiror, the Surviving Corporation and their
respective officers and directors, and each person, if any, who controls or may
control Acquiror or the Surviving Corporation within the meaning of the
Securities Act (all such persons hereinafter are referred to individually as an
"Acquiror Indemnified Person" and collectively as "Acquiror Indemnified
Persons," but in no event shall any Shareholder of the Company prior to the
Effective Time be such an Acquiror Indemnified Person) harmless against all
Losses resulting from, imposed upon or incurred by any Acquiror Indemnified
Person, directly or indirectly, as a result of any of the following, anything in
this Reorganization Agreement to the contrary notwithstanding:
(i) any inaccuracy or breach of a representation or warranty
of the Company given or made by the Company in this Reorganization Agreement, in
the Agreement of Merger or in the Company Disclosure Letter or in any
certificate, document or agreement delivered by or on behalf of the Company
pursuant hereto; and
(ii) any failure by the Company to perform or comply with any
covenant or agreement contained in this Reorganization Agreement, in the
Agreement of Merger or in the Company Disclosure Letter or in any certificate,
document or agreement delivered by or on behalf of the Company pursuant hereto.
(b) Notwithstanding anything in this Reorganization Agreement to the
contrary, the Principal Shareholder shall not be responsible for any Loss
pursuant to this Section 9.02 unless and until the aggregate amount of all of
such Losses shall exceed $100,000, in which case the Principal Shareholder shall
be liable for the entire Loss including the $100,000. In the event, from time to
time, any Acquiror Indemnified Person determines that it has suffered a Loss for
which indemnification is available pursuant to this Article IX, the following
procedure shall be followed:
(i) Acquiror Indemnified Person shall give written notice of
any such claim (a "Loss Notice") to the Shareholder Representative specifying in
reasonable detail the amount of the claimed Loss (the "Loss Amount") and the
basis for such Loss and that the Acquiror intends to offset against the
aggregate outstanding amount of principal and accrued but unpaid interest under
the Indemnification Promissory Note the amount of any such Loss.
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(ii) Within twenty (20) days after delivery of a Loss Notice,
the Shareholder Representative shall provide to Acquiror and the Acquiror
Indemnified Person (if not the same Person), a written response (a "Response
Notice") in which the Shareholder Representative will (i) agree that an offset
in the full Loss Amount may be made against the Indemnification Promissory Note,
(ii) agree that an offset in an amount equal to part, but not all, of the Loss
Amount (the "Agreed Amount") may be made against the Indemnification Promissory
Note or (iii) contest making any offset against the Indemnification Promissory
Note. The Shareholder Representative may contest an offset against the
Indemnification Promissory Note upon a good faith belief that all or such
portion of such offset does not constitute a Loss for which the Acquiror
Indemnified Person is entitled to indemnification under this Article IX. If no
Response Notice is delivered by the Shareholder Representative within such
twenty (20) day period, the Principal Shareholder shall be deemed to have agreed
that an offset in the full Loss Amount may be made against the Indemnification
Promissory Note.
(iii) If the Shareholder Representative in the Response Notice
agrees (or is deemed to have agreed) that an offset may be made against the
Indemnification Promissory Note in an amount equal to the Loss Amount, the
Acquiror may, promptly following the earlier of the required delivery date of
the Response Notice or the delivery of the Response Notice, cause an offset in
the amount of the Loss Amount to be made to the Indemnification Promissory Note.
(iv) If the Shareholder Representative in the Response Notice
agrees that an offset in an amount equal to part, but not all, of the Loss
Amount (the "Agreed Amount") may be made against the Indemnification Promissory
Note, the Acquiror may, promptly following the earlier of the required delivery
date of the Response Notice or the delivery of the Response Notice, cause an
offset in the amount of the Agreed Amount to be made to the Indemnification
Promissory Note.
(v) If the Shareholder Representative in the Response Notice
contests an offset against the Indemnification Promissory Note equal to all or
any part of the Loss Amount (the "Contested Amount"), the Acquiror Indemnified
Person and the Shareholder Representative shall negotiate in good faith to
resolve any such dispute. If any such dispute cannot be resolved within fifteen
(15) days after the receipt by the Acquiror of the Response Notice, the Acquiror
Indemnified Person and the Shareholder Representative shall submit the matter to
the Los Angeles, CA office of the American Arbitration Association ("AAA") for
binding arbitration to be conducted in accordance with the AAA commercial
arbitration rules in effect at the time such matter is submitted. If any such
matter is submitted to the AAA as provided herein, (A) each of the Acquiror
Indemnified Person and the Shareholder Representative will furnish to AAA such
workpapers and other documents and information as AAA may request and will be
afforded the opportunity to present to AAA any material relevant to the matter,
(B) the determination by AAA, as set forth in a notice delivered to the Acquiror
Indemnified Person and the Shareholder Representative by AAA, will be binding
and conclusive on such parties and (iii) the Acquiror Indemnified Person and the
Principal Shareholder will each bear fifty percent (50%) of the fees of the AAA
for such determination.
(c) The indemnity obligations of the Principal Shareholder (and the
other Company Shareholders) under this Article IX shall first be satisfied
through the exercise by the Acquiror of the right of offset against the
aggregate outstanding amount of principal and accrued but unpaid
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interest under the Indemnification Promissory Note. The principal amount and
accrued but unpaid interest under the Indemnification Promissory Note shall
in no way be deemed to be a limitation on the recourse available to any Acquiror
Indemnified Person for the indemnification obligations of the Principal
Shareholder hereunder. Following its exhaustion of its offset rights as set
forth above, Acquiror shall have the right to enforce the indemnity obligations
of the Principal Shareholder under this Article IX through an action in a court
of competent jurisdiction.
(d) The exercise of such right of offset by Acquiror in good faith,
whether or not ultimately determined to be justified, will not constitute a
breach of this Reorganization Agreement. Neither the exercise of nor the failure
to exercise such right of offset will constitute an election of remedies or
limit Acquiror in any manner in the enforcement of any other remedies available
to Acquiror.
(e) No Acquiror Indemnified Person shall be entitled to recover any
special, consequential or exemplary damages under this Section 9.02 or any
damages based on an adverse effect on Acquirer's stock price. The amount of any
Loss shall be reduced to the extent that the Acquiror Indemnified Person
receives any insurance proceeds with respect to a Loss.
SECTION 9.03 THIRD PARTY CLAIMS.
The obligations and liabilities of the Principal Shareholders with respect to
their respective indemnities pursuant to this Article IX, resulting from any
Third Party Claim shall be subject to the following terms and conditions:
(a) The party seeking indemnification (the "Indemnified Party") must
give the party obligated to indemnify (the "Indemnifying Party"), notice of any
Third Party Claim which is asserted against, resulting to, imposed upon or
incurred by the Indemnified Party and which may give rise to liability of the
Indemnifying Party pursuant to this Article IX, stating (to the extent known or
reasonably anticipated) the nature and basis of such Third Party Claim and the
amount thereof; PROVIDED that the failure to give such notice shall not affect
the rights of the Indemnified Party hereunder except to the extent (i) that the
Indemnifying Party shall have suffered actual damage by reason of such failure,
or (ii) such failure or delay materially adversely affects the ability of the
Indemnifying Party to defend, settle or compromise such Third Party Claim.
(b) Subject to Section 9.03(c) below, if the Indemnifying Party assumes
responsibility for Losses arising out of such Third Party Claim, then the
Indemnifying Party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense of such Third Party Claim at
the Indemnifying Party's risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect not to
undertake such defense, (ii) within a reasonable time after notice from the
Indemnified Party of any such Third Party Claim, the Indemnifying Party shall
fail to undertake to defend such Third Party Claim, or (iii) there is a
reasonable probability that such Third Party Claim may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the
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Indemnifying Party. In the event that the Indemnified Party undertakes the
defense of a Third Party Claim under this Section 9.03, the Indemnifying Party
shall pay to the Indemnified Party, in addition to the other sums required to be
paid hereunder, the reasonable costs and expenses incurred by the Indemnified
Party in connection with such defense, compromise or settlement as and when such
costs and expenses are so incurred.
(d) Anything in this Section 9.03 to the contrary notwithstanding, (i)
neither the Indemnified Party nor the Indemnifying Party shall, without the
other party's written consent (which consent shall not be unreasonably withheld
or delayed), settle or compromise such Third Party Claim or consent to entry of
any judgment which does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Third Party Claim in form and substance
satisfactory to the Indemnified Party; (ii) in the event that a party hereto
undertakes defense of such Third Party Claim in accordance with this Section
9.03, the other parties, by counsel or other representative of their own
choosing and at their sole cost and expense, shall have the right to participate
in the defense, compromise or settlement thereof and each party and its counsel
and other representatives shall cooperate with the other party and its counsel
and representatives in connection therewith; and (iii) the party that undertakes
the defense of such Third Party Claim in accordance with this Section 9.03 shall
have an obligation to keep the other parties informed of the status of the
defense of such Third Party Claim and furnish the other parties with all
documents, instruments and information that the other parties shall reasonably
request in connection therewith.
SECTION 9.04 NO RECOURSE AGAINST THE COMPANY
The Company Shareholders including, without limitation, the Principal
Shareholders, each hereby irrevocably waives any and all right to recourse
against the Company and the Surviving Corporation with respect to any
misrepresentation or breach of any representation, warranty or indemnity, or
noncompliance with any conditions or covenants, given or made by the Company in
this Reorganization Agreement or any other agreements and documents executed or
to be executed by the Parties hereto in order to consummate the transactions
contemplated by this Reorganization Agreement. No Company Shareholder,
including, without limitation, the Principal Shareholder, shall be entitled to
contribution from, subrogation to or recovery against the Company or the
Surviving Corporation with respect to any liability of any Company Shareholder,
including, without limitation, the Principal Shareholder, that may arise under
or pursuant to this Reorganization Agreement or any of the other agreements and
documents executed or to be executed by the Parties hereto in order to
consummate the transactions contemplated by this Reorganization Agreement or
such other agreements and documents contemplated hereby.
SECTION 9.05 REMEDIES CUMULATIVE
Subject to the limitations and qualifications set forth in this Article IX, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by the parties hereto of any other rights or the seeking of any other
remedies against the other parties, or their respective successors or assigns.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NOTICES
All notices and other communications given or made pursuant hereto shall be in
writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the Parties at the following
addresses or sent by electronic transmission to the following facsimile numbers
(or at such other address or facsimile number for a Party as shall be specified
by like notice):
(a) If to Acquiror or Acquiror Sub:
The Titan Corporation
3033 Science Park Road
San Diego, California 92121
Facsimile: (619) 552-9759
Attention: Nicholas J. Costanza, Esq.,
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive, Suite 1100
McLean, Virginia 22102
Facsimile: (703) 610-6200
Attention: Richard K.A. Becker, Esq.
(b) If to Company or the Principal Shareholder:
William C. Lindsey, Inc.
5110 Goldleaf Circle, Ste. 250
Los Angeles, California 90056
Facsimile: (323) 293-3063
Attention: Dr. William C. Lindsey
With a copy (which shall not constitute notice) to:
Rosenberg, Herfel, Stethem & Bender, LLP
600 Vine Street, Suite 1800
Cinncinatti, Ohio 45202
Facsimile: (513) 763-7694
Attention: James H. Stethem, Esq.
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With a copy (which shall not constitute notice) to:
Law Office of Morton C. Devor
12400 Wilshire Blvd., Ste 1455
Los Angeles, CA 90025
Facsimile: (310) 207-8339
Attention: Morton C. Devor, Esq.
(c) If to Shareholders' Representative:
Dr. William C. Lindsey
1430 Mariana Drive
Pasadena, CA 91105
SECTION 10.02 HEADINGS
The headings contained in this Reorganization Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Reorganization Agreement.
SECTION 10.03 SEVERABILITY
If any term or other provision of this Reorganization Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Reorganization Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Reorganization Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 10.04 ENTIRE AGREEMENT
This Reorganization Agreement (together with the Exhibits, Schedules, the
Company Disclosure Letter and the Acquiror Disclosure Letter and the other
documents delivered pursuant hereto) constitute the entire agreement of the
Parties and supersede all prior agreements and undertakings, both written and
oral, among the Parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein, are not intended to
confer upon any other Person any rights or remedies hereunder.
SECTION 10.05 ASSIGNMENT
Neither this Reorganization Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties hereto (whether by
operation of Law or otherwise) without the prior written consent of the other
Parties; PROVIDED, HOWEVER, that Acquiror and Acquiror Sub shall have the right
to assign this Reorganization Agreement without the prior written consent of
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the Company to a direct or indirect Subsidiary of the Acquiror, but no such
assignment shall relieve Acquiror or Acquiror Sub, as the case may be, of its
obligations hereunder. Subject to the preceding sentence, this Reorganization
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Parties and their respective successors and assigns.
SECTION 10.06 PARTIES IN INTEREST
This Reorganization Agreement shall be binding upon and inure solely to the
benefit of each Party, and nothing in this Reorganization Agreement, express or
implied, other than the right to receive the Merger Consideration pursuant to
Article II of this Reorganization Agreement and the rights of the Acquiror
Indemnified Person pursuant to Article IX, is intended to or shall confer upon
any other Person any right, benefit or remedy of any nature whatsoever under or
by reason of this Reorganization Agreement.
SECTION 10.07 MUTUAL DRAFTING
Each Party has participated in the drafting of this Reorganization Agreement,
which each Party acknowledges is the result of extensive negotiations between
the Parties. Consequently, this Reorganization Agreement shall be interpreted
without reference to any rule or precept of law that states that any ambiguity
in a document be construed against the drafter.
SECTION 10.08 GOVERNING LAW
This Reorganization Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Delaware, regardless of the Laws that might
otherwise govern under applicable principles of conflicts of law; PROVIDED,
HOWEVER, the provisions of this Reorganization Agreement relating to the Merger
shall be governed by California Law.
SECTION 10.09 COUNTERPARTS
This Reorganization Agreement may be executed and delivered in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
SECTION 10.10 SINGULAR AND PLURAL
Any reference in this Reorganization Agreement to the singular includes a
reference to the plural and VICE VERSA.
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ARTICLE XI
DEFINITIONS
For purposes of this Reorganization Agreement, the following terms, and
the singular and plural thereof, shall have the meanings set forth below:
"Acquiror" is defined in the Preamble to this Reorganization Agreement.
"Acquiror Audited Balance Sheet" is defined in Section 4.07(a) of this
Reorganization Agreement.
"Acquiror Financial Statement" is defined in Section 4.07(a) of this
Reorganization Agreement.
"Acquiror Disclosure Letter" is defined in Article IV of this
Reorganization Agreement.
"Acquiror Material Adverse Effect" means any event, change or effect
that, individually or when taken together with any related events, is or is
reasonably likely to be materially adverse to the business, operations,
condition (financial or otherwise), Assets or liabilities of Acquiror and its
Subsidiaries, taken as a whole.
"Acquiror Sub" is defined in the Preamble to this Reorganization
Agreement.
"Adjusted Merger Consideration" means an amount equal to (a) the
Adjusted Merger Amount, MINUS (b) the Holdback Consideration, MINUS (c) the
principal amount of the Indemnification Promissory Note.
"Adjusted Merger Amount" means an amount equal to (a) Twenty Three
Million Dollars ($23,000,000), MINUS (or, PLUS) (b) the Cash Adjustment. For
purposes of computing the Adjusted Merger Amount, the Cash Adjustment, shall be
determined by reference to the estimate to be delivered to the Acquiror pursuant
to Section 7.02(g) of this Reorganization Agreement.
"Affiliate" means: (a) with respect to an individual, any member of
such individual's family; (b) with respect to an entity, any officer, director,
Shareholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a Person, any Person which directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with such Person or entity.
"Agreement" means any agreement between or among two or more Persons
with respect to their relative rights and/or obligations or with respect to a
thing done or to be done, including, without limitation, agreements denominated
as contracts, leases, promissory notes, covenants, easements, rights of way,
commitments, arrangements and understandings.
"Agreement of Merger" is defined in Section 1.02 of this Reorganization
Agreement.
"Assets" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
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"business day" means a day other than a Saturday, a Sunday or any other
day on which commercial banks in the Commonwealth of Virginia are authorized or
obligated to be closed.
"California Law" is defined in the Preamble to this Reorganization
Agreement.
"Cash Consideration" is defined in Section 2.02(a)(i) of this
Reorganization Agreement.
"Certificate" is defined in Section 2.02(b) of this Reorganization
Agreement.
"Closing Adjustment" is defined in Section 2.05(b) of this
Reorganization Agreement.
"Closing Date" is defined in Section 1.02 of this Reorganization
Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Cognizant Agencies" is defined in Section 5.10(d) of this
Reorganization Agreement.
"Company" is defined in the Preamble to this Reorganization Agreement.
"Company Balance Sheet" is defined in Section 3.08(a) of this
Reorganization Agreement.
"Company Benefit Plans" means all "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, whether or not terminated, and trust
agreements and insurance contracts under or with respect to which Company or
Company Subsidiary has or could have any liability, contingent, secondary or
otherwise.
"Company Common Stock" is defined in Section 3.04 of this
Reorganization Agreement.
"Company Contracts" is defined in Section 3.12 of this Reorganization
Agreement.
"Company Disclosure Letter" is defined in Article III of this
Reorganization Agreement.
"Company Dissenting Shareholder" is defined in Section 2.02(d) of this
Reorganization Agreement.
"Company Financial Statement" is defined in Section 3.08(a) of this
Reorganization Agreement.
"Company Material Adverse Effect" means any event, change or effect
that, individually or when taken together with any related events, is or is
reasonably likely to be materially adverse to the business, operations,
condition (financial or otherwise), Assets or liabilities of the Company and any
Company Subsidiaries, taken as a whole.
"Company Pension Plan" means any Company Benefit Plans that is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA.
"Company Shareholders" is defined in the Preamble to this
Reorganization Agreement.
"Company Stock Plan" means any Company Benefit Plan pursuant to which
Company is or may become obligated to, or obligated to cause Company Subsidiary
or any other Person to, issue, deliver or sell shares of capital stock of
Company or Company Subsidiary, or grant, extend
47
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or enter into any option, warrant, call, right, commitment or agreement to
issue, deliver or sell shares, or any other interest in respect of capital
stock of Company or Company Subsidiary.
"Company Subsidiary" means any Subsidiary of Company.
"Company Tax Returns" means all Tax Returns required to be filed by
Company or any of Company Subsidiary (without regard to extensions of time
permitted by law or otherwise).
"Competing Transactions" is defined in Section 6.07(d) of this
Reorganization Agreement.
"Control" (including the terms "Controlled by" and "under common
Control with") means, as used with respect to any Person, possession of power
(directly or indirectly or as a trustee or executor) to direct or cause the
direction of management or policies of such Person (whether through ownership of
voting securities, as trustee or executor, by Agreement or otherwise).
"Effective Time" is defined in Section 1.02 of this Reorganization
Agreement.
"Encumbrance" means any mortgage, lien, pledge, encumbrance, security
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, Agreement, claim or equity of any
kind.
"Environmental Laws" means any federal, state or local Law relating to
public health or safety, worker health or safety, or pollution, damage to or
protection of the environment including, without limitation, Laws relating to
emissions, discharges, releases or threatened release of Hazardous Materials
into the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, generation,
disposal, transport or handling of any Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Exon-Florio Notice" is defined in Section 5.10(a) of this
Reorganization Agreement.
"GAAP" means United States generally accepted accounting principles.
"Government Property" means property or equipment in the possession of
or directly acquired by a Governmental Entity and subsequently made available to
the Company or any Company Subsidiary or any other property or equipment
otherwise acquired by the Company or any Company Subsidiary to which a
Governmental Entity has title.
"Governmental Entities" (including the term "Governmental") means any
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"Hazardous Material" means (i) any "hazardous substance" as now
defined pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601(14); (ii) any "pollutant or
contaminant" as defined in 42 U.S.C. Section 9601(33); (iii) any material now
defined as "hazardous waste" pursuant to 40 C.F.R. Part 261; (iv) any
petroleum,
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including crude oil and any fraction thereof; (v) natural synthetic gas usable
for fuel; (vi) any "hazardous chemical" as defined pursuant to 29 C.F.R. Part
1910; and (vii) any asbestos, polychlorinated biphenyl ("PCB"), radium, or
isomer of dioxin, or any material or thing containing or composed of such
substance or substances.
"Holdback Consideration" is defined in Section 2.02(a)(ii) of this
Reorganization Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Indemnification Promissory Note" is defined in Section 7.01(f) of this
Reorganization Agreement.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
all patent disclosures, industrial designs, utility models and all patents and
patent applications, together with all reissuances, continuations,
continuations-in-part, divisions, revisions, extensions, renewals and
reexaminations thereof, (b) all trademarks, service marks, trade dress, domain
names, web site addresses, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all registered and
unregistered copyrights, all rights to database information, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, software, databases, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all rights,
including rights of privacy and publicity, to use the names, likenesses and
other personal characteristics of any individual, and (g) other proprietary
rights and (h) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world (including all computer software and
related data and documentation).
"Inventory" means all new materials, work in progress, finished goods
and inventorable supplies.
"Key Employees" means the employees identified by the Company and
agreed in writing by Acquiror prior to Closing..
"knowledge" will be deemed to be present with respect to Company and
each Company Subsidiary when the matter in question is known, or upon reasonable
investigation, should have been known, to the Company or any Company Subsidiary.
"Laws" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, tariffs, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified Person and to the
businesses and Assets thereof (including, without limitation, Laws relating to
the protection of classified information; the sale, leasing, ownership or
management of real property;
49
<PAGE>
employment practices, terms and conditions, and wages and hours; building
standards, land use and zoning; safety, health and fire prevention; and
environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff,
permit, easement, variance, exemption, consent, certificate, approval or order
of any Governmental Entity.
"Losses" means all demands, losses, claims, actions or causes of
action, assessments, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties and reasonable attorneys' fees and
disbursements.
"Merger" is defined in the Preamble to this Reorganization Agreement.
"Merger Consideration" is defined in Section 2.02(b)(ii) of this
Reorganization Agreement.
"Multiemployer Plan" means any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA to which Company or Company Subsidiary
contribute, have an obligation to contribute, or have at any time since
September 2, 1974, contributed or been obligated to contribute.
"Ordinary Course of Business" means ordinary course of business
consistent with past practices and reasonable business operations.
"Party" and "Parties" are defined in the Preamble to this
Reorganization Agreement.
"Permitted Encumbrance" means (i) easements, rights of way, minor
irregularities of title, and liens for taxes not yet due and payable, (ii)
landlord, warehouse and materialmen's liens and (ii) other Encumbrances similar
to clauses (i) and (ii); provided, however, that any or all of the foregoing do
not materially affect the utility or value of the Assets or other matters to
which they relate.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or other
entity, or a Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written,
that is or was an "employee benefit plan" as such term is defined in Section
3(3) of ERISA and (a) which was or is established or maintained by Company or
Company Subsidiary; (b) to which Company or Company Subsidiary contributed or
was obligated to contribute or to fund or provide benefits; or (c) which
provides or promises benefits to any person who performs or who has performed
services for Company or Company Subsidiary and because of those services is or
has been (i) a participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.04 of this
Reorganization Agreement.
"Principal Shareholder" as defined in the Preamble to this
Reorganization Agreement.
"Scheduled Closing Date" is defined in Section 2.07 of this
Reorganization Agreement.
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"Shareholders' Representative" is defined in Section 2.05(c) of this
Reorganization Agreement.
"Subsidiary" means a corporation, partnership, joint venture or other
entity of which any Person owns, directly or indirectly, at least fifty percent
(50%) of the outstanding securities or other interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body or otherwise exercise control of such entity.
"Surviving Corporation" is defined in Section 1.01 of this
Reorganization Agreement.
"Taxes" (including the terms "Tax" and "Taxing") means all federal,
state, local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, real property, personal property, AD VALOREM, excise,
employment, social security and wage withholding taxes) and installments of
estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration fees, withholdings, or other similar charges of every kind,
character or description imposed by any Governmental Entity, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
"Tax Liabilities" means any action, suit, proceeding, audit,
investigation or claim pending or threatened in respect of any Taxes for which
Company or any Company Subsidiary is or may become liable, or any deficiency or
claim for any such Taxes that has been to Company's knowledge proposed, asserted
or threatened.
"Tax Returns" means all federal, state, local, foreign and other
applicable returns, declarations, reports and information statements with
respect to Taxes required to be filed with the United States Internal Revenue
Service, and its successors, or any other Governmental Entity or Tax authority
or agency, including, without limitation, consolidated, combined and unitary tax
returns.
"Third Party Claim" means any claim or other assertion of liability by
any third party.
"Transaction Expenses" is defined in Section 6.08 of this
Reorganization Agreement.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
those terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Year 2000 Compliant" means that the Information Technology will
accurately receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
20th and 21st centuries, including the years 1999 and 2000, and leap-year
calculations.
[Remainder of Page Intentionally Left Blank; Signature Page Follows.]
51
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IN WITNESS WHEREOF, the Parties have executed and delivered, or have caused this
Reorganization Agreement to be duly executed and delivered, as of the date first
set forth hereinabove.
THE TITAN CORPORATION
By:
--------------------------------
Mellon C. Baird
Senior Vice President
M T ACQUISITION CORP.
By:
--------------------------------
Mellon C. Baird
Senior Vice President
WILLIAM C. LINDSEY, INC.
By:
--------------------------------
Dr. William C. Lindsey
Chairman of the Board and
Chief Executive Officer
PRINCIPAL SHAREHOLDER:
------------------------------------
Dr. William C. Lindsey
The undersigned hereby acknowledges his appointment as the Shareholders'
Representative hereunder and his willingness to fulfill the duties of the
Shareholders' Representative as contemplated by this Reorganization Agreement.
------------------------------------
Dr. William C. Lindsey
52
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EXHIBIT A
[OMITTED]
<PAGE>
EXHIBIT B
SHAREHOLDERS OF COMPANY
(SEE ATTACHED)
<PAGE>
EXHIBIT C
FORM OF
INDEMNIFICATION PROMISSORY NOTE
THIS PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
UNDER ANY STATE SECURITIES LAWS (THE "STATE ACTS") AND CANNOT BE
OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION
UNDER THE ACT, THE STATE ACTS AND REGULATIONS PROMULGATED THEREUNDER
$______________ ___________, 2000
FOR VALUE RECEIVED, THE TITAN CORPORATION, a Delaware corporation (the
"Maker"), agrees and promises to pay to __________ (individually and
collectively, the "Holder"), at _________________, or at such other place as the
Holder of this Note may from time to time designate, the amount of TWO MILLION
DOLLARS ($2,000,000), together with interest at a rate per annum equal to seven
percent (7%), with the entire unpaid principal amount (together with accrued
interest thereon) to be due and payable in a single payment on ____________,
2001 [12 months following execution]; PROVIDED, HOWEVER, that no Contested
Amount as defined in that certain Agreement of Reorganization by and among the
Maker, M T Acquisition Corp., a California corporation, William C. Lindsey,
Inc., a California corporation, and William C. Lindsey, an individual, dated as
of January 28, 2000 (the "Reorganization Agreement") shall be due and payable
until the amount thereof is resolved pursuant to Article IX of the
Reorganization Agreement. All payments hereunder shall be made in lawful money
of the United States of America, and shall be subject to the offset provisions
described herein.
Maker shall have the right to offset, from time to time, the amounts
payable under this Note against all Losses (as defined in the Reorganization
Agreement) suffered by the Acquiror indemnified Persons (as defined in the
Reorganization Agreement) to the extent provided in Article IX of the
Reorganization Agreement.
This Note has been executed under and pursuant to the Reorganization
Agreement to which reference is hereby made for the terms and conditions upon
which this Note has been delivered.
The occurrence of any one or more of the following shall constitute a
default ("default") hereunder:
<PAGE>
(1) Failure to pay, when due, the principal, any interest, or any other
sum payable hereunder;
(2) The making by Maker of any general assignment for the benefit of
creditors;
(3) The commencement by the Maker of any case, proceeding, or other
action seeking reorganization, arrangement, adjustment, liquidation,
dissolution, or composition of it or its debts under any law relating to
bankruptcy, insolvency, or reorganization, or relief of debtors, or seeking
appointment of a receiver, trustee, custodian, or other similar official for it
or for all or any substantial part of its property;
(4) The commencement of any case, proceeding, or other action against
the Maker seeking to have any order for relief entered against the Maker as
debtor, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution, or composition of the Maker or its debts under any law relating to
bankruptcy, insolvency, reorganization, or relief of debtors, or seeking
appointment of a receiver, trustee, custodian, or other similar official for the
Maker or for all or any substantial part of the property of the Maker, and (i)
the Maker shall, by any act or omission, indicate its consent to, approval of,
or acquiescence in such case, proceeding, or action, or (ii) such case,
proceeding, or action results in the entry of an order for relief which is not
fully stayed within sixty (60) days after the entry thereof, or (iii) such case,
proceeding, or action remains undismissed for a period of sixty (60) days or
more.
Upon the occurrence of a default hereunder and Maker's failure to cure
the same within five (5) days after receipt of written notice thereof, the
entire principal amount hereof, and all accrued and unpaid interest thereon,
shall be accelerated, and shall be immediately due and payable, at the option of
the Holder, without demand or notice. Failure to exercise said option or to
pursue such other remedies shall not constitute a waiver of such option or such
other remedies or of the right to exercise any of the same in the event of any
subsequent default hereunder which remains uncured beyond any applicable grace
or cure periods.
Maker hereby waives presentment, protest, demand, notice of dishonor,
and all other notices, and all defenses and pleas on the grounds of any
extension or extensions of the time of payments or the due dates of this Note,
in whole or in part, before or after maturity, with or without notice. No
renewal or extension of this Note, no release or surrender of any collateral
given as security for this Note, no release of Maker, and no delay in
enforcement of this Note or in exercising any right or power hereunder, shall
affect the liability of Maker.
No single or partial exercise by the Holder of any right hereunder, or
under any other agreement pertaining hereto, shall preclude any other or further
exercise thereof or the exercise of any other rights. No delay or omission on
the part of the Holder in exercising any right hereunder shall operate as a
waiver of such right or of any other right under this Note.
This Note is hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration or otherwise, shall the
amount paid or agreed to be paid to the Holder for the use, forbearance or
detention of money hereunder exceed the maximum amount permissible under
applicable law. If from any circumstance whatsoever fulfillment of any
2
<PAGE>
provision hereof, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then IPSO FACTO,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any such circumstance the Holder shall ever receive interest, or
anything which might be deemed interest under applicable law, which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal amount owing on account of
this Note and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal of this Note, such excess shall be
refunded to the Maker. The terms and provisions of this paragraph shall control
and supersede every other provision of this Note and all other agreements
between the Maker and the Holder.
Any payment on this Note coming due on a Saturday, a Sunday, or a day
which is a legal holiday in the place at which a payment is to be made hereunder
shall be made on the next succeeding day which is a business day in such place.
The unpaid principal amount of this Note may be prepaid in whole or in
part at any time and from time to time without prepayment penalty.
Whenever used herein, the words "Maker" and "Holder" shall be deemed to
include their respective successors and assigns.
This Note shall be governed by and construed under and in accordance
with the laws of the State of Delaware (but not including the choice of law
rules thereof.)
If this Note is placed in the hands of an attorney for collection after
default, or if all or any party of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief or other court proceedings, Maker agrees to pay
reasonable attorneys' fees and collection costs to the Holder in addition to the
principal, interest or other amounts payable hereunder.
This Note shall not be transferable (whether by operation of law or
otherwise) by the Holder hereof without the prior consent of the Maker, which
may be granted or withheld in the Maker's sole discretion.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Note, or has
caused this Note to be duly executed on its behalf, as of the day and year first
written hereinabove set forth.
[SEAL] THE TITAN CORPORATION
ATTEST:
- --------------------------------- -------------------------------------
Secretary
<PAGE>
4,000,000 HIGH TIDES-SM-
Titan Capital Trust
5 3/4% Convertible Preferred Securities
Remarketable Term Income Deferrable Equity Securities (HIGH TIDES)-SM-*
(liquidation amount $50 per each of the HIGH TIDES)
guaranteed to the extent described herein by,
and convertible into common stock of,
[TITAN LOGO]
The Titan Corporation
---------
5 3/4% Convertible Preferred Securities, Remarketable Term Income Deferrable
Equity Securities (HIGH TIDES-SM-) represent undivided preferred beneficial
ownership interests in the assets of Titan Capital Trust. Subject to the
deferral provisions described in this offering circular, the trust will pay
distributions on the HIGH TIDES on each February 15, May 15, August 15 and
November 15. Subject to the deferral provisions described in this offering
circular, the trust will make the first distribution on May 15, 2000. The Titan
Corporation may redeem the HIGH TIDES at any time on or after February 20, 2003
until but excluding the tender notification date established for the
remarketing. Following the remarketing, The Titan Corporation may redeem the
HIGH TIDES in accordance with the redemption provisions established in the
remarketing, if any, or, upon a failed final remarketing, on or after the third
anniversary of the reset date.
The Titan Corporation will own all the common securities issued by the
trust. The trust exists for the sole purpose of issuing the common securities
and the HIGH TIDES and using the proceeds to purchase the 5 3/4% Convertible
Senior Subordinated Debentures Due 2030 from The Titan Corporation.
The initial purchasers have an option to purchase a maximum of 1,000,000
additional HIGH TIDES to cover over-allotments.
It is expected that the HIGH TIDES will be eligible for trading in The
Portal-SM- Market ("PORTAL"), a subsidiary of The Nasdaq Stock Market, Inc.
Each HIGH TIDES is initially convertible into shares of The Titan
Corporation's common stock at the rate of 1.0076 shares of common stock for each
of the HIGH TIDES (equivalent to an initial conversion price of $49.625 per
share of common stock). Your HIGH TIDES may be remarketed no earlier than
80 business days prior to February 15, 2005 and no later than 20 business days
prior to February 15, 2005. At our option and subject to the results of
remarketing, the HIGH TIDES may become nonconvertible or convertible into a
different number of shares of common stock. The remarketing agent will attempt
to obtain a price of 101% of the liquidation amount of the HIGH TIDES. The Titan
Corporation's common stock is traded under the symbol "TTN" on The New York
Stock Exchange. On February 3, 2000, the last reported price of the common stock
was $40.3125 per share.
We and the trust have agreed, pursuant to a registration rights agreement,
to file a shelf registration statement to register resales of the HIGH TIDES and
the common stock into which the HIGH TIDES may be converted. In the event we and
the trust fail to comply with our obligations under the registration rights
agreement, the trust will pay additional special distributions on the HIGH
TIDES.
Investing in the HIGH TIDES involves risks. See "Risk Factors" on page 18.
Price: $50 per HIGH TIDES
plus accrued distributions, if any, from February 9, 2000.
Delivery of the HIGH TIDES, in book-entry form, will be made on or about
February 9, 2000.
None of the HIGH TIDES, the guarantee, the debentures or The Titan
Corporation common stock issuable upon conversion thereof has been registered
under the Securities Act. The foregoing securities may be offered or sold only
to qualified institutional buyers in reliance on the exemption from registration
provided by Rule 144A. You are hereby notified that sellers of the securities
may be relying on the exemption from the provisions of Section 5 of the
Securities Act provided by Rule 144A.
* The terms Remarketable Term Income Deferrable Equity Securities (HIGH
TIDES)-SM- and HIGH TIDES-SM- are registered service marks of Credit Suisse
First Boston Corporation.
Credit Suisse First Boston Donaldson, Lufkin & Jenrette
The date of this confidential offering circular is February 3, 2000.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
NOTICE TO NEW HAMPSHIRE RESIDENTS...... ii
AVAILABLE INFORMATION.................. iii
ABOUT THIS OFFERING CIRCULAR........... iii
WHERE YOU CAN FIND MORE INFORMATION.... iii
CAUTIONARY STATEMENT ABOUT
FORWARD-LOOKING STATEMENTS........... iv
TRADEMARKS AND TRADENAMES.............. v
SEC REVIEW............................. v
INDUSTRY DATA.......................... v
OFFERING CIRCULAR SUMMARY.............. 1
RISK FACTORS........................... 18
USE OF PROCEEDS........................ 31
PRICE RANGE OF OUR COMMON STOCK........ 32
DIVIDEND POLICY........................ 32
CAPITALIZATION......................... 33
ACCOUNTING TREATMENT................... 34
PENDING AND COMPLETED ACQUISITIONS..... 35
UNAUDITED PRO FORMA FINANCIAL DATA..... 38
SELECTED HISTORICAL FINANCIAL DATA..... 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................ 53
</TABLE>
<TABLE>
BUSINESS............................... 70
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT............................. 95
PRINCIPAL STOCKHOLDERS................. 99
TITAN CAPITAL TRUST.................... 101
THE REMARKETING........................ 102
DESCRIPTION OF HIGH TIDES.............. 109
DESCRIPTION OF CONVERTIBLE SENIOR
SUBORDINATED DEBENTURES.............. 131
DESCRIPTION OF THE GUARANTEE........... 140
RELATIONSHIP AMONG THE HIGH TIDES, THE
CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE......... 143
DESCRIPTION OF CAPITAL STOCK........... 144
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES..................... 151
CERTAIN ERISA CONSIDERATIONS........... 156
REGISTRATION RIGHTS.................... 159
PLAN OF DISTRIBUTION................... 161
NOTICE TO CANADIAN RESIDENTS........... 163
TRANSFER RESTRICTIONS.................. 164
LEGAL MATTERS.......................... 166
INDEPENDENT PUBLIC ACCOUNTANTS......... 167
INDEX TO FINANCIAL STATEMENTS.......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
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<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
This offering circular is being furnished on a confidential basis in
connection with an offering exempt from registration under the Securities Act
solely for the purpose of enabling a prospective investor to consider the
purchase of the HIGH TIDES. Delivery of this offering circular to any other
person or any reproduction of this offering circular, in whole or in part,
without the prior consent of Titan Capital Trust, or the trust, The Titan
Corporation or the initial purchasers is prohibited. The information contained
in this offering circular has been provided by The Titan Corporation and other
sources identified in this offering circular. No representation or warranty,
express or implied, is made by the initial purchasers as to the accuracy or
completeness of information contained in this offering circular, and nothing
contained in this offering circular is, or should be relied upon as, a promise
or representation by the initial purchasers of the HIGH TIDES.
Each prospective purchaser of the HIGH TIDES must comply with all applicable
laws and regulations in force in any jurisdiction in connection with the
distribution of this offering circular and the offer or sale of the HIGH TIDES.
Please read the "Transfer Restrictions" section of this offering circular. In
making any investment decision, prospective investors should rely on their own
examination of the trust and Titan and the terms of the offering, including the
merits and risks involved. The contents of this offering circular are not to be
construed as legal, business or tax advice. Each prospective investor should
consult his or her own attorney, business advisor and tax advisor as to legal,
business or tax advice.
The HIGH TIDES offered by this offering circular have not been recommended
by any United States federal or state securities commission or any foreign
securities commission or any regulatory authority. Furthermore, the foregoing
authorities have not confirmed the accuracy or determined the adequacy of this
offering circular. Any representation to the contrary is a criminal offense.
The HIGH TIDES have not been and will not be qualified for sale under the
securities laws of any province or territory of Canada. The HIGH TIDES are not
being offered and may not be offered or sold, directly or indirectly, in Canada
or to or for the account of any resident of Canada in contravention of the
securities laws of any province or territory thereof.
AS USED IN THIS OFFERING CIRCULAR, (A) THE "INDENTURE" MEANS THE INDENTURE,
BETWEEN THE TITAN CORPORATION AND WILMINGTON TRUST COMPANY, AS TRUSTEE (THE
"DEBENTURE TRUSTEE") RELATING TO THE DEBENTURES, (B) THE "DECLARATION" MEANS THE
AMENDED AND RESTATED DECLARATION OF TRUST RELATING TO THE TRUST AMONG THE TITAN
CORPORATION, AS DEPOSITOR (THE "DEPOSITOR"), WILMINGTON TRUST COMPANY, AS
PROPERTY TRUSTEE (THE "PROPERTY TRUSTEE") AND AS DELAWARE TRUSTEE (THE "DELAWARE
TRUSTEE"), THE INDIVIDUALS NAMED AS ADMINISTRATIVE TRUSTEES THEREIN (THE
"ADMINISTRATIVE TRUSTEES" AND, COLLECTIVELY WITH THE PROPERTY TRUSTEE AND THE
DELAWARE TRUSTEE, THE "TRUSTEES") AND THE HOLDERS FROM TIME TO TIME OF UNDIVIDED
BENEFICIAL INTERESTS IN THE ASSETS OF THE TRUST, (C) THE "GUARANTEE" MEANS THE
PREFERRED SECURITIES GUARANTEE AGREEMENT BETWEEN THE TITAN
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CORPORATION AND WILMINGTON TRUST COMPANY, AS GUARANTEE TRUSTEE (THE "GUARANTEE
TRUSTEE"), (D) THE "COMMON SECURITIES" MEANS THE COMMON SECURITIES ISSUED BY THE
TRUST, (E) THE "TRUST SECURITIES" MEANS THE HIGH TIDES AND THE COMMON
SECURITIES, (F) THE "COMMON STOCK" MEANS THE COMMON STOCK OF THE TITAN
CORPORATION, PAR VALUE $.01 PER SHARE AND (G) THE "DEBENTURES" MEANS THE
CONVERTIBLE SENIOR SUBORDINATED DEBENTURES DUE 2030 FROM THE TITAN CORPORATION.
AVAILABLE INFORMATION
As a purchaser of HIGH TIDES, you will be furnished with a copy of this
offering circular and any related amendments or supplements to this offering
circular. By receiving this offering circular, you acknowledge that:
- you have been afforded an opportunity to request from us, and have
received from us, all additional information you considered to be
necessary to verify the accuracy or completeness of the information
included or incorporated in this offering circular by reference;
- you have not relied on the initial purchasers or any person affiliated
with the initial purchasers in connection with your investigation of the
accuracy of such information or your investment decision; and
- except as pursuant to the first bullet point above, no person has been
authorized to give any information or to make any representation
concerning the HIGH TIDES offered pursuant to this offering circular other
than those contained in this offering circular, and if given or made, you
should not rely upon such information as having been authorized by us or
the initial purchasers.
ABOUT THIS OFFERING CIRCULAR
This offering circular contains summaries, believed to be accurate in all
material respects, of terms of certain agreements. These summaries are qualified
in their entirety by reference to the actual agreements, copies of which will be
made available to you upon request to us or the initial purchasers. While any
HIGH TIDES, debentures or common stock issued upon conversion of such securities
remain outstanding, we will make available, upon request, to any holder and any
prospective purchaser of such securities the information required pursuant to
Rule 144A(d)(4) under the Securities Act during any period in which we are not
subject to Section 13 or 15(d) of the Exchange Act.
No separate financial statements of the trust have been included herein. We
do not consider such financial statements material to the holders of HIGH TIDES
because:
- we will own, directly or indirectly, all of the voting securities of the
trust, and we are subject to the reporting requirements under the Exchange
Act;
- the trust has no independent operations but exists for the sole purpose of
issuing securities representing undivided beneficial interests in the
assets of the trust and investing the proceeds thereof in debentures
issued by us; and
- the obligations of the trust under the trust securities are fully and
unconditionally guaranteed by us to the extent that the trust has funds
available to meet such obligations.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048
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<PAGE>
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
obtain information on the operation of the SEC's public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330. We also file information
with The New York Stock Exchange. These reports, proxy statements and other
information may be read and copied at 30 Broad Street, New York, New York 10005.
In this offering circular we have incorporated by reference certain reports
and other information we have filed, or will file, with the SEC. The information
incorporated by reference is an important part of this offering circular, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any further filings made with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act until we sell all of the securities or we terminate
this offering:
- Titan's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, which was filed on March 31, 1999, as amended by Form 10-K/A which
was filed on January 24, 2000, including information incorporated by
reference in the Form 10-K from its definitive proxy statement for the
1999 annual meeting of stockholders, which was filed on April 1, 1999;
- Titan's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, which was filed on May 17, 1999, its Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1999, which was filed on
August 16, 1999, and its Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999, which was filed on November 12, 1999;
- Titan's Current Reports on Form 8-K which were filed on January 20, 1999,
June 24, 1999, November 17, 1999, December 16, 1999, January 6, 2000,
January 24, 2000, and February 3, 2000; and
- Titan's amendment to its Current Report on Form 8-K filed June 24, 1999,
which was filed on August 23, 1999, its amendments to its Current Reports
on Form 8-K filed November 17, 1999 and January 6, 2000, which were filed
on January 19, 2000 and January 24, 2000, and its amendment to its Current
Report on Form 8-K filed January 24, 2000, which was filed on January 28,
2000.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121-1199
(858) 552-9500
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Certain matters discussed in this offering circular are "forward-looking
statements" intended to qualify for the safe harbors from liability established
by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as "may," "will," "intends," "plans,"
"believes," "anticipates," "expects," "estimates," "potential," "continue," or
"opportunity," the negative of these words or words of similar import.
Similarly, statements that describe our future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those anticipated as of the date of this offering circular. The
risks and uncertainties include:
- the possibility that our acquisition of Advanced Communication
Systems, Inc. will not be consummated;
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- the risks associated with our acquisition strategy generally;
- the trust's inability to make distributions on the HIGH TIDES if we are
unable to make interest payments on the debentures due to a default on our
indebtedness under our credit facility or any secured debt we have in
addition to that indebtedness, or otherwise;
- our structure as a holding company, which limits our ability to access the
cash flows and assets of our subsidiaries;
- the possibility that you may have to pay taxes on interest prior to your
receipt of distributions from the trust; and
- the other factors described in "Risk Factors."
The forward-looking statements included herein are only made as of the date
of this offering circular and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
TRADEMARKS AND TRADENAMES
SureBeam-Registered Trademark-, ImagClear-Registered Trademark-, Xpress
Connection and DAMALink are trademarks of The Titan Corporation or its
subsidiaries. All other tradenames and trademarks appearing in this offering
circular are the property of their holders.
SEC REVIEW
In the course of the review by the SEC of the shelf registration statement
we are obligated to file covering resales of the HIGH TIDES and our common stock
issuable upon conversion of the HIGH TIDES, it is likely that we will make
changes to the description of our business and other data included in this
offering circular. However, we do not believe any such modification or
reformulation will be significant.
INDUSTRY DATA
In this offering circular, we refer to market information regarding our
industry segments, which we have obtained from published industry sources.
Although we believe this information to be reliable, we cannot guarantee the
accuracy and completeness of the information and have not independently verified
it.
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OFFERING CIRCULAR SUMMARY
EXCEPT AS OTHERWISE INDICATED HEREIN, IN THIS OFFERING CIRCULAR THE WORDS
"WE," "OUR," "OURS," "US" AND "TITAN" REFER ONLY TO THE TITAN CORPORATION AND
ITS SUBSIDIARIES (EXCLUDING TITAN CAPITAL TRUST) AND NOT TO THE INITIAL
PURCHASERS OR ANY OTHER PERSON. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION
ABOUT THIS OFFERING. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS OFFERING, WE
ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT, INCLUDING THE "RISK FACTORS"
SECTION, AND THE DOCUMENTS WE HAVE REFERRED YOU TO, INCLUDING THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, BEFORE MAKING AN INVESTMENT IN THE HIGH TIDES.
THE TITAN CORPORATION OVERVIEW
We are a leading diversified technology company that provides information
technology, communications and electron beam food pasteurization and medical
product sterilization systems and services. Through extensive government-funded
research and development activities since 1981 under contracts totaling in
excess of $2 billion, we have accumulated a broad portfolio of technologies,
intellectual property and expertise from which we have developed many of our
commercial businesses. The core technologies supporting our Titan Scan and Titan
Wireless segments were derived from technologies originally developed for
government applications. We believe that our government contracts business
enhances our technical expertise with sophisticated technologies and facilitates
our ability to develop commercial applications. We fund the development of
commercial technologies from our technology base both internally as well as in
conjunction with partners. We plan to continue building our technology
portfolio, identifying commercial applications and entering into strategic
relationships to further our growth.
We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
<TABLE>
<CAPTION>
SEGMENT SEGMENT DESCRIPTION
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<S> <C>
Titan Systems............ Information technology and communications solutions for
defense, intelligence, and other U.S. and allied government
agencies
Cayenta.................. Total services provider of comprehensive information
technology solutions for its customers' business functions,
including e-business, finance, accounting, customer billing
and collection, contract management, supply chain
integration and enterprise asset management
Titan Scan............... Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless........... Satellite communication systems and services which support
telephony in developing countries
Emerging Technologies.... Development of commercial applications for technologies
created by our other business segments through
government-sponsored research and development programs
</TABLE>
Each of our segments has a management team with significant relevant
experience in the segment's particular business and market area. Consistent with
our strategy of aligning management motivation with stockholder interests, each
of our segments (except Emerging Technologies which is not a separate
subsidiary) has its own key employee stock option plan to foster an
entrepreneurial environment.
On a pro forma basis for the acquisitions we completed during 1999 as well
as our proposed acquisition of Advanced Communication Systems, our revenues were
approximately $593 million and our earnings before non-recurring special
acquisition related charges and other interest, taxes,
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depreciation and amortization, or EBITDA, were approximately $61.6 million for
the twelve months ended September 30, 1999.
MARKET OPPORTUNITIES
We believe that the markets in which we operate are large and growing:
TITAN SYSTEMS. The U.S. government is among the largest buyers of
information technology systems and services in the world. According to the
Government Electronic Industries Alliance, an industry trade group, the U.S.
government's information technology budget for its fiscal year 2000 is expected
to be approximately $34 billion. In a statement to the House Committee on
National Security, Secretary of Defense William S. Cohen stated that the defense
budget will emphasize advanced information technologies related to Command,
Control, Communications, Computers, Intelligence, Surveillance and
Reconnaissance, or C4ISR. Titan Systems provides a full range of C4ISR
capabilities.
CAYENTA. Forrester Research projects that the market for business to
business e-business will grow from $43 billion in 1998 to $1.3 trillion in 2003.
In addition, International Data Corporation estimates that the worldwide market
for consulting, design, systems integration, support, management and outsourcing
services associated with the development, deployment and management of Internet
sites will grow at a five year compounded annual growth rate of 59% from $7.8
billion in 1998 to $78.5 billion in 2003.
TITAN SCAN. With 75.4 billion pounds of meat, including beef, pork and
poultry, produced in the United States in 1999, Titan Scan estimates that the
market for food pasteurization systems and services could develop to be in
excess of $3.0 billion annually if irradiated foods gain consumer acceptance. If
such consumer acceptance occurs, Titan Scan believes that meat producers will
initially elect to pasteurize a portion of their ground beef and poultry
production. According to a market research report, the global market for
sterilization services for medical products was approximately $368 million in
1999.
TITAN WIRELESS. In our targeted markets, telephone availability is
relatively low. In 1998, according to the International Telecommunication Union,
countries in our targeted markets, which represent approximately one-third of
the world's population, had fewer than two subscriber lines per 100 inhabitants
compared to 66.13 in the United States.
COMPETITIVE STRENGTHS
We attribute our growth and performance to several factors within each of
our business segments:
TITAN SYSTEMS
LONG STANDING CUSTOMER RELATIONSHIPS. Founded in 1981, Titan Systems has an
extensive history of providing information systems and communications solutions
to defense, intelligence and other U.S. and allied government agencies.
Collectively, Titan Systems' senior management has on average 20 years of
industry experience and has developed long-standing, key customer relationships
across all of the U.S. military services and several NATO countries, which have
contributed to Titan Systems' success in securing new contracts.
BROAD SOLUTION CAPABILITIES. Titan Systems has extensive knowledge of the
operations and information systems and communications requirements of the
defense industry and provides a full range of systems engineering and technical
support for the C4ISR initiatives of the Department of Defense, or DoD. Titan
Systems designs, builds, tests, installs and maintains systems that collect,
digitize, compress, transmit, receive, decompress and display information and
permit their users to analyze data in a secured environment. This ability to
provide full-service solutions, coupled with our
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employee base of over 1,500 "Secret" and above-cleared personnel, enables us to
bid on larger, more comprehensive C4ISR defense contracts. Advanced
Communication Systems' employee base includes more than 1,300 "Secret" and
above-cleared personnel.
PROVEN ACQUISITION STRATEGY. In anticipation of changes in U.S. government
procurement policies toward awarding more comprehensive contracts to meet its
defense-related requirements, we initiated an acquisition strategy in 1997.
Since January 1, 1998, we have acquired and integrated seven defense information
technology companies into Titan Systems. If acquired, Advanced Communication
Systems will also be integrated into Titan Systems. We believe the enhanced
technology and personnel resources provided by our acquisitions enable Titan
Systems to serve its customers with comprehensive solutions for their
information systems needs.
CAYENTA
TOTAL SERVICES PROVIDER. As a total services provider, or TSP, Cayenta
delivers comprehensive, tailored solutions to its customers that combine its
customers' information technology strategy, application development and
configuration, systems integration, hosting and support. We believe Cayenta's
TSP offering provides its customers with a number of benefits over internally
developed and hosted systems, including lower and more predictable capital and
operating costs, timely deployment, adaptable solutions, and scalable and
reliable hosted applications.
COMPLETE E-BUSINESS SOLUTION. Cayenta integrates customers' web sites and
other e-business portals with business support systems and provides its
customers with a single point of contact for managing and monitoring their
e-business transactions. Cayenta integrates a customer's web site and other
business support systems with its proprietary solutions for order processing,
catalog management, customer service, inventory management, order fulfillment,
billing, collections, and account settlement.
REVENUE CYCLE SERVICES OFFERING. Cayenta offers solutions that enable its
customers to address their complex pricing, billing, settlement and supply-chain
requirements and improve their e-business capabilities. Cayenta's software also
provides audit and compliance functions that accommodate the complex contract
terms prevalent in e-business and permit Cayenta's customers to more effectively
monitor their receivables and manage the fulfillment process.
INTEROPERABLE AND ADAPTABLE SOLUTIONS. Cayenta's solutions are
interoperable, permitting its customers to integrate different systems within
their organizations and between their organizations and those of their trading
partners. Cayenta's solutions also are adaptable, accommodating customer
technology preferences while facilitating easy access across the Internet.
Cayenta offers solutions that reduce its customers' manual and redundant
business processes and permit them to add or change software applications as
their businesses evolve.
TAILORED SOLUTIONS FOR CUSTOMERS' BUSINESS PROCESSES. Cayenta has expertise
in its target industries that helps it to define and deliver timely solutions
tailored to its customers' market dynamics and business opportunities. All of
Cayenta's solutions allow customers to supplement standard software applications
with additional functionality tailored to their business needs. To achieve this
additional functionality, Cayenta uses software components that extend the
capabilities of standard software applications.
TITAN SCAN
SUPERIOR ELECTRON BEAM PASTEURIZATION AND STERILIZATION TECHNOLOGY. Titan
Scan provides patented and proprietary systems and services which pasteurize
food and sterilize medical products in an efficient, safe and environmentally
friendly manner. The market for pasteurization and sterilization systems has
historically been served by two technologies--Gamma and etholene oxide, or EtO.
We
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believe Titan Scan's proprietary electron beam process, or SureBeam system,
which uses commercial electricity as its source of power, is superior to Gamma
and EtO technology because it requires significantly less processing time, poses
no known environmental risks, may result in reduced product degradation, can be
introduced directly into a food processor's or manufacturer's production line
and is scalable to meet customer processing requirements.
REGULATORY CLEARANCE FOR SUREBEAM TECHNOLOGY. In December 1997, the Food
and Drug Administration, or FDA, approved irradiation of meat, finding that
irradiation of meat, at its recommended doses, does not diminish the food's
nutritional value in any detectable way. In December 1999, the U.S. Department
of Agriculture, or USDA, issued regulations setting forth guidelines for the
irradiation of meat.
EXCLUSIVE CUSTOMER ARRANGEMENTS. Titan Scan has executed multiyear
arrangements with many of the major poultry and meat providers and producers in
the United States, including Cargill, IBP, Tyson Foods, Emmpak and Huisken
Meats, among others. These companies produced approximately 75% of the
25.8 billion pounds of beef and approximately 43% of the 75.4 billion pounds of
meat, including beef, pork and poultry, produced in the United States in 1999.
Titan Scan believes that if irradiated foods gain market acceptance, these
producers will initially elect to pasteurize a portion of their ground beef and
poultry production. Titan Scan's multiyear arrangements with its customers
generally provide that it will be the exclusive provider of electronic
pasteurization services whenever any of these companies elect to use
pasteurization technology. In addition, at Cloverleaf Cold Storage's facility in
Sioux City, Iowa, Titan Scan has built the first electron beam pasteurization
facility in the United States, and also has arrangements with Zero Mountain Cold
Storage, Mitsubishi and Hawaii Pride to build similar facilities.
TITAN WIRELESS
SOLUTIONS ARE WELL-SUITED TO TARGET MARKETS. Telephone service for remote
areas of many developing countries has not been practical for a number of
economic and technical reasons. In our targeted markets, telephone availability
is relatively low. Titan Wireless has designed a network of fixed-site satellite
terminals that provide cost-effective telephone, facsimile and data
communications services to areas not previously served by developing countries'
national public switched telephone networks, or PSTNs.
STRONGLY POSITIONED THROUGH STRATEGIC ALLIANCES. Titan Wireless develops
and markets its telephony products through strategic alliances in developing
countries in Africa, Latin America and Asia. Through its Sakon joint venture,
Titan Wireless is currently providing long distance telecommunications services
in eight developing countries, and expects to provide long distance
telecommunications in at least six additional developing countries.
EMERGING TECHNOLOGIES AND BUSINESSES
PROVEN ABILITY TO TRANSITION OUR TECHNOLOGY TO COMMERCIAL BUSINESSES.
Emerging Technologies introduces new commercial applications from our rich
technology portfolio, superior research and development capabilities and stream
of government-funded projects. The core technologies supporting Titan Scan and
Titan Wireless were created from technologies originally developed for
government use. In addition, in 1996, we contributed the core technology to form
Servnow! Nettechnologies, Inc., which is now known as IPivot, Inc. IPivot
develops software products that improve the performance of server farms, web
sites and software applications. We raised the capital required to fund IPivot
from venture capital sources. In November 1999, we received approximately $42
million in cash for our 8.1% equity interest when IPivot was acquired by Intel
Corporation.
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BUSINESS STRATEGY
We believe a key element of our success is our innovative use of technology
that provides comprehensive, efficient solutions to our government and
commercial customers. We believe that our sophisticated technical abilities will
allow us to expand our customer base, improve our operating results and continue
to grow.
Our objectives are to enhance our leading position in providing information
technology and communication solutions to defense, intelligence and other U.S.
and allied government agencies and to further our strong track record of
commercializing proprietary technologies designed to serve global markets. To
achieve these objectives, we intend to pursue the following strategies:
MAINTAIN TECHNOLOGY LEADERSHIP. Since inception, we have received
substantial government funding to conduct research and development and create
advanced information technology solutions and communications systems for
government uses. Based largely on activities that have been supported by
government funding, we have created a diversified portfolio of technology and
developed many of our commercial businesses, like Titan Scan and Titan Wireless.
We will continue to bid for government-funded research and development work and
government contracts that we believe will expose our technical personnel to
sophisticated technologies, challenge their skills, and increase their abilities
to transition systems and solutions developed for the government to commercial
applications. We will also continue to actively seek acquisition candidates
whose technology portfolio and personnel resources complement and supplement our
own. We believe that these efforts, combined with our extensive expertise and
capabilities, will allow us to further our government relationships and position
us to win new government contracts, while also strengthening our ability to
provide systems and solutions to commercial customers in a variety of markets.
PURSUE STRATEGIC TRANSACTIONS. Our acquisition program is a key component
to our overall business strategy. We believe the enhanced technology and
personnel resources which our acquisitions have provided enable us to complete
larger, more comprehensive government contracts and to market our services to
new customers. To further our growth and enter new markets, we intend to pursue
strategic acquisitions of complementary businesses, technologies and products.
We plan to achieve operating efficiencies and cost savings following our
acquisitions through centralization of strategic planning, corporate
development, administrative, financial and other services. We also intend to
pursue strategic alliances, primarily to access new customers and establish
additional channels of distribution for our core businesses and technologies.
GROW PROFITABLY. We are dedicated to growing our business and enhancing our
profitability. We have instituted successful cost reduction programs for each of
our acquired companies and continually seek opportunities to improve our
operating margins. In early 1997, we implemented a streamlining process for our
administrative functions. This process focused on eliminating redundancies and
resulted in increased efficiencies and reduced infrastructures and costs. We
plan to continue implementing similar initiatives and to improve cash flow
through enhanced receivables management.
PURSUE INITIAL PUBLIC OFFERINGS FOR CORE SUBSIDIARIES. We intend to finance
the growth of Cayenta, Titan Scan and Titan Wireless by obtaining public or
private financing, including through initial public offerings of common stock of
these segments. To the extent possible, we intend to structure these initial
public offerings in order to preserve the ability to later distribute the stock
we retain in these segments to our stockholders on a tax-free basis. Under
existing law, we must own at least 80% of the total voting power and 80% of any
class of nonvoting capital stock of a subsidiary to be able to effect a tax-
free distribution of a subsidiary's stock. In addition, both Titan and the
subsidiary must meet numerous other requirements under the Internal Revenue
Code, including requirements relating to the subsidiary's operating history and
the subsidiary must have a business purpose for the spin-off distribution. To
date, our subsidiary Cayenta has filed a registration statement for an initial
public
5
<PAGE>
offering of its stock. If the offering is completed, we have no present
intention of distributing our Cayenta shares to the Titan stockholders. Our
existing credit facility does not permit us to distribute the stock of our
subsidiaries to Titan stockholders without consent of the lenders. It also
requires that if we complete an offering of securities of a subsidiary, we must
pay down the credit facility by the amount of the net proceeds of the offering.
We expect our new credit facility will contain similar restrictions except that
we will not have to pay down the credit facility if Cayenta completes its
initial public offering and Cayenta will no longer be a guarantor of the new
credit facility. As a result of the foregoing factors and other factors, we may
not be able to distribute interests in these segments to our stockholders.
We expect to enter into a $250 million senior secured credit facility
shortly after this offering, which is further described in the "Liquidity and
Capital Resources" section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We intend to use borrowings under that
credit facility to repay indebtedness of Advanced Communication Systems upon the
closing of the acquisition and also to pay certain acquisition-related fees and
expenses. We anticipate replacing our existing credit facility with that new
credit facility. We cannot guarantee that we will be able to enter into
satisfactory definitive documentation for, and ultimately access, the new credit
facility.
We are a publicly traded company listed on the New York Stock Exchange under
the symbol "TTN." Our executive offices are located at 3033 Science Park Road,
San Diego, California 92121-1199 and our telephone number is (858) 552-9500. Our
Internet website address on the world wide web is www.titan.com. The contents of
our website are not part of this offering circular.
The trust's place of business and telephone number are the principal
executive offices and telephone number of Titan.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
ISSUER................... Titan Capital Trust is a Delaware business trust and our
subsidiary. Substantially all the assets of the trust will
consist of debentures issued by us. We will own all of the
outstanding common securities of the trust. The address of
the trust's principal office is c/o The Titan Corporation,
3033 Science Park Road, San Diego, California, 92121-1199,
and its telephone number is (858) 552-9500.
SECURITIES OFFERED....... 4,000,000 HIGH TIDES. Additionally, we and the trust have
granted the initial purchasers an option for 30 days to
purchase up to an additional 1,000,000 HIGH TIDES at the
initial offering price, plus accrued distributions.
DEBENTURES............... The trust will use the proceeds from the sale of the HIGH
TIDES to purchase from us 5 3/4% Convertible Senior
Subordinated Debentures, due February 15, 2030. The
debentures will have the same financial terms as the HIGH
TIDES.
DISTRIBUTIONS............ Distributions will accrue on the HIGH TIDES from the date of
original issuance at the applicable rate applied to the
stated liquidation amount of $50 per HIGH TIDES. The
applicable rate will be 5 3/4% per annum from the date of
original issuance to, but excluding the reset date. The
reset date is any date (a) not later than February 15, 2005,
or the final reset date, or, if the day is not a business
day, the next succeeding business day, and (b) not earlier
than 70 business days prior to February 15, 2005, as may be
</TABLE>
6
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<TABLE>
<CAPTION>
<S> <C>
determined by the remarketing agent, in its sole discretion.
On or after the reset date, the applicable rate will be the
term rate established by the remarketing agent based on the
outcome of the remarketing. Subject to the distribution
deferral provisions described below, the trust will pay
those distributions quarterly in arrears on each
February 15, May 15, August 15 and November 15, commencing
May 15, 2000. Because distributions on the HIGH TIDES
constitute interest for U.S. federal income tax purposes,
corporate holders of the HIGH TIDES will not be entitled to
a dividends-received deduction.
DISTRIBUTION DEFERRAL
PROVISIONS............... The trust's ability to pay distributions on the HIGH TIDES
is solely dependent on its receipt of interest payments from
us on the debentures. We can, on one or more occasions,
defer the interest payments due on the debentures for up to
20 consecutive quarters unless an event of default under the
debentures has occurred and is continuing. However, we
cannot defer interest payments beyond the (a) maturity date
of the debentures, which is February 15, 2030, and (b) in
the case of a deferral period that begins prior to the reset
date, the reset date. If we defer interest payments on the
debentures, the trust will also defer distributions on the
HIGH TIDES. The trust will be able to pay distributions on
the HIGH TIDES only if and to the extent it receives
interest payments from us on the debentures. During any
deferral period, distributions will continue to accumulate
quarterly at an annual rate of 5 3/4% of the liquidation
amount of $50 per HIGH TIDES. Also, the deferred
distributions will themselves accrue additional
distributions at an annual rate of 5 3/4% to the extent
permitted by law. The trust will send you written notice of
a deferral of distributions on the HIGH TIDES not later than
10 days prior to the record date for the related HIGH TIDES
distribution. During any period in which we defer interest
payments on the debentures, in general we cannot:
- declare or pay any dividend or distribution on our
capital stock;
- redeem, purchase, acquire or make a liquidation payment
on any of our capital stock;
- make any interest, principal or premium payment on, or
repurchase or redeem any of our debt securities that rank
equally with or junior to the debentures; or
- make any payment on any guarantee by Titan of the debt
securities of any of our subsidiaries if the guarantee
ranks equally with or junior to the debentures.
If an interest payment deferral occurs, you will continue to
recognize interest income for U.S. federal income tax
purposes in advance of your receipt of any corresponding
cash distribution.
If you convert your HIGH TIDES during any interest payment
deferral period, you will not receive any cash payment for
any deferred distributions.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONVERSION INTO COMMON
STOCK.................... On or prior to the tender notification date, you may convert
each HIGH TIDES into shares of common stock of Titan at the
initial rate of 1.0076 shares of common stock for each HIGH
TIDES (equivalent to an initial conversion price of $49.625
per share of common stock). The last reported sale price of
Titan's common stock on the New York Stock Exchange on
February 3, 2000 was $40.3125 per share.
On and after the reset date, each HIGH TIDES may, at the
trust's option and subject to the results of remarketing,
become nonconvertible or convertible into a different number
of shares of common stock. The conversion price and
conversion ratio in effect at any time shall hereafter be
referred to as the applicable conversion price and the
applicable conversion ratio, each of which will be subject
to adjustment in certain circumstances.
In connection with any conversion of the HIGH TIDES, the
property trustee of the trust will exchange those HIGH TIDES
for debentures having a principal amount equal to the stated
liquidation amount of $50 per HIGH TIDES exchanged. The
conversion agent will then immediately convert the
debentures into Titan common stock. We will not issue any
fractional shares of common stock as a result of the
conversion. Instead, we will pay the fractional interest in
cash based on the then current market value of our common
stock. Also we will not issue any additional shares of our
common stock upon conversion of the HIGH TIDES to pay for
any accrued but unpaid distributions on the HIGH TIDES at
the time of conversion.
MATURITY................. The HIGH TIDES do not have a stated maturity. However, the
trust must redeem the HIGH TIDES upon the repayment or
redemption, in whole or in part, of the debentures. The
debentures will mature on February 15, 2030, unless earlier
redeemed. Upon redemption of the debentures on February 15,
2030, the trust will redeem the HIGH TIDES at their
liquidation amounts plus accrued and unpaid distributions.
REMARKETING.............. The remarketing agent has agreed to use its best efforts to
remarket all HIGH TIDES tendered for remarketing. The
remarketing agent will establish the following, all of which
will be effective as of the reset date:
- the term rate per annum at which distributions will
accrue on the HIGH TIDES;
- the number of shares of common stock, if any, into which
HIGH TIDES may be converted; and
- the price, manner and time, if any, at which the HIGH
TIDES may be redeemed at our option, prior to the stated
maturity date of the debentures.
The reset date is any date (a) not later than February 15,
2005, or the final reset date, or, if the day is not a
business day, the next succeeding business day, and (b) not
earlier than 70 business days
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
prior to February 15, 2005, as may be determined by the
remarketing agent, in its sole discretion.
The remarketing agent will use its best efforts to establish
the term rate, term conversion price and ratio and term call
provisions most favorable to us consistent with the
remarketing of all HIGH TIDES tendered at a reset price
equal to 101% of the liquidation amount of the HIGH TIDES.
At least 30 business days but not more than 90 business days
prior to the final reset date, the trust will send a
remarketing notice to you stating whether it intends to
remarket the HIGH TIDES as securities that either will be
convertible into common stock or nonconvertible. All HIGH
TIDES you own will be deemed tendered for remarketing unless
you deliver an irrevocable notice to the contrary to the
tender agent prior to the tender notification date. The
tender agent will promptly remit the irrevocable notice to
the remarketing agent prior to the tender notification date.
The tender notification date is a date no earlier than 10
business days following the remarketing notice date, or a
shorter period as shall be agreed to by the remarketing
agent.
If no HIGH TIDES are tendered for remarketing, the
remarketing will not take place, and the remarketing agent
will set the term rate, term conversion price and ratio and
term call provisions in a manner consistent with the
remarketing notice in the manner that it believes, in its
sole discretion, would result in a price per HIGH TIDES
equal to 101% of the liquidation amount of the HIGH TIDES
were a remarketing actually to occur.
If any HIGH TIDES are tendered for remarketing, the
remarketing agent will commence a convertible remarketing or
a nonconvertible remarketing. In either case, an initial
remarketing will proceed according to instructions set forth
in the remarketing notice. The initial remarketing will fail
if:
- despite using its best efforts, the remarketing agent is
unable to establish a term rate less than or equal to the
maximum rate, which is a rate equal to the treasury rate
plus 10%, during the initial remarketing period;
- the remarketing agent is excused from its obligations
because of the failure by us or the trust to satisfy certain
conditions or the occurrence of certain market events
specified in the remarketing agreement;
- there is no remarketing agent on the first day of the
initial remarketing period; or
- prior to the initial remarketing termination date, term
provisions are established by the remarketing agent, but the
remarketing agent is unable to sell one or more HIGH
TIDES tendered for remarketing because of the occurrence
of certain market events specified in the remarketing
agreement.
In the event of an initial failed remarketing, the
remarketing agent will commence a final remarketing. This
final remarketing will be a
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
convertible remarketing if the initial remarketing was a
nonconvertible remarketing and vice versa. If the
remarketing agent is still not able to establish a term rate
less than or equal to the maximum rate during the final
remarketing period or upon the failure by us or the trust to
satisfy certain conditions or the occurrence of certain
market events specified in the remarketing agreement, the
final remarketing will fail. In the event of a failed final
remarketing, the HIGH TIDES will remain outstanding as
convertible securities at a term rate equal to the treasury
rate plus 10% per annum and with a term conversion price
equal to 105% of the average closing price of our common
stock for the five consecutive trading days after the final
failed remarketing termination date. In the event of a
failed final remarketing, all outstanding HIGH TIDES will be
redeemable by us, in whole or in part, at any time on or
after the third anniversary of the reset date at a
redemption price equal to 100% of the aggregate liquidation
amount thereof, plus accrued and unpaid distributions
thereon.
If the remarketing agent is able to establish a term rate
less than or equal to the maximum rate during the initial
remarketing period or the final remarketing period, as the
case may be, new holders will deliver the reset price for
the remarketed HIGH TIDES, and the term provisions will
become effective on the reset date.
If for any reason term provisions are established by the
remarketing agent but the remarketing agent is unable to
sell one or more HIGH TIDES tendered for remarketing, the
remarketing agent will be obligated, subject to some
conditions, to purchase the HIGH TIDES for the reset price.
REMARKETING AGENT........ Credit Suisse First Boston Corporation has agreed to act as
the initial remarketing agent, but may resign or be replaced
by us prior to the remarketing in accordance with the
remarketing agreement. The remarketing will be done without
charge to the holders of HIGH TIDES, but we will pay the
remarketing agent a fee equal to 1% of the aggregate
liquidation amount of the HIGH TIDES outstanding on the
reset date upon settlement of the transactions contemplated
by the remarketing.
OPTIONAL REDEMPTION...... We may redeem the debentures:
- in whole or in part, at any time on or after
February 20, 2003 until but excluding the tender
notification date, at a redemption price equal to 101.44%
of the principal amount of the debentures, declining to
100% of the principal amount of the debentures on or
after February 20, 2004, plus any accrued and unpaid
interest; and
- after the reset date, in accordance with the term call
protections, if any, established in the remarketing or,
upon a failed final remarketing, on or after the third
anniversary of the reset date at a redemption price equal
to 100% of the principal amount of the debentures, plus
any accrued and unpaid interest.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Upon the redemption in whole or in part of the debentures,
the proceeds of the redemption shall be concurrently applied
to redeem, at the applicable redemption price, the related
HIGH TIDES and the trust's common securities having an
aggregate liquidation amount equal to the aggregate
principal amount of debentures redeemed.
USE OF PROCEEDS AND OFFER
TO REPURCHASE THE HIGH
TIDES.................... The trust will use the gross proceeds from this offering and
from the issuance of the trust's common securities to
purchase the debentures. We will be required to make a
repurchase offer for up to 50% of the aggregate liquidation
amount of each of the HIGH TIDES and the trust's common
securities if our acquisition of Advanced Communication
Systems does not close on or prior to March 31, 2000. We
will dedicate 50% of the proceeds from the sale of
debentures to the trust, plus an amount equal to 2.5% of
that portion of those proceeds, to fund the repurchase
offer, and use the remaining net proceeds to repay
indebtedness outstanding under our existing credit facility.
If our acquisition of Advanced Communication Systems closes
on or prior to March 31, 2000, we will use the proceeds from
the sale of debentures to the trust that otherwise would
have been used to fund the repurchase offer for general
corporate purposes, including funding of our working capital
requirements. In addition, a portion of these proceeds also
may be used to acquire or invest in complementary
businesses, technologies and products.
TAX EVENT OR INVESTMENT
COMPANY EVENT REDEMPTION
OR DISTRIBUTION.......... Upon the occurrence of specified tax changes affecting the
trust's taxable status or the deductibility of interest on
the debentures or changes in the law causing the trust to be
considered an investment company, we will cause the trustees
to dissolve and liquidate the trust and, after satisfaction
of liabilities of creditors of the trust, distribute the
debentures to you. In limited circumstances, we may redeem
the debentures in whole, but not in part, at a price equal
to the principal amount of the debentures plus accrued and
unpaid interest, in lieu of distributing the debentures.
Upon the occurrence of certain changes in the tax laws, we
may also cause the HIGH TIDES to remain outstanding and pay
additional amounts due on the debentures as a result of the
change.
EFFECT OF REDEMPTION..... Each of the terms "stated maturity price," "initial
redemption price," "term redemption price," if applicable,
and "tax event redemption price" are referred to as a
redemption price. Upon the repayment or redemption of the
debentures, the trust will concurrently redeem, on a pro
rata basis, at the applicable redemption price, the HIGH
TIDES and common securities having a liquidation amount
equal to the principal amount of the repaid or redeemed
debentures. If an event of default exists under the
debentures or the declaration of trust that governs the
trust, the
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
HIGH TIDES will receive a preference over the trust's common
securities.
LIQUIDATION AMOUNT....... If the trust is liquidated and the debentures are not
distributed to you, you will generally be entitled to
receive, after satisfaction of liabilities to creditors of
the trust as required by applicable law, $50 per HIGH TIDES
plus accrued and unpaid distributions on each HIGH TIDES you
hold.
GUARANTEE................ We will irrevocably guarantee, on a subordinated basis and
to the extent set forth in this offering circular, the
payment of the following:
- distributions on the HIGH TIDES to the extent of
available trust funds;
- the amount payable upon redemption of the HIGH TIDES to
the extent of available trust funds; and
- generally, the liquidation amount of the HIGH TIDES to
the extent of trust funds available for distribution to you.
The guarantee will be unsecured and subordinate only to all
of our indebtedness under our credit facility and any
secured debt we have in addition to that indebtedness. Our
guarantee is effectively junior to the debt and other
liabilities of our subsidiaries, and as a result, funds may
not be available for payment under the guarantee.
Effectively, we have, through the guarantee, the debentures,
the indenture governing the debentures and the trust's
declaration of trust, taken together, fully, irrevocably and
unconditionally guaranteed all of the trust's obligations
under the HIGH TIDES. No single document standing alone or
operating in conjunction with fewer than all of the other
documents constitutes a full guarantee. It is only the
combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of
the trust's obligations under the HIGH TIDES.
LIQUIDATION OF THE
TRUST.................... We, as holder of the trust's common securities, have the
right at any time to dissolve the trust, subject to
specified conditions. If we dissolve the trust, after
satisfaction of liabilities to creditors of the trust, we
will distribute to you debentures having a principal amount
equal to the liquidation amount of the HIGH TIDES you hold
or, in limited circumstances, an amount equal to the
liquidation amount per HIGH TIDES plus accumulated and
unpaid distributions to the date of payment.
VOTING RIGHTS............ Except in limited circumstances or as required by law, you
do not have any voting rights, unless an event of default
with respect to the debentures occurs and is continuing or
we default under the guarantee with respect to the HIGH
TIDES, in which case, you will be entitled, by majority
vote, to appoint an additional trustee of the trust or
remove the Delaware trustee or the property trustee.
RANKING.................. Generally, the trust will make payment on the HIGH TIDES on
a pro rata basis with its common securities. The debentures
will be unsecured and subordinate and junior in right of
payment only to
</TABLE>
12
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<TABLE>
<CAPTION>
<S> <C>
all of our indebtedness under our credit facility and any
secured debt we have in addition to that indebtedness. At
January 21, 2000, we had $141 million of indebtedness
outstanding under our existing credit facility, and we have
received a commitment for a new $250 million senior secured
credit facility. The debentures are effectively junior to
the debt and other liabilities of our subsidiaries, and as a
result, funds may not be available for payments due under
the debentures. Our subsidiaries are separate legal entities
and have no obligations to pay, or make funds available for
the payment of, any amount due on the debentures, the HIGH
TIDES or the guarantee.
FORM OF HIGH TIDES....... The HIGH TIDES initially sold to qualified institutional
buyers in reliance on Rule 144A under the Securities Act
will be represented by a global certificate registered in
the name of Cede & Co., as nominee for The Depository Trust
Company, or DTC. Beneficial interests in these HIGH TIDES
will be evidenced by records maintained by DTC or the
participants in DTC. Except under limited circumstances,
HIGH TIDES in certificated form will not be issued in
exchange for the global certificate or certificates.
TRANSFER RESTRICTIONS.... The HIGH TIDES, the debentures, and the common stock
issuable upon conversion of the HIGH TIDES may not be
offered, sold, pledged or otherwise transferred except as
described in the "Transfer Restrictions" section of this
offering circular.
REGISTRATION RIGHTS...... Under a registration rights agreement, we and the trust have
agreed (a) within 75 days after the HIGH TIDES are issued to
file a shelf registration statement with respect to the
resale of the HIGH TIDES (the shelf registration statement
will also cover the guarantee, the debentures and the common
stock issuable upon conversion of the HIGH TIDES) and
(b) to use our best efforts to cause the shelf registration
statement to be declared effective within 150 days of the
issue date and to keep the shelf registration statement
effective and useable (subject to certain exceptions) for
two years or such other period as shall be required under
Rule 144(k) of the Securities Act or such shorter period
ending when all the registrable securities have been sold
thereunder. Special interest and special distributions will
accrue on the debentures and the HIGH TIDES if we or the
trust fail to meet our obligations under the registration
rights agreement.
ABSENCE OF MARKET FOR THE
HIGH TIDES............... The HIGH TIDES will be a new issue of securities for which
there is currently no market. The HIGH TIDES are expected to
be made eligible for trading in PORTAL. Although the initial
purchasers have informed us that they currently intend to
make a market in the HIGH TIDES, the initial purchasers are
not obligated to do so, and any market making may be
discontinued at any time without notice. Accordingly, we
cannot assure you as to the development of liquidity of any
market for the HIGH TIDES.
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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
THE FOLLOWING UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND BALANCE SHEET
DATA HAVE BEEN DERIVED FROM, AND SHOULD BE READ IN CONJUNCTION WITH OUR
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES, AND
THOSE OF ADVANCED COMMUNICATION SYSTEMS, INC., TRANSNATIONAL PARTNERS II, LLC,
J.B. SYSTEMS, INC. (ALSO KNOWN AS MAINSAVER), ASSIST CORNERSTONE
TECHNOLOGIES, INC. AND SFG TECHNOLOGIES, INC. CONTAINED ELSEWHERE IN THIS
OFFERING CIRCULAR OR INCORPORATED BY REFERENCE HEREIN. THE UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS AND BALANCE SHEET DATA SHOULD ALSO BE READ IN
CONJUNCTION WITH "UNAUDITED PRO FORMA FINANCIAL DATA" AND THE RELATED NOTES IN
THIS OFFERING CIRCULAR. THE PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEARS
ENDED DECEMBER 31, 1996 AND 1997 ASSUMES THAT WE COMPLETED THE ACQUISITION OF
ADVANCED COMMUNICATION SYSTEMS AS OF THE BEGINNING OF EACH SUCH PERIOD. THE PRO
FORMA STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED DECEMBER 31, 1998, FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 AND FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, 1999 ASSUMES THAT WE COMPLETED THE ACQUISITIONS OF ADVANCED
COMMUNICATION SYSTEMS, TRANSNATIONAL PARTNERS, MAINSAVER, ASSIST AND SFG
TECHNOLOGIES AS OF THE BEGINNING OF EACH SUCH PERIOD. THE PRO FORMA BALANCE
SHEET DATA AS OF SEPTEMBER 30, 1999 ASSUMES THAT WE COMPLETED THESE ACQUISITIONS
AS OF SUCH DATE. OUR ACQUISITION OF ADVANCED COMMUNICATION SYSTEMS IS EXPECTED
TO CLOSE IN THE FIRST QUARTER OF 2000. THE PRO FORMA STATEMENT OF OPERATIONS AND
BALANCE SHEET DATA IS NOT NECESSARILY INDICATIVE OF OUR OPERATING RESULTS OR
FINANCIAL CONDITION THAT WOULD HAVE OCCURRED HAD THESE ACQUISITIONS OCCURRED AS
OF THE DATES INDICATED OR OF ANY EXPECTED FUTURE RESULTS.
<TABLE>
<CAPTION>
TWELVE
MONTHS
NINE MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- --------------
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenue........................................ $277,641 $328,117 $440,433 $298,724 $451,274 $592,983
Costs and expenses:
Cost of revenues............................. 211,964 254,240 315,465 216,375 324,771 423,861
Selling, general and administrative
expense.................................... 46,479 47,859 82,426 54,144 86,438 114,720
Research and development expense............. 5,023 7,466 8,786 6,133 8,128 10,781
Special acquisition related charges and
other...................................... -- 8,510 9,891 4,553 -- 5,338
-------- -------- -------- -------- -------- --------
Total costs and expenses................... 263,466 318,075 416,568 281,205 419,337 554,700
-------- -------- -------- -------- -------- --------
Operating profit (loss)........................ 14,175 10,042 23,865 17,519 31,937 38,283
Interest expense............................... (5,021) (6,779) (12,783) (8,964) (12,392) (16,211)
Interest income................................ 696 1,025 512 302 585 795
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations before
income taxes................................. 9,850 4,288 11,594 8,857 20,130 22,866
Income tax provision........................... 2,603 3,934 5,784 3,730 7,901 9,955
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle, net............................... $ 7,247 $ 354 $ 5,810 $ 5,127 $ 12,229 $ 12,911
======== ======== ======== ======== ======== ========
Basic earnings per share
Income from continuing operations............ $ 0.16 $ (0.01) $ 0.12 $ 0.11 $ 0.25 $ 0.28
======== ======== ======== ======== ======== ========
Weighted average shares.................... 39,459 40,485 42,802 42,521 45,983 43,769
======== ======== ======== ======== ======== ========
Diluted earnings per share
Income from continuing operations............ $ 0.16 $ (0.01) $ 0.11 $ 0.10 $ 0.22 $ 0.26
======== ======== ======== ======== ======== ========
Weighted average shares.................... 39,836 40,485 43,936 43,627 53,396 46,987
======== ======== ======== ======== ======== ========
</TABLE>
14
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<TABLE>
<CAPTION>
TWELVE
MONTHS
NINE MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------- --------------
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA OTHER DATA:
Non-recurring charges........................ $ -- $ 11,756 $ 11,469 $ 4,758 $ 237 $ 6,948
EBITDA (1)................................... 22,621 31,482 48,739 31,409 44,236 61,566
Adjusted EBITDA (2).......................... 22,621 31,482 56,503 40,020 54,502 70,985
Depreciation and Amortization................ 8,446 9,684 13,405 9,132 12,062 16,335
Capital Expenditures......................... 7,008 7,325 7,057 4,630 7,332 9,759
Ratio of Earnings to Fixed Charges (3)....... 2.2x 1.4x 1.7x 1.8x 2.3x 2.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1999
--------------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,235
Working capital............................................. 114,632
Property and equipment, net................................. 38,175
Total assets................................................ 505,669
Total debt.................................................. 232,165
Stockholders' equity........................................ 131,450
</TABLE>
- ------------------------------
(1) EBITDA for any relevant period represents earnings before non-recurring
special acquisition related charges and other interest, taxes, depreciation
and amortization, assuming that we completed the acquisitions described in
the introductory paragraph to this financial data as of the dates stated
therein. We have included EBITDA because we understand that it is one
measure used by some investors to determine our operating cash flow and
historical ability to service our indebtedness. However, other companies in
our business may present EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
(2) Adjusted EBITDA for any relevant period (for the twelve months ended
September 30, 1999 and December 31, 1998 and the nine months ended
September 30, 1998 and 1999) represents EBITDA as adjusted, giving effect to
the acquisitions of System Resources Corporation and Atlantic Aerospace
Electronics Corporation, stated on a pro forma basis before non-recurring
charges as if they had occurred at the beginning of each such period.
Adjusted EBITDA also includes the effect of conforming Advanced
Communication Systems' fiscal year end in 1998 and 1999 of September 30th to
our fiscal year end. Also, Adjusted EBITDA includes certain anticipated cost
savings, net of certain incremental expenses, of $4.9 million (for the
acquisition of Advanced Communication Systems and for our software
acquisitions). Cost savings associated with the Advanced Communication
Systems acquisition include the retirement of the chief executive officer,
costs of operating as a public company and consolidation of legal and audit
services, among others. Cost savings associated with the acquisitions of
Mainsaver, Assist and SFG Technologies include consolidation of accounting
functions and employee benefits, consolidation of professional services, and
reduction in personnel. Actual results and cost savings may differ
materially from those reflected in Adjusted EBITDA due to higher than
expected integration costs, higher than expected costs associated with
expanding our business segments' operations or an increase in our other
costs. Such estimated cost savings do not qualify as pro forma adjustments
under Regulation S-X promulgated under the Securities Act and constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Accordingly, such cost savings have been
excluded from the pro forma adjustments in our unaudited pro forma
historical financial information. Arthur Andersen LLP does not express any
opinion or other form of assurance with respect to Adjusted EBITDA or any
components thereof. See "Cautionary Statement About Forward-Looking
Statements."
(3) For purposes of computing the pro forma ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges and "fixed
charges" consist of interest expense (including amortization of debt
discount and expense), leasing expense and the estimated interest factor
attributable to rentals. The pro forma ratio of earnings to combined fixed
charges and preferred dividends was 2.1x during 1996, 1.4x during 1997, 1.7x
during 1998, 1.8x during the nine months ended September 30, 1998, and 2.3x
during the nine months ended September 30, 1999.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
TITAN DERIVED THE FOLLOWING INFORMATION FROM ITS AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1996 THROUGH
1998 AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999. THE FOLLOWING INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF
TITAN AND RELATED NOTES CONTAINED ELSEWHERE IN THIS OFFERING CIRCULAR.
THE SUMMARY CONSOLIDATED STATEMENT OF OPERATIONS DATA FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 AND THE CONSOLIDATED BALANCE SHEET DATA AS OF
SEPTEMBER 30, 1999 ARE UNAUDITED BUT INCLUDE, IN THE OPINION OF MANAGEMENT, ALL
ADJUSTMENTS, CONSISTING OF ONLY NORMAL RECURRING ADJUSTMENTS, NECESSARY FOR A
FAIR PRESENTATION OF SUCH DATA. RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS WHICH MAY BE EXPECTED FOR ANY
OTHER INTERIM PERIODS OR FOR THE YEAR AS A WHOLE.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $245,976 $275,923 $303,428 $218,678 $274,059
Cost and expenses:
Cost of revenues.......................................... 192,657 216,553 232,041 168,816 211,147
Selling, general and administrative expense............... 36,226 36,731 37,553 26,936 32,957
Research and development expense.......................... 5,023 7,466 5,590 4,025 5,317
Special acquisition related charges and other............. -- 6,600 9,891 4,553 --
-------- -------- -------- -------- --------
Total costs and expenses................................ 233,906 267,350 285,075 204,330 249,421
-------- -------- -------- -------- --------
Operating Profit............................................ 12,070 8,573 18,353 14,348 24,638
Interest expense............................................ (4,764) (6,643) (7,377) (5,399) (6,712)
Interest income............................................. 639 872 392 262 585
-------- -------- -------- -------- --------
Income from continuing operations before income taxes....... 7,945 2,802 11,368 9,211 18,511
Income tax provision (benefit).............................. 2,603 4,184 4,155 3,336 5,553
-------- -------- -------- -------- --------
Income from continuing operations before cumulative effect
of change in accounting principle......................... 5,342 (1,382) 7,213 5,875 12,958
Cumulative effect of change in accounting principle, net.... -- -- (19,474) (19,474) --
Loss from discontinued operations, net of taxes............. (6,326) (17,930) (7,444) (5,617) --
-------- -------- -------- -------- --------
Net income (loss)......................................... (984) (19,312) (19,705) (19,216) 12,958
Dividend requirements on preferred stock.................... (803) (875) (778) (605) (521)
-------- -------- -------- -------- --------
Net income (loss) applicable to common stock.............. $ (1,787) $(20,187) $(20,483) $(19,821) $ 12,437
======== ======== ======== ======== ========
Basic earnings per share:
Income from continuing operations....................... $ 0.14 $ (0.07) $ 0.18 $ 0.15 $ 0.33
Cumulative effect of change in accounting principle..... -- -- (0.56) (0.56) --
Loss from discontinued operations....................... (0.20) (0.54) (0.21) (0.16) --
-------- -------- -------- -------- --------
Net income (loss)......................................... $ (0.06) $ (0.61) $ (0.59) $ (0.57) $ 0.33
======== ======== ======== ======== ========
Weighted average shares................................. 32,068 33,094 34,895 34,614 38,076
======== ======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations....................... $ 0.14 $ (0.07) $ 0.18 $ 0.15 $ 0.29
Cumulative effect of change in accounting principle..... -- -- (0.54) (0.54) --
Loss from discontinued operations....................... (0.20) (0.54) (0.21) (0.16) --
-------- -------- -------- -------- --------
Net income (loss)......................................... $ (0.06) $ (0.61) $ (0.57) $ (0.55) $ 0.29
======== ======== ======== ======== ========
Weighted average shares................................. 32,445 33,094 36,177 36,013 45,732
======== ======== ======== ======== ========
OTHER DATA:
Special acquisition related charges and other (1)......... $ -- $ 9,846 $ 9,891 $ 4,553 $ --
EBITDA (2)................................................ 20,114 27,632 35,370 24,279 31,435
Depreciation and Amortization............................. 8,044 9,213 7,126 5,378 6,797
Capital Expenditures...................................... 6,638 6,647 4,038 2,284 5,672
Ratio of Earnings to Fixed Charges (3).................... 2.1x 1.3x 2.1x 2.3x 3.1x
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 5,719 $ 11,383 $ 11,079 $ 4,207
Investments............................................... 9,888 -- -- --
Working capital........................................... 62,634 115,779 64,450 91,391
Property and equipment, net............................... 29,391 27,666 25,702 28,476
Total assets.............................................. 193,288 183,703 192,567 293,108
Total debt................................................ 54,242 62,200 75,240 130,854
Stockholders' equity...................................... 82,279 65,447 50,711 86,837
</TABLE>
- ------------------------------
(1) Special acquisition charges primarily relate to direct merger transaction
costs and integration costs in 1998 and 1999, and charges related to asset
write downs to net realizable value and an accrual for certain environmental
liabilities in 1997.
(2) EBITDA for any relevant period represents earnings before non-recurring
special acquisition related charges and other interest, taxes, depreciation
and amortization. We have included EBITDA because we understand that it is
one measure used by some investors to determine our operating cash flow and
historical ability to service our indebtedness. However, other companies in
our business may present EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges and "fixed charges"
consist of interest expense (including amortization of debt discount and
expense), leasing expense and the estimated interest factor attributable to
rentals. The ratio of earnings to combined fixed charges and preferred
dividends was 1.9x during 1996, 1.2x during 1997, 2.0x during 1998, 2.1x
during the nine months ended September 30, 1998, and 2.9x during the nine
months ended September 30, 1999.
17
<PAGE>
RISK FACTORS
INVESTING IN THE HIGH TIDES INVOLVES RISK. YOU SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
OFFERING CIRCULAR, BEFORE PURCHASING THE HIGH TIDES IN THIS OFFERING. THE RISKS
AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY RISKS WE FACE. ADDITIONAL
RISKS AND UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM
IMMATERIAL MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THESE RISKS ACTUALLY
OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE
MATERIALLY AND ADVERSELY AFFECTED, THE TRADING PRICES OF THE HIGH TIDES AND OUR
COMMON STOCK COULD DECLINE AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATING TO OUR BUSINESS AND COMMON STOCK
OUR CAYENTA, TITAN SCAN AND TITAN WIRELESS BUSINESSES OPERATE IN EMERGING
MARKETS AND WE WILL BE UNABLE TO EXPAND THESE BUSINESSES AS WE EXPECT IF THE
PRINCIPAL PRODUCTS AND SERVICES OF THOSE BUSINESSES DO NOT MEET WITH MARKET
ACCEPTANCE.
If any of the primary markets targeted by Cayenta, Titan Scan or Titan
Wireless fails to develop as we anticipate, our revenues will be less than we
expected, our business will suffer and we may be unable to recoup the
investments we have made to develop and market the principal products and
services of those businesses.
To grow as currently contemplated, we will need to derive an increasing
portion of our revenues from our Cayenta, Titan Scan and Titan Wireless
businesses.
To date, none of Cayenta's revenues have been derived from direct sales by
it of its total services provider, or TSP, offering. Cayenta's only TSP-related
revenues have resulted from providing TSP services to the customers of a joint
venture in which it holds a 10% equity interest. The market for TSP offerings
has only recently begun to develop, and Cayenta cannot be certain that the
market for TSP offerings will develop.
The use of our Titan Scan electron beam technology for food irradiation has
only recently been approved by the applicable regulatory authorities in the
United States. Accordingly, a market for pasteurized foods has only recently
begun to develop, and its continued development will depend on broad acceptance
of irradiated foods by consumers, food producers and providers, restaurant
chains and food retailers. This acceptance may not occur.
Titan Wireless's principal strategy is to provide products used in telephony
systems in developing countries. We cannot guarantee that a substantial market
for telephony services in developing countries will ever develop, or if such a
market does develop, that fixed-site satellite equipment will capture a
significant portion of that market. The development of a market for telephony
services in developing counties will depend upon a variety of factors including
whether a particular country has sufficient resources to support such a market
and whether the telephony services are offered at a reasonable cost to the end
users of such services. Titan Wireless's ability to penetrate the telephony
market in developing countries will be adversely affected to the extent that
other competing elements of the communications infrastructure, such as telephone
lines, other satellite-delivered solutions and fiber optic cable and television
cable, are installed in the developing countries. In addition, the development
and implementation of telephony systems will be dependent upon, among other
items, the continued development of necessary technologies, continued financial
and other support from governmental agencies, the implementation of
cost-effective systems, market acceptance for such systems and approval by
appropriate regulatory agencies.
18
<PAGE>
WE HAVE A LIMITED HISTORY OF COMMERCIALIZING NEW TECHNOLOGIES AND OUR
COMMERCIAL BUSINESSES MAY NOT REMAIN OR EVER BECOME SUCCESSFUL.
In 1991, we adopted a strategy of seeking to develop commercial businesses
using technology developed in our defense businesses. Our Titan Scan and Titan
Wireless businesses are a product of this strategy. Many of our commercial
businesses are in an early stage of development or have only recently begun to
offer their products, services, systems or solutions in the emerging markets in
which they operate. These technology-based businesses are subject to risks
inherent in companies at these early stages of development, including:
- the risks that their base technology will become obsolete and that they
will fail to respond in a timely and cost-effective manner to rapid
technological changes;
- the risks associated with operating in markets that are subject to a high
degree of competition;
- the risk that they will have inadequate management resources to capitalize
on market opportunities and execute their strategy;
- the risk that they will be unable to manage rapid growth effectively;
- the risk that they will be unable to execute successfully each portion of
their business strategy on schedule;
- the risk that we may not identify markets with sufficient opportunities to
justify our investments in products and solutions for these markets;
- the market and operating risks that are unique to each particular
business; and
- the risk that adequate capital may not be available to fund their
continued development.
WE CANNOT GUARANTEE THAT CAYENTA'S PENDING INITIAL PUBLIC OFFERING WILL
CLOSE OR THAT WE WILL BE ABLE TO EXECUTE ON OUR STRATEGY OF OBTAINING PUBLIC OR
PRIVATE FINANCING TO FUND THE GROWTH OF OUR COMMERCIAL BUSINESSES.
As part of our strategy of seeking external financing to grow our commercial
businesses, our Cayenta subsidiary has filed a registration statement for an
initial public offering of its common stock. We cannot guarantee that Cayenta
will succeed in completing the offering, which may be adversely affected by
market conditions or other factors. We have extended a credit facility of up to
a maximum of $70.0 million to Cayenta under which Cayenta owed us approximately
$54 million as of January 21, 2000. Cayenta may not use the proceeds of its
initial public offering to pay amounts outstanding under its credit facility
with us.
In addition, we may seek public or private financing for one or more of our
commercial businesses to fund their growth, including through initial public
offerings or spin-offs for any of our segments. We cannot guarantee that
adequate capital to fund our growth will be available to us or be available on
acceptable terms or that we will complete any spin-off of any of our segments.
WE DEPEND ON GOVERNMENT CONTRACTS FOR A MAJORITY OF OUR REVENUES.
We earn a majority of our total revenues from U.S. government contracts. Any
cancellations or modifications of our significant contracts or subcontracts, or
failure by the U.S. government to exercise an option period relating to those
contracts or subcontracts, could hurt our business, financial condition and
results of operations in the short or long term. Continuing declines in U.S.
defense and other federal agency budgets also may hurt our prospects.
Our revenues from U.S. government business represented approximately 81% of
our total revenues in 1996, 82% of our total revenues in 1997, and 80% of our
total revenues in 1998. On a pro forma basis giving effect to our acquisition of
Advanced Communication Systems, our revenues from U.S.
19
<PAGE>
government business represented approximately 88% of our total revenues for the
twelve months ended September 30, 1999. This percentage may rise in the future.
Although we bid for and are awarded long-term U.S. government contracts and
subcontracts, the U.S. government only funds these contracts on an annual basis,
and many of our contracts and subcontracts include option years. The U.S.
government may cancel these contracts at any time without penalty or may change
its requirements, programs or contract budget, and generally has the right not
to exercise option periods. The U.S. Congress may decline to appropriate funds
needed to complete the contracts awarded to us or the prime contractor. On our
subcontracts, we generally do not control the prime contractor's allocation of
resources. We also depend upon the prime contractor to perform its obligations
on the primary government contract. In addition to contract cancellations and
declines in agency budgets, our prospects may be adversely affected by:
- budgetary constraints affecting U.S. government spending generally, and
changes in fiscal policy or available funding;
- curtailment of the U.S government's use of technology services providers;
- the adoption of new laws or regulations;
- technological developments;
- U.S. government shutdowns, such as that which occurred during the U.S.
government's 1996 fiscal year;
- competition and consolidation in our business areas; and
- general economic conditions.
These or other factors could cause government agencies to reduce their purchases
under contracts, to exercise their right to terminate contracts or not to
exercise options to renew contracts. Any of these actions could have a material
adverse effect on our business, financial condition and results of operations.
GOVERNMENT AUDITS OF OUR GOVERNMENT CONTRACTS COULD CAUSE A MATERIAL
NEGATIVE ADJUSTMENT TO OUR REVENUES.
Our government contracts are subject to cost audits by the government. These
audits may occur several years after completion of the audited work. Audits may
result in a recalculation of contract revenues or result in the government
refusing to reimburse some of our contract costs and fees. Generally, we resolve
audit issues by negotiation without material adjustments. However, in the
future, we could have a material adjustment to revenue as a result of an audit,
including an audit of one of the companies we have recently acquired. Before we
acquired them, some of our recently acquired companies did not impose internal
controls as rigorous as those we impose on the government contracts we perform.
As part of the integration process, we seek to apply our policies throughout the
acquired companies.
OUR OPERATING MARGINS MAY DECLINE UNDER OUR FIXED-PRICE CONTRACTS IF WE FAIL
TO ESTIMATE ACCURATELY THE RESOURCES NECESSARY TO SATISFY OUR OBLIGATIONS.
Some of our contracts are fixed-price contracts under which we bear the risk
of any cost overruns. Our profits are adversely affected if our costs under
these contracts exceed the assumptions we used in bidding for the contract.
WE ARE NOT ABLE TO GUARANTEE THAT WE WILL RETAIN OUR CONTRACTS WITH THE U.S.
GOVERNMENT AND SUBCONTRACTS UNDER U.S. GOVERNMENT PRIME CONTRACTS IN ANY
COMPETITIVE REBIDDING PROCESS.
Upon expiration of a U.S. government contract or subcontract under U.S.
government prime contracts, if the government customer requires further services
of the type provided in the contract,
20
<PAGE>
there is frequently a competitive rebidding process. We cannot guarantee that
we, or the prime contractor, will win any particular bid, or that we will be
able to replace business lost upon expiration or completion of a contract.
Further, all U.S. government contracts are subject to protest by competitors.
The unexpected termination of one or more of our significant contracts could
result in significant revenue shortfalls. The termination or nonrenewal of any
of our significant contracts, short-term revenue shortfalls, the imposition of
fines or damages, or our suspension or debarment from bidding on additional
contracts could have a material adverse effect on our business, financial
condition and results of operations.
MANY OF OUR U.S. GOVERNMENT CUSTOMERS SPEND THEIR PROCUREMENT BUDGETS
THROUGH GSA SCHEDULE CONTRACTS, AND WE ARE REQUIRED TO COMPETE FOR POST-AWARD
ORDERS.
Budgetary pressures and reforms in the procurement process have caused many
U.S. government customers increasingly to purchase goods and services through
"indefinite delivery, indefinite quantity" contracts, General Service
Administration, or GSA, Schedule contracts and other multiple award or
government-wide acquisitions contract vehicles. Our failure to compete
effectively in this procurement environment could have a material adverse effect
on our business, financial condition and results of operations. These contract
vehicles have resulted in increased competition and pricing pressure and
required us to make sustained post-award efforts to realize revenues under the
relevant contract. We cannot guarantee that we will continue to increase
revenues or otherwise sell successfully under these contract vehicles.
WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF PROCUREMENT RULES AND
REGULATIONS, AND CHANGES IN GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR
BUSINESS.
Our defense and commercial businesses must comply with and are affected by
various government regulations. Among the most significant regulations are the
following:
- the Federal Acquisition Regulations, which comprehensively regulate the
formation, administration and performance of government contracts;
- the Truth in Negotiations Act, which requires certification and disclosure
of all cost and pricing data in connection with contract negotiations;
- the Cost Accounting Standards, which impose accounting requirements that
govern our right to reimbursement under certain cost-based government
contracts; and
- laws, regulations and Executive Orders restricting the use and
dissemination of information classified for national security purposes and
the exportation of certain products and technical data.
These regulations affect how our customers and we do business and, in some
instances, impose added costs on our businesses. Any changes in applicable laws
could adversely affect the financial performance of the business affected by the
changed regulations. Any failure to comply with applicable laws could result in
contract termination, price or fee reductions or suspension or debarment from
contracting with the U.S. government.
OUR FAILURE TO RETAIN QUALIFIED TECHNICAL AND MANAGEMENT PERSONNEL COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.
We need to maintain our workforce of highly qualified technical and
management personnel for each of our segments, including our engineers, computer
programmers and personnel with security clearances required for classified work.
In addition, our future success will depend in part on our ability to identify,
recruit and retain additional qualified personnel, including individuals with
security clearances required for classified work. The loss of any key personnel
could negatively affect our business, financial condition and results of
operations. Our employees generally have many other job opportunities, and there
is intense competition for their services. Consequently, we strive to maintain
an entrepreneurial work environment and provide financial incentives to attract
and retain our key
21
<PAGE>
personnel. We cannot guarantee that we will be able to continue to attract and
retain personnel with the advanced technical and security clearance
qualifications necessary for the development of our business.
WE COMPETE IN HIGHLY COMPETITIVE MARKETS AGAINST MANY COMPANIES THAT ARE
LARGER, BETTER FINANCED AND BETTER KNOWN THAN TITAN.
Our businesses operate in highly competitive markets. Many of our
competitors are larger, better financed and better known companies who may
compete more effectively than us. We believe we must continue to expand our
defense information technology business so that we can remain price competitive
and compete for larger contracts. For that reason, we are continuing to look for
acquisition candidates. Our commercial businesses compete against other
technologies as well as against companies with similar products. In order to
remain competitive, we must invest to keep our products technically advanced and
compete on price and on value added to our customers. Our ability to compete may
be adversely affected by limits on our capital resources and our ability to
invest in maintaining and expanding our market share. Any adverse financial
developments could make us a less effective competitor.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR ACQUISITIONS OF OTHER COMPANIES.
Since January 1, 1998, we have acquired seven defense information technology
companies as part of our consolidation strategy for our defense business. Four
of these seven transactions were structured as stock-for-stock pooling of
interests transactions. In addition, since January 1, 1999, we have acquired
four information technology services and solutions companies as part of
Cayenta's development of its total services provider offering. We are in the
process of acquiring Advanced Communication Systems which itself has acquired
multiple companies, most recently in September 1999. We also have agreed to
acquire one, and have a non-binding letter of intent to acquire another,
privately-held defense information technology company. The acquisition and
integration of new companies involves risk. The integration of acquired
businesses may be costly and may result in a decrease in our revenues or a
decrease in the value of our common stock for the following reasons, among
others:
- we may need to divert more management resources to integration than we
planned, which may adversely affect our ability to pursue other more
profitable activities;
- 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;
- we may not eliminate as many redundant costs as we anticipated in
selecting our acquisition candidates; and
- one or more of our acquisition candidates also may have liabilities or
adverse operating issues that we failed to discover through our diligence
prior to the acquisition.
Consequently, our recent acquisitions may not improve our business, financial
condition and results of operations in the short-term or long-term as we expect
them to do.
We intend to continue to look for complementary businesses or technologies
to acquire so that we can expand our core businesses. However, we may not find
any more attractive candidates or may find that the acquisition terms are not
favorable to us. In addition, we may compete with other companies for these
acquisition candidates. Instability in the U.S. securities markets and
volatility in our stock price may make acquisitions with our stock more
expensive. We also may not adequately assess the risks inherent in a particular
acquisition candidate or correctly assess the candidate's potential contribution
to our financial performance. Accordingly, our acquisition strategy may not
improve our overall business, financial condition and results of operations and
could weaken them.
WE MAY NOT ACQUIRE ADVANCED COMMUNICATION SYSTEMS, WHICH WOULD FORCE US TO
MAKE AN OFFER TO REPURCHASE UP TO 50% OF THE AGGREGATE LIQUIDATION AMOUNT OF
EACH OF THE HIGH TIDES AND THE TRUST'S
22
<PAGE>
COMMON SECURITIES AND RENDER MEANINGLESS THE PRO FORMA FINANCIAL INFORMATION IN
THIS OFFERING CIRCULAR.
Our acquisition of Advanced Communication Systems is expected to close
during the first quarter of 2000. Consummation of the acquisition is subject to
various conditions, including approval by the stockholders of Advanced
Communication Systems, who are expected to vote on the acquisition in
February 2000. Although we believe that all such conditions will be satisfied,
we cannot guarantee that the requested stockholder approval will be obtained,
that all other conditions to the acquisition will be satisfied or that we will
not be required to offer to repurchase up to 50% of the aggregate liquidation
amount of each of the HIGH TIDES and the trust's common securities. We will be
required to make the repurchase offer in the event that we do not consummate our
acquisition of Advanced Communication Systems on or prior to March 31, 2000. In
the event of a bankruptcy or similar proceeding involving Titan between the date
of this offering circular and March 31, 2000, the holders of the HIGH TIDES or
common securities will have no special claim to the proceeds from this offering
that are dedicated to fund the repurchase offer.
We have included various pro forma financial information in this offering
circular that assume that we consummated our acquisition of Advanced
Communication Systems as of certain dates or for various periods. In the event
that we do not consummate our acquisition of Advanced Communication Systems,
that financial information would not be meaningful.
WE MAY INCUR SIGNIFICANT COSTS IN PROTECTING OUR INTELLECTUAL PROPERTY.
As a policy, we seek to protect our proprietary technology and inventions
through patents, copyrights, trade secret law and other legal protections. While
our patent portfolio is valuable, our financial success ultimately depends upon
our ability to deliver products and services that meet customer needs, not on
intellectual property laws. We may, however, incur significant expense both in
protecting our intellectual property and in defending or assessing claims with
respect to intellectual property owned by others. Any patent or other
infringement litigation by or against us could have an adverse effect on our
business, financial condition and results of operations. We also could be forced
to modify or abandon one or more planned or current products based upon our
assessment of intellectual property risks or actual or threatened claims by
other companies.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position. However, a finding in favor of Ion Beam Applications in this
action could adversely affect our business, financial condition and results of
operations by reducing the growth of our Titan Scan business segment and
preventing us from generating the revenues that we expect from food
pasteurization.
OUR QUARTERLY AND ANNUAL FINANCIAL PERFORMANCE AND STOCK PRICE HAVE
HISTORICALLY FLUCTUATED AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY IN THE
FUTURE.
Our revenues are affected by factors such as the unpredictability of sales
and contracts awards due to the long procurement process for most of our
products and services, defense and intelligence budgets, competition and general
economic conditions. Our product mix and unit volume, our ability to keep
expenses within budgets, our distribution channels and our pricing affect our
gross margins. These factors and other risk factors described herein may
adversely affect our financial performance within a period and cause our
financial results to fluctuate significantly on a quarterly or annual basis.
Consequently, we do not believe that comparison of our financial performance
from period to period is necessarily meaningful or predictive of our likely
future performance. It is possible that in some future quarter or quarters our
operating results will be below the expectations of public market analysts or
investors. If so, the market price of our common stock may decline
significantly.
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From time to time, there may be significant volatility in the market price
for our common stock. Over the past three years, the market price of our common
stock has fluctuated over a wide range. During our last four complete fiscal
quarters, the highest sale price of our common stock on the New York Stock
Exchange was $48.38 and the lowest sale price of our common stock was $4.75. A
number of factors involving Titan and our industry could contribute to future
fluctuations in our stock price, including the risk factors described herein.
RISKS OF OUR INTERNATIONAL OPERATIONS, INCLUDING ECONOMIC CONDITIONS IN
EMERGING MARKETS, COULD ADVERSELY AFFECT THE PROSPECTS OF OUR COMMERCIAL
COMMUNICATIONS BUSINESS.
We sell commercial communications products and services primarily in
developing countries. Our revenues from sales of these products and services in
foreign countries represented 3% of our total revenues for the nine months ended
September 30, 1999. We expect our revenues from these activities in foreign
countries to increase. Although we generally sell our commercial communications
products and services in U.S. dollars, currency devaluations and adverse market
conditions in emerging markets have negatively affected demand for our
commercial communications products and services and, consequently, our revenues
for this segment. Our commercial communications products generally require
substantial capital investments, and our potential customers have not had the
capital resources to make these investments. We have assisted our established
marketing partner in Indonesia by providing trade credit that has subsequently
been extended with a final installment due in September 2000. Because of market
conditions in Indonesia and other factors, there is a risk that our customer in
Indonesia may not be able to pay this debt in accordance with the extended
terms. Further, we do not have the capital resources or tolerance of risk to
finance the purchase of our commercial communications products, and therefore
rely upon our customers' abilities to obtain financing. As a result, revenues in
this group may be adversely affected by economic conditions in emerging markets
and the unavailability of financing on reasonable terms. We also are
increasingly seeking opportunities to capture operating revenues from the use of
our systems to provide telephony services. These services generally are billed
in U.S. dollars but may in the future be billed in local currency. We do not
believe that our international operations currently subject us to material risks
from fluctuations in currency exchange rates. However, as we increase our
commercial communications activities in foreign countries, our risks from
fluctuations in currency exchange rates could increase.
Selling products or services in international markets also entails other
market, economic, cultural, legal and political risks, conditions and expenses.
These risks include:
- trade barriers;
- export and import restrictions and other applicable laws;
- political and economic instability;
- difficulties in collecting amounts owed to us; and
- difficulties in managing overseas employees and contractors.
Any one of these factors or other international business risks could adversely
affect our financial performance.
OUR OPERATING RESULTS MAY SUFFER IF A SIGNIFICANT NUMBER OF OUR U.S. NAVY
CONTRACTS ARE DELAYED OR CANCELED.
A significant percentage of our products and services are predominantly sold
and performed under contracts with various parts of the U.S. Navy or with prime
contractors to the U.S. Navy. Although these various parts of the U.S. Navy are
subject to common budgetary pressures and other factors, our various U.S. Navy
customers exercise independent purchasing decisions. However, because of such
concentration of our contracts, we are vulnerable to adverse changes in our
business, financial
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condition and results of operations if a significant number of our U.S. Navy
contracts and subcontracts are simultaneously delayed or canceled for budgetary
or other reasons.
THE COVENANTS IN OUR EXISTING CREDIT FACILITY RESTRICT OUR FINANCIAL AND
OPERATIONAL FLEXIBILITY, AND IT IS LIKELY THAT OUR ANTICIPATED REPLACEMENT
CREDIT FACILITY WILL CONTAIN SIMILAR OR MORE RESTRICTIVE COVENANTS.
Our existing credit facility contains covenants that restrict, among other
things, our ability to borrow money, make particular types of investments or
other restricted payments, swap or sell assets, merge or consolidate, or make
acquisitions. An event of default under our credit facility could allow the
lenders to declare all amounts outstanding to be immediately due and payable. We
have pledged substantially all of our consolidated assets and the stock of our
subsidiaries to secure the debt under our credit facility. If the amounts
outstanding under the credit facility were accelerated, the lenders could
proceed against our consolidated assets and the stock of our subsidiaries. Any
event of default, therefore, could have a material adverse effect on our
business. Our credit facility also requires us to maintain specified financial
ratios. Our ability to meet these financial ratios can be affected by events
beyond our control, and we cannot assure you that we will meet those ratios. We
expect to replace our credit facility. It is likely that any replacement credit
facility will contain similar or more restrictive covenants. We also may incur
future debt obligations that might subject us to restrictive covenants that
could affect our financial and operational flexibility or subject us to other
events of default.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY DISRUPTIONS IN OUR SUPPLY
OF PRODUCTS AND COMPONENTS OR SERVICES.
Because our internal manufacturing capacity is limited, we use contract
manufacturers. While we use care in selecting our manufacturers, this
arrangement gives us less control over the quality and price of products or
components than if we manufactured them ourselves. In some cases, we obtain
products from a sole supplier or a limited group of suppliers. Consequently, we
risk disruptions in our supply of key products and components if our suppliers
fail or are unable to perform because of strikes, natural disasters, financial
condition or other factors. Any material supply disruptions could adversely
affect our business, financial condition and results of operations as well as
our ongoing product cost structure.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT ENVIRONMENTAL REGULATION.
We are subject to environmental and safety laws and regulations governing
the use, storage and disposal of hazardous substances or wastes and imposing
liability for the cleanup of contamination from these substances. We cannot
completely eliminate the risk of contamination or injury from these substances
or wastes, and, in the event of such an incident, we could be held liable for
any damages that result. From time to time, we have been notified of violations
of government and environmental regulations. We attempt to correct these
violations promptly without any material impact on our operations. In addition,
we may be required to incur significant additional costs to comply with
environmental laws and regulations in the future. These costs, and any future
violations or liability under environmental laws or regulations, could have a
material adverse effect on our business, financial condition and results of
operations.
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE COULD HAVE A NEGATIVE EFFECT ON OUR
FINANCIAL CONDITION.
We implemented a Year 2000 compliance program to address various areas of
the business that may encounter difficulties as a result of the Year 2000 issue.
Because of our history of acquisitions, we have a number of business units that
use different systems, some of which we know have Year 2000 issues. We estimate
that the cost of moving business units to new systems will ultimately range from
$1.0 million to $2.0 million. If any of the business units experience system
failures as a result of the Year 2000 issue, disruptions could occur in some key
business processes, such as labor and other cost accumulation, project
management and billing. If the business units cannot timely correct all Year
2000
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problems, these problems may have material adverse effects on our financial
position, results of operations or cash flows. To date, none of our business
units has experienced system failures as a result of the Year 2000 issue.
Most of our customers, in particular the U.S. government, utilize complex
billing and accounting systems to determine the timing and the amounts that will
be paid to us under our contracts. In addition, several of our major strategic
partners rely on complex software systems to coordinate and control their
day-to-day operations. These complex systems may not be Year 2000 compliant.
Although these customers and strategic partners advised us that they expected to
resolve any Year 2000 issues before December 31, 1999, we cannot guarantee that
our billing procedures and cycles, or our joint sales and marketing efforts,
will not be interrupted in the future. If these Year 2000 issues involving our
customers and business partners are not resolved on time, or at all, our
business, financial position, results of operations or cash flows could be
materially and adversely affected. To date, none of our billing procedures or
cycles, or our joint sales and marketing efforts, has been interrupted.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE OPEN MARKET BY
ADVANCED COMMUNICATION SYSTEMS STOCKHOLDERS COULD DEPRESS OUR STOCK PRICE.
If Advanced Communication Systems stockholders sell substantial amounts of
our common stock in the public market following the proposed acquisition,
including shares issued on the exercise of outstanding options, the market price
of our common stock could fall. These sales might also make it more difficult
for us to sell equity or equity-related securities at a time and price that we
would deem appropriate. Based on the number of outstanding shares of Advanced
Communication Systems common stock as of January 20, 2000, we would issue
5,478,600 shares in the acquisition if our average stock price used to calculate
the exchange ratio is greater than $32.50 but less than or equal to $35.75 and
6,982,232 shares in the acquisition if our average stock price used to calculate
the exchange ratio is at least $22.95 but less than $25.50. In addition, we will
assume all outstanding options to purchase Advanced Communication Systems common
stock, which will be converted into options to acquire additional shares of our
common stock using the same exchange ratio which is applicable to Advanced
Communication Systems common stock in the merger. All of the shares of our
common stock issued to Advanced Communication Systems stockholders, including
those issued upon the exercise of options, will be freely tradable without
restrictions or further registration under the Securities Act, unless they are
issued to an "affiliate" of Advanced Communication Systems as that term is
defined under the Securities Act, at the time the acquisition is submitted for
approval by Advanced Communication Systems stockholders. The term "affiliate"
would include directors, executive officers and some significant stockholders of
Advanced Communication Systems.
WE DO NOT ANTICIPATE THAT WE WILL PAY DIVIDENDS ON OUR COMMON STOCK.
We have not paid cash dividends on our common stock within the past three
years and we do not anticipate that we will pay cash dividends in the
foreseeable future. We may pay cash dividends only if we comply with financial
tests and other restrictions contained in agreements relating to our
indebtedness.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND IN DELAWARE
LAW COULD DISCOURAGE TAKEOVER ATTEMPTS WE OPPOSE EVEN IF OUR STOCKHOLDERS MIGHT
BENEFIT FROM A CHANGE IN CONTROL OF TITAN.
Provisions in our certificate of incorporation and bylaws and in the
Delaware General Corporation Law may make it difficult and expensive for a third
party to pursue a takeover attempt we oppose even if a change in control of
Titan would be beneficial to the interests of our stockholders. Our bylaws
permit our stockholders to take action by written consent instead of at a
meeting and to nominate directors or bring other business before stockholder
meetings only if they comply with advance notice and other procedural
requirements in our bylaws. Our board of directors currently has the authority
under our certificate of incorporation to issue up to 2,500,000 authorized
shares of its preferred stock
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in one or more series and to fix the powers, preferences and rights of each
series without stockholder approval. The ability to issue preferred stock could
discourage unsolicited acquisition proposals or make it more difficult for a
third party to gain control of Titan, or otherwise could adversely affect the
market price of our common stock. Further, as a Delaware corporation, we are
subject to section 203 of the Delaware General Corporation Law. This section
generally prohibits us from engaging in mergers and other business combinations
with stockholders that beneficially own 15% or more of our voting stock, or with
their affiliates, unless our directors or stockholders approve the business
combination in the prescribed manner.
WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN WHICH COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL IN WHICH OUR STOCKHOLDERS MAY WISH TO PARTICIPATE.
In 1995, our board of directors adopted a "poison pill" shareholder rights
plan, which may discourage a third party from making a proposal to acquire Titan
which we have not solicited or do not approve, even if the acquisition would be
beneficial to our stockholders. As a result, our stockholders who wish to
participate in such a transaction may not have an opportunity to do so. Under
our rights plan, preferred share purchase rights, which are attached to our
common stock, generally will be triggered upon the acquisition, or actions that
would result in the acquisition, of 15% or more of our common stock by any
person or group. If triggered, these rights would entitle our stockholders other
than the acquiror to purchase, for the exercise price, shares of our common
stock having a market value of two times the exercise price. In addition, if a
company acquires us in a merger or other business combination not approved by
the board of directors, these rights will entitle our stockholders other than
the acquiror to purchase, for the exercise price, shares of the common stock of
the acquiring company having a market value of two times the exercise price.
RISKS RELATING TO THE HIGH TIDES
THE TRUST MAY NOT BE ABLE TO MAKE DISTRIBUTIONS ON THE HIGH TIDES IF WE
DEFAULT ON OUR INDEBTEDNESS UNDER OUR CREDIT FACILITY OR ANY SECURED DEBT WE
HAVE IN ADDITION TO THAT INDEBTEDNESS BECAUSE OUR OBLIGATIONS TO PAY ON THE
DEBENTURES AND THE GUARANTEE ARE SUBORDINATED TO OUR PAYMENT OBLIGATIONS UNDER
THAT DEBT.
Because of the subordinated nature of the guarantee and the debentures, we:
- will not be permitted to make any payments of principal, including
redemption payments, or interest on the debentures if we default on our
indebtedness under our credit facility or any secured debt we have in
addition to that indebtedness;
- will not be permitted to make payments on the guarantee if we default on
any of our indebtedness under our credit facility or any secured debt we
have in addition to that indebtedness; and
- must pay all our indebtedness under our credit facility and any secured
debt we have in addition to that indebtedness before we make payments on
the guarantee or the debentures if we become bankrupt, liquidate or
dissolve.
The HIGH TIDES, the guarantee and the debentures do not limit our ability or
the ability of our subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior to the debentures and the guarantee. As of
January 21, 2000, we had approximately $141 million of indebtedness under our
existing credit facility. We expect to use borrowings of approximately
$77 million under our new credit facility to repay existing indebtedness of
Advanced Communication Systems when we close the acquisition and to pay certain
acquisition-related expenses. Because the trust will be able to pay amounts due
on the HIGH TIDES only if we make payments on the debentures, your ability to
receive distributions may be affected by our indebtedness. In addition, our
existing credit facility prohibits payments of principal, including redemption
payments, on the debentures without the prior consent of the lenders under our
existing credit facility.
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OUR ABILITY TO REPAY OUR DEBT DEPENDS ON THE PERFORMANCE OF OUR
SUBSIDIARIES.
We are a holding company and we conduct our operations primarily through our
subsidiaries. We have few assets of significance other than the capital stock of
our subsidiaries. Consequently, we are dependent upon dividends or other
intercompany transfers of funds from our direct and indirect subsidiaries to
meet our debt service obligations, including those related to the debentures,
the guarantee and the HIGH TIDES. Although our existing credit facility permits
our subsidiaries to distribute funds to us to make payments on the debentures,
our subsidiaries are separate legal entities that have no obligation to pay any
amounts due under the HIGH TIDES, the debentures or the guarantee. Our
subsidiaries do not guarantee the payment of the HIGH TIDES or the debentures.
Furthermore, our subsidiaries are not obligated to make funds available to us,
and creditors of our subsidiaries will have a superior claim to our
subsidiaries' assets. As a result, your right to receive payment on the
debentures and the HIGH TIDES is effectively junior to our subsidiaries'
existing indebtedness and possibly to all of their future borrowings. In
addition, our subsidiaries' ability to make any payments to us will depend on
their earnings, the terms of their indebtedness, business and tax considerations
and legal restrictions. We also may publicly offer the common stock of our
subsidiaries from time to time to finance their growth. Any such offerings would
reduce our interests in those subsidiaries and could reduce our ability to make
payments on the debentures.
We cannot assure you that any of our subsidiaries will be able to pay
dividends or otherwise distribute funds to us in an amount sufficient to pay the
principal of or interest on the debentures.
THE DEFERRAL OF INTEREST PAYMENTS MAY HAVE TAX CONSEQUENCES TO YOU AND AN
ADVERSE EFFECT ON THE TRADING PRICE OF THE HIGH TIDES.
If no event of default under the indenture has occurred and is continuing,
we may defer the payment of interest on the debentures for a period not
exceeding 20 consecutive quarters. If we defer interest payments on the
debentures, the trust will defer quarterly distributions on the HIGH TIDES.
However, distributions will still accumulate quarterly and the deferred
distributions will themselves accrue additional distributions at the annual rate
set forth on the cover page of this offering circular, to the extent permitted
by law. There is no limitation on the number of times that we may elect to defer
interest payments.
We have no current intention of deferring interest payments on the
debentures. If we exercise our right to defer interest payments in the future,
however, you will be required to include your pro rata share of original issue
discount accrued on the debentures in gross income as interest income for U.S.
federal income tax purposes, prior to the receipt of cash distributions related
to such income. In addition, if we defer payment of interest on the debentures
in the future, the HIGH TIDES may trade at a price that does not fully reflect
the value of deferred interest on the debentures. Our right to defer interest
payments on the debentures may mean that the market price of the HIGH TIDES may
be more volatile and could decrease relative to the market prices of other
securities that do not have this right.
IF YOU DO NOT ELECT TO KEEP YOUR HIGH TIDES UPON A REMARKETING NOTICE, YOUR
HIGH TIDES WILL NO LONGER BE OUTSTANDING AFTER A SUCCESSFUL REMARKETING.
If you do not notify the remarketing agent, your HIGH TIDES will no longer
be outstanding after a successful remarketing, and you will have no further
rights thereunder except to receive an amount equal to:
- from the proceeds of the remarketing, 101% of the aggregate liquidation
amount of the HIGH TIDES; plus
- from us, accrued and unpaid distributions on the HIGH TIDES up until, but
excluding, the reset date.
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The remarketing agent agrees to use its best efforts to remarket all HIGH
TIDES tendered for remarketing. All HIGH TIDES will be considered tendered
unless the holder of HIGH TIDES gives irrevocable notice to the contrary to the
tender agent, which the tender agent will promptly remit to the remarketing
agent, before the tender notification date.
THE REMARKETING OF THE HIGH TIDES MAY NOT BE SUCCESSFUL AND THE TERMS OF THE
HIGH TIDES AFTER ANY REMARKETING ARE SUBJECT TO CHANGE.
The remarketing will have failed if:
- despite using its best efforts, the remarketing agent cannot establish a
term rate less than or equal to the maximum rate;
- the remarketing agent is excused from remarketing the HIGH TIDES because
of the failure by us to satisfy a condition in the remarketing agreement
or the occurrence of certain market events specified in the remarketing
agreement;
- there is no remarketing agent on the first day of the initial remarketing
period; or
- prior to the initial remarketing termination date, term provisions are
established by the remarketing agent, but the remarketing agent is unable
to sell one or more HIGH TIDES tendered for remarketing because of the
occurrence of certain market events specified in the remarketing
agreement.
If the initial remarketing fails, the remarketing agent will commence a
final remarketing during the final remarketing period. If the final remarketing
fails, then the HIGH TIDES will remain outstanding at a term rate equal to the
treasury rate plus 10% per annum and with a term conversion price equal to 105%
of the average closing price of our common stock for the five consecutive
trading days after the final failed remarketing termination date. In the event
of a failed final remarketing, all outstanding HIGH TIDES will be redeemable by
us, in whole or in part, at any time on or after the third anniversary of the
reset date at a redemption price equal to 100% of the aggregate liquidation
amount thereof, plus accrued and unpaid distributions thereon. If no HIGH TIDES
are tendered for remarketing, the remarketing will not take place, although the
remarketing will not be deemed to have failed. In that case, the remarketing
agent will set the term provisions according to the instructions contained in
the remarketing notice in the manner that it believes, in its sole discretion,
would result in a price per HIGH TIDES equal to 101% of the liquidation amount
if a remarketing were actually to occur.
AFTER THE RESET DATE, THE HIGH TIDES MAY NO LONGER BE CONVERTIBLE OR MAY BE
CONVERTIBLE INTO A FEWER NUMBER OF SHARES OF OUR COMMON STOCK.
Each HIGH TIDES is initially convertible, at the option of the holder, into
1.0076 shares of common stock, which may be adjusted in some circumstances. We
may choose to remarket the HIGH TIDES so that after the reset date the HIGH
TIDES will not be convertible into shares of common stock, or, each HIGH TIDES
will be convertible into a different number of shares of common stock.
THE TRUST MAY REDEEM THE HIGH TIDES WITHOUT YOUR CONSENT IF SPECIFIED TAX
CHANGES OCCUR.
Upon the occurrence of specified tax changes affecting the trust's taxable
status or the deductibility of interest on the debentures, we may either
dissolve and liquidate the trust and distribute the debentures to you or we may
redeem all of the debentures. If we redeem the debentures, the trust will use
the cash it receives from that redemption to redeem the HIGH TIDES and the
trust's common securities.
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WE MAY CAUSE THE HIGH TIDES TO BE REDEEMED ON OR AFTER FEBRUARY 20, 2003
WITHOUT YOUR CONSENT.
We may redeem all or some of the debentures at our option at any time on or
after February 20, 2003 until but excluding the tender notification date.
Following the remarketing, we may redeem the debentures in accordance with the
term call protections, if any, established in the remarketing or, upon a failed
final remarketing, on or after the third anniversary of the reset date. You
should assume that we will exercise our redemption option if we are able to
refinance the debentures at a lower interest rate or if we conclude it is
otherwise in our interest to redeem the debentures. The trust will use the cash
it receives from the redemption of the debentures to redeem an equivalent amount
of HIGH TIDES and its common securities on a pro rata basis.
DISTRIBUTION OF THE DEBENTURES TO YOU MAY HAVE ADVERSE TAX CONSEQUENCES FOR
YOU.
We may dissolve and liquidate the trust at any time. If that happens, the
trust will redeem the HIGH TIDES and its common securities by distributing the
debentures to you and to us, as the holder of the trust's common securities, on
a pro rata basis.
Under current U.S. federal tax laws, a distribution of debentures on the
dissolution of the trust would not be a taxable event to you. However, if there
is a change in the law and, for example, the trust is characterized for U.S.
federal income tax purposes as an association taxable as a corporation at the
time of its dissolution, the distribution of debentures would likely constitute
a taxable event to you.
THE DISTRIBUTION OF DEBENTURES UPON LIQUIDATION OF THE TRUST MAY HAVE AN
ADVERSE EFFECT ON TRADING PRICES.
We have the right to dissolve and liquidate the trust at any time. Although
we have no current intention of doing so, we anticipate that we would consider
exercising this right if the expenses associated with maintaining the trust are
substantially greater than we expect or for other business reasons. If we
exercise our right to dissolve and liquidate the trust, the trust will redeem
the HIGH TIDES and its common securities by distributing the debentures to you
and to us on a pro rata basis, unless an event of default under the debentures
has occurred and is continuing, in which case you will have priority over us.
We cannot predict the market prices for the debentures that the trust may
distribute to you. Accordingly the debentures that you receive on a
distribution, or the HIGH TIDES you hold pending a distribution, may trade at a
discount to the price that you paid to purchase the HIGH TIDES.
Because you may receive debentures, you should make an investment decision
with regard to the debentures in addition to the HIGH TIDES. You should
carefully review all the information regarding the debentures contained in this
offering circular.
WE GUARANTEE PAYMENTS ON THE HIGH TIDES ONLY IF THE TRUST HAS CASH
AVAILABLE.
If we fail to make payments on the debentures, the trust will not be able to
pay distributions, the redemption price or the liquidation amount of each HIGH
TIDES. In those circumstances, you will not be able to rely upon the guarantee
for payment of these amounts. Instead, if we are in default for payments under
the debentures, you may:
- rely on the property trustee for the trust to enforce the trust's rights
under the debentures; or
- directly sue us or seek other remedies to collect your share of payments
owed.
YOU HAVE LIMITED VOTING RIGHTS.
You will have limited voting rights relating generally to:
- the modification of the HIGH TIDES and our guarantee of the HIGH TIDES;
and
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- the exercise of the trust's rights as holder of debentures.
You are not entitled to appoint, remove or replace the property trustee of
the trust or the Delaware trustee of the trust except upon the occurrence of
certain events. The property trustee, and the holders of all of the trust's
common securities may, subject to certain conditions, amend the declaration of
trust without your consent to:
- cure any ambiguity;
- make provisions of the declaration of trust not inconsistent with other
provisions of the declaration of trust;
- ensure that the trust will not be classified for U.S. federal income tax
purposes as an association subject to taxation as a corporation; or
- ensure that the trust will be classified as a grantor trust.
THE HIGH TIDES AND THE DEBENTURES DO NOT HAVE AN ESTABLISHED MARKET.
Prior to this offering, there has been no public market for the HIGH TIDES.
We do not intend to list the HIGH TIDES on a national securities exchange or
automated interdealer quotation system. It is expected that the HIGH TIDES will
be eligible for trading in The PORTAL. One or more of the initial purchasers
intend to make a secondary market for the HIGH TIDES. However, they are not
obligated to do so and may discontinue making a secondary market for the HIGH
TIDES at any time without notice and for any reason. Accordingly, we cannot
assure you that an active trading market for the HIGH TIDES will develop or be
sustained. If a market were to develop, the HIGH TIDES could trade at prices
that may be higher or lower than their offering price depending upon many
factors, including:
- prevailing interest rates;
- our stock price;
- our operating results; and
- the market for similar securities.
USE OF PROCEEDS
We estimate that the gross proceeds from the sale of the HIGH TIDES will be
$200.0 million. The trust will use these proceeds, together with the proceeds
from the issuance of the trust's common securities, to purchase debentures from
us. After deducting the commissions to the initial purchasers that we have
agreed to pay on behalf of the trust, and other offering expenses, we estimate
that we will receive net proceeds of $193 million from the sale of the
debentures to the trust, or $241.5 million if the over-allotment option of the
initial purchasers is exercised in full. We will be required to make a
repurchase offer for up to 50% of the aggregate liquidation amount of each of
the HIGH TIDES and the trust's common securities if our acquisition of Advanced
Communication Systems does not close on or prior to March 31, 2000. We will
dedicate 50% of the proceeds from the sale of debentures to the trust, plus an
amount equal to 2.5% of that portion of those proceeds, to fund the repurchase
offer, and use the remaining net proceeds to repay indebtedness outstanding
under our existing credit facility. The indebtedness to be repaid under our
existing credit facility has an interest rate of LIBOR plus 3%, which was
approximately 9.75% per annum on February 2, 2000, and maturity dates from
September 29, 2004 through June 9, 2005. That indebtedness was incurred by us to
fund acquisitions and our working capital requirements. If our acquisition of
Advanced Communication Systems closes on or prior to March 31, 2000, we will use
the proceeds from the sale of debentures to the trust that otherwise would have
been used to fund the repurchase offer for general corporate purposes, including
funding of our working capital requirements. In addition, a portion of these
proceeds also may be used to acquire or invest in complementary businesses,
technologies and products. We have agreed to acquire one, and have a non-binding
letter of intent to acquire another, privately-held defense information
technology company.
31
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is listed on The New York Stock Exchange under the symbol
"TTN."
The table below shows, for the periods indicated, the reported high and low
trading prices of our common stock on The New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE
----------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR YEAR 1997
First Quarter............................................. $ 3.75 $ 2.88
Second Quarter............................................ 4.38 2.75
Third Quarter............................................. 7.44 4.19
Fourth Quarter............................................ 8.38 5.25
CALENDAR YEAR 1998
First Quarter............................................. $ 6.88 $ 5.50
Second Quarter............................................ 8.25 5.75
Third Quarter............................................. 6.56 3.81
Fourth Quarter............................................ 6.19 4.25
CALENDAR YEAR 1999
First Quarter............................................. $ 6.25 $ 4.75
Second Quarter............................................ 11.00 4.94
Third Quarter............................................. 14.63 9.38
Fourth Quarter............................................ 48.38 13.13
CALENDAR YEAR 2000
First Quarter (through February 3, 2000).................. $49.63 $33.38
</TABLE>
As of January 20, 2000, there were 3,486 holders of record of Titan common
stock.
On February 3, 2000, the last reported sale price of our common stock on The
New York Stock Exchange was $40.3125.
DIVIDEND POLICY
We did not declare or pay a cash dividend on our common stock in any of the
periods shown in the table above. We may pay cash dividends only if doing so
complies with financial tests and other restrictions contained in agreements
relating to our indebtedness, including the debentures. Other than earnings
distributed as quarterly dividends to holders of our public preferred stock, we
anticipate that, for the foreseeable future, we will continue to retain any
earnings for use in the operation of our business.
32
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999:
- our unaudited actual capitalization;
- our unaudited pro forma capitalization as adjusted to give effect to
acquisitions we completed after such date;
- our unaudited pro forma capitalization as adjusted to give effect to
acquisitions we completed after such date and this offering; and
- our unaudited pro forma capitalization as adjusted to give effect to
acquisitions we completed after such date, this offering, our probable
acquisition of Advanced Communication Systems, and related borrowings under
a new credit facility that we anticipate entering into following this
offering.
This table should be read in conjunction with the consolidated financial
statements and the unaudited pro forma financial information and, in each case,
the related notes included elsewhere in this offering circular or incorporated
by reference herein.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------------------------
PRO FORMA FOR PRO FORMA FOR
COMPLETED COMPLETED
PRO FORMA FOR ACQUISITIONS ACQUISITIONS, ACS
COMPLETED AND THIS AND THIS
ACTUAL ACQUISITIONS OFFERING OFFERING
-------- ------------- ------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents:............... $ 4,207 $ 4,620 $110,220 $ 6,235
======== ======== ======== ========
Short-term debt and current portion of
long-term debt......................... 13,052 14,397 7,287 8,251
Long-term debt, less current portion:
Senior secured credit facility........... 110,712 150,064 69,774 22,904
Other.................................... 7,090 7,590 7,590 8,010
-------- -------- -------- --------
Total long-term debt................... 117,802 157,654 77,364 30,914
Company obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust whose sole assets are
senior subordinated debentures of
Titan.................................. -- -- 200,000 200,000
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 2,500,000 shares;
cumulative convertible preferred
stock, $13,897 liquidation
preference, authorized 1,068,102
shares, issued and outstanding
694,872 shares....................... 695 695 695 695
Series A junior participating,
authorized 454,071 shares, none
issued............................... -- -- -- --
Common stock........................... 437 437 437 552
Additional paid-in capital............. 98,833 98,833 98,833 141,344
Retained earnings (deficit)............ (10,492) (7,968) (7,968) (8,195)
Total stockholders' equity........... 86,837 89,361 89,361 131,450
-------- -------- -------- --------
Total capitalization..................... $217,691 $261,412 $374,012 $370,615
======== ======== ======== ========
</TABLE>
33
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, we will treat the trust as one of our
subsidiaries. Accordingly, we will include the accounts of the trust in our
consolidated financial statements. We will present the HIGH TIDES as a separate
line item in our consolidated balance sheet entitled "Company obligated
mandatorily redeemable convertible preferred securities of a subsidiary trust
whose sole assets are senior subordinated debentures of Titan," and we will
include appropriate disclosures about the HIGH TIDES in the notes to our
consolidated financial statements. For financial reporting purposes, we will
record distributions payable on the HIGH TIDES as a financing charge to earnings
in our consolidated statement of operations.
We have not included separate financial statements of the trust because we
do not consider those financial statements material to you because:
- Titan, a reporting company under the Exchange Act, will own, directly or
indirectly all of the voting securities of the trust;
- the trust has no independent operations but exists for the sole purpose of
issuing securities representing undivided beneficial interests in the
trust's assets and investing the proceeds in the debentures; and
- we will fully and unconditionally guarantee the obligations of the trust
under the HIGH TIDES and the common securities to the extent that the
trust has funds available to meet such obligations.
34
<PAGE>
PENDING AND COMPLETED ACQUISITIONS
PENDING ACQUISITIONS
TITAN SYSTEMS
On December 9, 1999, we entered into an agreement to acquire Advanced
Communication Systems in a merger that we anticipate will constitute a tax-free
reorganization and be accounted for as a pooling of interests. We expect that
our acquisition of Advanced Communication Systems will close during the first
quarter of 2000, subject to the satisfaction of the conditions contained in the
merger agreement, including the affirmative vote of Advanced Communication
Systems' stockholders. Based on the number of outstanding shares of Advanced
Communication Systems common stock as of January 20, 2000, we would issue
5,478,600 shares in the acquisition if our average stock price used to calculate
the exchange ratio is greater than $32.50 but less than or equal to $35.75 and
6,982,232 shares in the acquisition if our average stock price used to calculate
the exchange ratio is at least $22.95 but less than $25.50. In addition, we will
assume all outstanding options to purchase Advanced Communication Systems common
stock, which will be converted into options to acquire additional shares of our
common stock using the same exchange ratio which is applicable to Advanced
Communication Systems common stock in the merger. Advanced Communication Systems
provides communication services, information systems and aerospace services,
predominantly to U.S. government agencies and to commercial customers, and is a
leader in U.S. Navy satellite communications. Recently, Advanced Communication
Systems began expanding its network and database design and support services to
the U.S. military and developing business with other federal agencies, state and
local governments and commercial customers.
We also have agreed to acquire one, and have a non-binding letter of intent
to acquire another, privately-held defense information technology company. One
of these companies provides highly specialized information technology systems
and services to the intelligence community, and had estimated revenues of
approximately $23.2 million for the year ended December 31, 1999. The other
company specializes in the design, development and delivery of
telecommunications systems and products and software technologies, and had
revenues of approximately $18.0 million for its fiscal year ended June 30, 1999.
COMPLETED ACQUISITIONS -- 1999
TITAN SYSTEMS
On June 9, 1999, Titan Systems acquired System Resources Corporation
("System Resources"), an information technology government contractor, through a
stock purchase for a purchase price of $35 million, subject to certain
post-closing adjustments, consisting of $33 million in cash paid at closing,
less a $500,000 holdback, and $2 million in promissory notes which bear interest
at 7% per annum and become fully payable on June 9, 2000. In addition, we agreed
to pay the System Resources stockholders one-half of approximately $1.5 million
in System Resources receivables aged more than 720 days to the extent that any
of those receivables are collected within the two year period following the
closing date. The transaction was accounted for as a purchase.
On July 22, 1999, Titan Systems acquired all of the outstanding stock of
Atlantic Aerospace Electronics Corporation ("Atlantic Aerospace"), a defense and
commercial technology and systems company which focuses on applied research and
development in information technologies, for cash of approximately $18 million,
subject to certain post-closing adjustments, plus potential payments of up to $3
million contingent upon certain future contract awards. The transaction was
accounted for as a purchase.
35
<PAGE>
CAYENTA
On January 1, 1999, Cayenta acquired substantially all of the assets of
Transnational Partners II, LLC ("Transnational Partners"), an enterprise
application integration consulting company. Cayenta acquired these assets for an
initial installment of $7 million in cash and 2,345,000 shares of Cayenta's
convertible preferred stock. Cayenta will pay off an additional $2.8 million
note that it issued as part of its acquisition of Transnational Partners, plus
7% interest thereon, in February 2000.
On November 2, 1999, Cayenta acquired J.B. Systems, Inc., an enterprise
asset management company doing business under the name Mainsaver ("Mainsaver").
Cayenta acquired Mainsaver for $11.7 million in cash, of which $8.2 million was
paid at the closing. Of the $3.5 million withheld at the closing, $500,000 is
due in February 2000 and $3 million is due in May 2001, plus 7.5% interest
thereon in each case, after satisfaction of possible working capital adjustments
or indemnification obligations. In addition, Cayenta paid approximately $3.4
million to reduce outstanding indebtedness of Mainsaver.
On December 7, 1999, Cayenta acquired Assist Cornerstone Technologies, Inc.
("Assist"), an e-commerce solutions and software company. Cayenta acquired
Assist for 516,458 shares of its Class A common stock and approximately $12.9
million in cash, of which $9.9 million was paid at the closing. Of the $3
million withheld at the closing, $1.7 million is due in March 2000 and $1.3
million is due in June 2001, plus 8% interest thereon in each case, after
satisfaction of possible working capital adjustments or indemnification
obligations. In addition, Cayenta paid approximately $3.2 million to retire
outstanding indebtedness of Assist and redeem all of its outstanding redeemable
preferred stock.
On December 23, 1999, Cayenta acquired SFG Technologies, Inc. ("SFG
Technologies"), a solutions and software provider focusing on revenue cycle
services for the utility industry. Cayenta acquired SFG Technologies for $11.6
million in cash, of which $9.5 million was paid at the closing. Of the
approximately $2.0 million placed into escrow at the closing, approximately
$500,000 is due in March 2000 and $1.5 million is due in June 2001, after
satisfaction of possible working capital adjustments or indemnification
obligations. In addition, Cayenta paid approximately $3.1 million to retire
outstanding indebtedness of SFG Technologies and redeem all of its outstanding
redeemable preferred stock.
Each of Cayenta's acquisitions was accounted for using the purchase method.
COMPLETED ACQUISITIONS -- 1998
TITAN SYSTEMS
On February 27, 1998, we 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 whose products and systems are primarily used by the
defense and intelligence communities. We issued approximately 6,100,000 shares
of our common stock in exchange for all the outstanding shares of DBA stock and
assumed options representing approximately 441,000 shares of our common stock.
The merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests.
On March 31, 1998, we acquired all of the outstanding common stock of
Validity Corporation ("Validity") for $12 million in cash, and notes payable to
the shareholders of Validity totaling $3 million, subject to post-closing
adjustments, if any. The transaction was accounted for as a purchase. Validity
is an information technologies company providing systems engineering and
integration, software engineering, network technologies, and test and evaluation
services to the U.S. military and a variety of U.S. governmental customers.
36
<PAGE>
On June 30, 1998, we consummated a merger with Horizons Technology, Inc.
("Horizons"), in a stock-for-stock transaction. Horizons is a provider of
systems engineering and program management services, computer systems
integration and high-end software. We issued approximately 3,200,000 shares of
our common stock in exchange for all the outstanding shares of Horizons capital
stock. The merger constituted a tax-free reorganization and has been accounted
for as a pooling of interests.
On August 24, 1998, we consummated a merger with VisiCom Laboratories, Inc.
("VisiCom"), in a stock-for-stock transaction. VisiCom specializes in
information technology solutions. We issued approximately 4,172,000 shares of
our common stock in exchange for all the outstanding shares of VisiCom and
assumed VisiCom's stock options representing approximately 593,000 shares of our
common stock. The merger constituted a tax-free reorganization and has been
accounted for as a pooling of interests.
On October 23, 1998, we consummated a merger with Delfin Systems ("Delfin")
in a stock-for-stock transaction. Delfin provides systems engineering and
program management services, signal intelligence systems, and program
integration and high-end software. We issued approximately 3,628,000 shares of
our common stock in exchange for all the outstanding shares of Delfin common
stock and assumed Delfin stock options representing approximately 823,000 shares
of our common stock. The merger constituted a tax-free reorganization and has
been accounted for as a pooling of interests.
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
THE FOLLOWING UNAUDITED PRO FORMA STATEMENT OF OPERATIONS AND BALANCE SHEET
DATA HAVE BEEN DERIVED FROM, AND SHOULD BE READ IN CONJUNCTION WITH OUR
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES, AND
THOSE OF ADVANCED COMMUNICATION SYSTEMS, TRANSNATIONAL PARTNERS, MAINSAVER,
ASSIST, AND SFG TECHNOLOGIES CONTAINED ELSEWHERE IN THIS OFFERING CIRCULAR OR
INCORPORATED BY REFERENCE HEREIN. THE UNAUDITED PRO FORMA STATEMENT OF
OPERATIONS AND BALANCE SHEET DATA SHOULD ALSO BE READ IN CONJUNCTION WITH THE
OTHER INFORMATION CONTAINED IN THIS SECTION OF THE OFFERING CIRCULAR. THE PRO
FORMA STATEMENT OF OPERATIONS DATA FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1997 ASSUMES THAT WE COMPLETED THE ACQUISITION OF ADVANCED COMMUNICATION SYSTEMS
AS OF THE BEGINNING OF EACH SUCH PERIOD. THE PRO FORMA STATEMENT OF OPERATIONS
DATA FOR THE YEAR ENDED DECEMBER 31, 1998, FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999 AND FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
ASSUMES THAT WE COMPLETED THE ACQUISITIONS OF ADVANCED COMMUNICATION SYSTEMS,
TRANSNATIONAL PARTNERS, MAINSAVER, ASSIST, AND SFG TECHNOLOGIES AS OF THE
BEGINNING OF EACH SUCH PERIOD. THE PRO FORMA BALANCE SHEET DATA AS OF
SEPTEMBER 30, 1999 ASSUMES THAT WE COMPLETED THESE ACQUISITIONS AS OF SUCH DATE.
OUR ACQUISITION OF ADVANCED COMMUNICATION SYSTEMS IS EXPECTED TO CLOSE IN THE
FIRST QUARTER OF 2000. THE PRO FORMA STATEMENT OF OPERATIONS AND BALANCE SHEET
DATA IS NOT NECESSARILY INDICATIVE OF OUR OPERATING RESULTS OR FINANCIAL
CONDITION THAT WOULD HAVE OCCURRED HAD THESE ACQUISITIONS OCCURRED AS OF THE
DATES INDICATED OR OF ANY EXPECTED FUTURE RESULTS.
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
------------------------------ ------------------- SEPTEMBER 30,
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenue....................................... $277,641 $328,117 $440,433 $298,724 $451,274 $592,983
Costs and expenses:
Cost of revenues............................ 211,964 254,240 315,465 216,375 324,771 423,861
Selling, general and administrative
expense................................... 46,479 47,859 82,426 54,144 86,438 114,720
Research and development expense............ 5,023 7,466 8,786 6,133 8,128 10,781
Special acquisition related charges and
other..................................... -- 8,510 9,891 4,553 -- 5,338
-------- -------- -------- -------- -------- --------
Total costs and expenses.................. 263,466 318,075 416,568 281,205 419,337 554,700
-------- -------- -------- -------- -------- --------
Operating profit (loss)....................... 14,175 10,042 23,865 17,519 31,937 38,283
Interest expense.............................. (5,021) (6,779) (12,783) (8,964) (12,392) (16,211)
Interest income............................... 696 1,025 512 302 585 795
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes......................... 9,850 4,288 11,594 8,857 20,130 22,866
Income tax provision.......................... 2,603 3,934 5,784 3,730 7,901 9,955
-------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle, net................... $ 7,247 $ 354 $ 5,810 $ 5,127 $ 12,229 $ 12,911
======== ======== ======== ======== ======== ========
Basic earnings per share
Income from continuing operations........... $ 0.16 $ (0.01) $ 0.12 $ 0.11 $ 0.25 $ 0.28
======== ======== ======== ======== ======== ========
Weighted average shares................... 39,459 40,485 42,802 42,521 45,983 43,769
======== ======== ======== ======== ======== ========
Diluted earnings per share
Income from continuing operations........... $ 0.16 $ (0.01) $ 0.11 $ 0.10 $ 0.22 $ 0.26
======== ======== ======== ======== ======== ========
Weighted average shares................... 39,836 40,485 43,936 43,627 53,396 46,987
======== ======== ======== ======== ======== ========
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
------------------------------ ------------------- SEPTEMBER 30,
1996 1997 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Non-recurring charges....................... $ -- $ 11,756 $ 11,469 $ 4,758 $ 237 $ 6,948
EBITDA (1).................................. 22,621 31,482 48,739 31,409 44,236 61,566
Adjusted EBITDA (2)......................... 22,621 31,482 56,503 40,020 54,502 70,985
Depreciation and Amortization............... 8,446 9,684 13,405 9,132 12,062 16,335
Capital Expenditures........................ 7,008 7,325 7,057 4,630 7,332 9,759
Ratio of Earnings to Fixed Charges (3)...... 2.2x 1.4x 1.7x 1.8x 2.3x 2.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1999
--------------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,235
Working capital............................................. 114,632
Property and equipment, net................................. 38,175
Total assets................................................ 505,669
Total debt.................................................. 232,165
Stockholders' equity........................................ 131,450
</TABLE>
- ------------------------------
(1) EBITDA for any relevant period represents earnings before non-recurring
special acquisition related charges and other interest, taxes, depreciation
and amortization, assuming that we completed the acquisitions described in
the introductory paragraph to this financial data as of the dates stated
therein. We have included EBITDA because we understand that it is one
measure used by some investors to determine our operating cash flow and
historical ability to service our indebtedness. However, other companies in
our business may present EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
(2) Adjusted EBITDA for any relevant period (for the twelve months ended
September 30, 1999 and December 31, 1998 and the nine months ended
September 30, 1998 and 1999) represents EBITDA as adjusted, giving effect to
the acquisitions of System Resources Corporation and Atlantic Aerospace
Electronics Corporation, stated on a pro forma basis before non-recurring
charges as if they had occurred at the beginning of each such period.
Adjusted EBITDA also includes the effect of conforming Advanced
Communication Systems' fiscal year end in 1998 and 1999 of September 30th to
our fiscal year end. Also, Adjusted EBITDA includes certain anticipated cost
savings, net of certain incremental expenses, of $4.9 million (for the
acquisition of Advanced Communication Systems and for our software
acquisitions). Cost savings associated with the Advanced Communication
Systems acquisition include the retirement of the chief executive officer,
costs of operating as a public company and consolidation of legal and audit
services, among others. Cost savings associated with the acquisitions of
Mainsaver, Assist and SFG Technologies include consolidation of accounting
functions and employee benefits, consolidation of professional services, and
reduction in personnel. Actual results and cost savings may differ
materially from those reflected in Adjusted EBITDA due to higher than
expected integration costs, higher than expected costs associated with
expanding our business segments' operations or an increase in our other
costs. Such estimated cost savings do not qualify as pro forma adjustments
under Regulation S-X promulgated under the Securities Act and constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Accordingly, such cost savings have been
excluded from the pro forma adjustments in our unaudited pro forma
historical financial information. Arthur Andersen LLP does not express any
opinion or other form of assurance with respect to Adjusted EBITDA or any
components thereof. See "Cautionary Statement About Forward-Looking
Statements."
(3) For purposes of computing the pro forma ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges and "fixed
charges" consist of interest expense (including amortization of debt
discount and expense), leasing expense and the estimated interest factor
attributable to rentals. The pro forma ratio of earnings to combined fixed
charges and preferred dividends was 2.1x during 1996, 1.4x during 1997, 1.7x
during 1998, 1.8x during the nine months ended September 30, 1998, and 2.3x
during the nine months ended September 30, 1999.
39
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial statements should be read in
conjunction with the notes to consolidated financial statements contained in our
Annual Report on Form 10-K/A for the year ended December 31, 1998, the notes to
consolidated financial statements contained in our Quarterly Report on Form 10-Q
for the nine months ended September 30, 1999 and the notes to the consolidated
financial statements contained in the Advanced Communication Systems' Annual
Report on Form 10-K for the year ended September 30, 1999 and the notes to the
Transnational Partners, Mainsaver, Assist and SFG Technologies financial
statements. We refer to Transnational Partners, Mainsaver, Assist and SFG
Technologies hereinafter as the acquired companies.
The following unaudited pro forma condensed balance sheets and unaudited pro
forma condensed statements of operations have been prepared to illustrate the
estimated effects of the acquisitions of Advanced Communication Systems and the
acquired companies, for balance sheet purposes as of September 30, 1999, and for
statement of operations purposes for the year ended December 31, 1998, 1997 and
1996 and for the nine months ended September 30, 1999. The operating results for
Transnational Partners are included in our operating results for the nine months
ended September 30, 1999. The unaudited pro forma condensed statements of
operations combine our revenues and expenses for the year ended December 31,
1998 with revenues and expenses of Advanced Communication Systems for the year
ended September 30, 1998 and with the acquired companies aggregate revenues and
expenses for the year ended December 31, 1998; and our revenues and expenses for
the nine months ended September 30, 1999 with the revenues and expenses of
Advanced Communication Systems for the nine months ended June 30, 1999 and with
the acquired companies' aggregate revenues and expenses for the nine months
ended September 30, 1999. The unaudited pro forma condensed statements of
operations for 1997 and 1996 combine our revenues and expenses for the years
ended December 31, 1997 and 1996 with the revenues and expenses of Advanced
Communication Systems for the years ended September 30, 1997 and 1996.
The unaudited pro forma adjustments are based upon available information and
upon certain assumptions that we believe are reasonable in the circumstances.
The unaudited pro forma statements of operations include the recurring items
which are directly attributable to acquisitions, such as amortization of
additional goodwill, increase in interest expense, increase in preferred
dividends, and the related tax effects thereof. The unaudited pro forma combined
balance sheet gives effect to the acquisition of Advanced Communication Systems
and the acquired companies as if they had occurred on September 30, 1999. The
unaudited pro forma combined statements of operations give effect to acquisition
of Advanced Communication Systems as if it had occurred on January 1, 1996, and
give effect to the acquisitions of the acquired companies as if they had
occurred on January 1, 1998. The unaudited pro forma statements do not purport
to represent what our financial position or results of operations would actually
have been if the acquisitions in fact had occurred on the date or at the
beginning of the periods indicated, nor do they purport to project our financial
position or results of operations for any future date or period.
40
<PAGE>
THE TITAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN ACS (NOTE 4) COMBINED MAINSAVER ASSIST
-------- -------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES........................................... $274,059 $156,403 $ -- $430,462 $ 6,267 $9,585
Costs and expenses:
Cost of revenues................................. 211,147 106,183 -- 317,330 1,626 5,596
Selling, general and administrative expense...... 32,957 39,265 -- 72,222 3,962 4,049
Research and development expense................. 5,317 -- -- 5,317 1,774 440
Special acquisition related charges and other.... -- -- -- -- -- --
-------- -------- ------- -------- ------- ------
Total costs and expenses....................... 249,421 145,448 -- 394,869 7,362 10,085
-------- -------- ------- -------- ------- ------
Operating profit (loss)............................ 24,638 10,955 -- 35,593 (1,095) (500)
Interest expense................................... (6,712) (2,741) -- (9,453) (309) (146)
Interest income.................................... 585 -- -- 585 -- --
-------- -------- ------- -------- ------- ------
Income from continuing operations before income
taxes............................................ 18,511 8,214 -- 26,725 (1,404) (646)
Income tax provision............................... 5,553 3,256 -- 8,809 -- --
-------- -------- ------- -------- ------- ------
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle, net................................... $ 12,958 $ 4,958 $ -- $ 17,916 $(1,404) $ (646)
======== ======== ======= ======== ======= ======
Basic earnings per share:
Income from continuing operations................ $ 0.33 $ 0.57 $ -- $ 0.38 $ -- $ --
======== ======== ======= ======== ======= ======
Weighted average shares........................ 38,076 8,663 (1,272) 45,467 -- 516
======== ======== ======= ======== ======= ======
Diluted earnings per share:
Income from continuing operations................ $ 0.29 $ 0.56 $ -- $ 0.34 $ -- $ --
======== ======== ======= ======== ======= ======
Weighted average shares........................ 45,732 8,788 (1,397) 53,123 -- 516
======== ======== ======= ======== ======= ======
Depreciation & Amortization........................ $ 6,797 $ 2,738 $ -- $ 9,535 $ 163 $ 122
Non-recurring Charges.............................. -- -- -- -- 237 --
EBITDA (Note 2).................................... 31,435 13,693 -- 45,128 (695) (378)
Adjusted Pro forma EBITDA (Note 2)................. 33,800 16,694 3,000 53,494 (695) (378)
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
SFG (NOTE 4) COMBINED
-------- ----------- ----------
<S> <C> <C> <C>
REVENUES........................................... $4,960 $ -- $451,274
Costs and expenses:
Cost of revenues................................. 219 -- 324,771
Selling, general and administrative expense...... 4,113 2,092 86,438
Research and development expense................. 597 -- 8,128
Special acquisition related charges and other.... -- -- --
------ ------- --------
Total costs and expenses....................... 4,929 2,092 419,337
------ ------- --------
Operating profit (loss)............................ 31 (2,092) 31,937
Interest expense................................... (215) (2,269) (12,392)
Interest income.................................... -- -- 585
------ ------- --------
Income from continuing operations before income
taxes............................................ 184) (4,361) 20,130
Income tax provision............................... -- (908) 7,901
------ ------- --------
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle, net................................... $ (184) $(3,453) $ 12,229
====== ======= ========
Basic earnings per share:
Income from continuing operations................ $ -- $ -- $ 0.25
====== ======= ========
Weighted average shares........................ -- -- 45,983
====== ======= ========
Diluted earnings per share:
Income from continuing operations................ $ -- $ -- $ 0.22
====== ======= ========
Weighted average shares........................ -- (243) 53,396
====== ======= ========
Depreciation & Amortization........................ $ 150 $ 2,092 $ 12,062
Non-recurring Charges.............................. -- -- 237
EBITDA (Note 2).................................... 181 -- 44,236
Adjusted Pro forma EBITDA (Note 2)................. 181 1,900 54,502
</TABLE>
41
<PAGE>
THE TITAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN ACS (NOTE 4) COMBINED TNP MAINSAVER ASSIST
-------- -------- ----------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $218,678 $58,398 $ -- $277,076 $3,669 $5,909 $8,069
Costs and expenses:
Cost of revenues.......................... 168,816 37,364 -- 206,180 2,665 2,043 5,132
Selling, general and administrative
expense................................. 26,936 16,130 -- 43,066 110 3,392 3,173
Research and development expense.......... 4,025 -- -- 4,025 -- 594 273
Special acquisition related charges and
other................................... 4,553 -- -- 4,553 -- -- --
-------- ------- ----- -------- ------ ------ ------
Total costs and expenses................ 204,330 53,494 -- 257,824 2,775 6,029 8,578
-------- ------- ----- -------- ------ ------ ------
Operating profit (loss)..................... 14,348 4,904 -- 19,252 894 (120) (509)
Interest expense............................ (5,399) (740) -- (6,139) -- (93) (235)
Interest income............................. 262 -- -- 262 7 -- 33
-------- ------- ----- -------- ------ ------ ------
Income (loss) from continuing operations
before income taxes....................... 9,211 4,164 -- 13,375 901 (213) (711)
Income tax provision........................ 3,336 1,505 -- 4,841 4 -- (207)
-------- ------- ----- -------- ------ ------ ------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle, net................. $ 5,875 $ 2,659 $ -- $ 8,534 $ 897 $ (213) $ (504)
======== ======= ===== ======== ====== ====== ======
Basic earnings per share:
Income from continuing operations......... $ 0.15 $ 0.40 $ -- $ 0.19 $ -- $ -- $ --
======== ======= ===== ======== ====== ====== ======
Weighted average shares................. 34,614 6,729 662 42,005 -- 516
======== ======= ===== ======== ====== ====== ======
Diluted earnings per share:
Income from continuing operations......... $ 0.15 $ 0.39 $ -- $ 0.18 $ -- $ -- $ --
======== ======= ===== ======== ====== ====== ======
Weighted average shares................. 36,013 6,855 536 43,404 2,345 -- 516
======== ======= ===== ======== ====== ====== ======
Depreciation & Amortization................. $ 5,378 $ 983 $ -- $ 6,361 $ -- $ 253 $ 228
Non-recurring Charges....................... 4,553 -- -- 4,553 -- 205 --
Pro forma EBITDA (Note 2)................... 24,279 5,887 -- 30,166 894 338 (281)
Adjusted Pro forma EBITDA (Note 2).......... 28,735 10,042 -- 38,777 894 338 (281)
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
SFG (NOTE 4) COMBINED
-------- ----------- ----------
<S> <C> <C> <C>
REVENUES $4,001 $ -- $298,724
Costs and expenses:
Cost of revenues.......................... 355 -- 216,375
Selling, general and administrative
expense................................. 2,311 2,092 54,144
Research and development expense.......... 1,241 -- 6,133
Special acquisition related charges and
other................................... -- -- 4,553
------ ------- --------
Total costs and expenses................ 3,907 2,092 281,205
------ ------- --------
Operating profit (loss)..................... 94 (2,092) 17,519
Interest expense............................ (228) (2,269) (8,964)
Interest income............................. -- -- 302
------ ------- --------
Income (loss) from continuing operations
before income taxes....................... (134) (4,361) 8,857
Income tax provision........................ -- (908) 3,730
------ ------- --------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle, net................. $ (134) $(3,453) $ 5,127
====== ======= ========
Basic earnings per share:
Income from continuing operations......... $ -- $ -- $ 0.11
====== ======= ========
Weighted average shares................. -- -- 42,521
====== ======= ========
Diluted earnings per share:
Income from continuing operations......... $ -- $ -- $ 0.10
====== ======= ========
Weighted average shares................. -- (2,638) 43,627
====== ======= ========
Depreciation & Amortization................. $ 198 $ 2,092 $ 9,132
Non-recurring Charges....................... -- -- 4,758
Pro forma EBITDA (Note 2)................... 292 -- 31,409
Adjusted Pro forma EBITDA (Note 2).......... 292 -- 40,020
</TABLE>
42
<PAGE>
THE TITAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
TITAN ACS (NOTE 4) COMBINED TNP MAINSAVER ASSIST SFG
-------- -------- ----------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $303,428 $107,752 $ -- $411,180 $5,644 $ 7,218 $11,523 $4,868
Costs and expenses:
Cost of revenues................. 232,041 69,847 -- 301,888 4,067 2,387 6,917 206
Selling, general and
administrative expense......... 37,553 28,834 -- 66,387 146 5,187 4,477 3,016
Research and development
expense........................ 5,590 -- -- 5,590 -- 946 397 1,853
Special acquisition related
charges and other.............. 9,891 -- -- 9,891 -- -- -- --
-------- -------- ---- -------- ------ ------- ------- ------
Total costs and expenses....... 285,075 98,681 -- 383,756 4,213 8,520 11,791 5,075
-------- -------- ---- -------- ------ ------- ------- ------
Operating profit (loss)............ 18,353 9,071 -- 27,424 1,431 (1,302) (268) (207)
Interest expense................... (7,377) (1,918) -- (9,295) -- (165) (319) (363)
Interest income.................... 392 82 -- 474 9 -- 29 --
-------- -------- ---- -------- ------ ------- ------- ------
Income (loss) from continuing
operations before income taxes... 11,368 7,235 -- 18,603 1,440 (1,467) (558) (570)
Income tax provision............... 4,155 2,861 -- 7,016 5 -- (180) --
-------- -------- ---- -------- ------ ------- ------- ------
Income (loss) from continuing
operations before cumulative
effect of change in accounting
principle, net................... $ 7,213 $ 4,374 $ -- $ 11,587 $1,435 $(1,467) $ (378) $ (570)
======== ======== ==== ======== ====== ======= ======= ======
Basic earnings per share:
Income from continuing
operations..................... $ 0.18 $ 0.61 $ -- $ 0.26 $ -- $ -- $ -- $ --
======== ======== ==== ======== ====== ======= ======= ======
Weighted average shares........ 34,895 7,221 170 42,286 -- -- 516 --
======== ======== ==== ======== ====== ======= ======= ======
Diluted earnings per share:
Income from continuing
operations..................... $ 0.18 $ 0.60 $ -- $ 0.25 $ -- $ -- $ -- $ --
======== ======== ==== ======== ====== ======= ======= ======
Weighted average shares........ 36,177 7,326 65 43,568 2,345 -- 516 --
======== ======== ==== ======== ====== ======= ======= ======
Depreciation & Amortization........ $ 7,126 $ 2,264 $ -- $ 9,390 $ -- $ 295 $ 309 $ 198
Non-recurring Charges.............. 9,891 -- -- 9,891 -- 1,578 -- --
Pro forma EBITDA (Note 2).......... 35,370 11,335 -- 46,705 1,431 571 41 (9)
Adjusted Pro forma EBITDA (Note
2)............................... 40,595 13,874 -- 54,469 1,431 571 41 (9)
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
(NOTE 4) COMBINED
----------- ----------
<S> <C> <C>
REVENUES $ -- $440,433
Costs and expenses:
Cost of revenues................. -- 315,465
Selling, general and
administrative expense......... 3,213 82,426
Research and development
expense........................ -- 8,786
Special acquisition related
charges and other.............. -- 9,891
------- --------
Total costs and expenses....... 3,213 416,568
------- --------
Operating profit (loss)............ (3,213) 23,865
Interest expense................... (2,641) (12,783)
Interest income.................... -- 512
------- --------
Income (loss) from continuing
operations before income taxes... (5,854) 11,594
Income tax provision............... (1,057) 5,784
------- --------
Income (loss) from continuing
operations before cumulative
effect of change in accounting
principle, net................... $(4,797) $ 5,810
======= ========
Basic earnings per share:
Income from continuing
operations..................... $ -- $ 0.12
======= ========
Weighted average shares........ -- 42,802
======= ========
Diluted earnings per share:
Income from continuing
operations..................... $ -- $ 0.11
======= ========
Weighted average shares........ (2,493) 43,936
======= ========
Depreciation & Amortization........ $ 3,213 $ 13,405
Non-recurring Charges.............. -- 11,469
Pro forma EBITDA (Note 2).......... -- 48,739
Adjusted Pro forma EBITDA (Note
2)............................... -- 56,503
</TABLE>
43
<PAGE>
THE TITAN CORPORATION
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 ACS (NOTE 4) COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............................................ $275,923 $52,194 $ -- $328,117
Costs and expenses:
Cost of revenues.................................. 216,553 37,687 -- 254,240
Selling, general and administrative expense....... 36,731 11,128 -- 47,859
Research and development expense.................. 7,466 -- -- 7,466
Special acquisition related charges and other..... 6,600 1,910 -- 8,510
-------- ------- ------ --------
Total costs and expenses........................ 267,350 50,725 -- 318,075
-------- ------- ------ --------
Operating profit.................................... 8,573 1,469 -- 10,042
Interest expense.................................... (6,643) (136) -- (6,779)
Interest income..................................... 872 153 -- 1,025
-------- ------- ------ --------
Income from continuing operations before income
taxes............................................. 2,802 1,486 -- 4,288
Income tax provision................................ 4,184 (250) -- 3,934
-------- ------- ------ --------
Income (loss) from continuing operations before
cumulative effect of change in accounting
principle, net.................................... $ (1,382) $ 1,736 $ -- $ 354
======== ======= ====== ========
Basic earnings per share:
Income (loss) from continuing operations.......... $ (0.07) $ 0.40 $ -- $ (0.01)
======== ======= ====== ========
Weighted average shares......................... 33,094 4,306 3,085 40,485
======== ======= ====== ========
Diluted earnings per share:
Income (loss) from continuing operations.......... $ (0.07) $ 0.40 $ -- $ (0.01)
======== ======= ====== ========
Weighted average shares......................... 33,094 4,352 3,039 40,485
======== ======= ====== ========
Depreciation & Amortization......................... $ 9,213 $ 471 $ -- $ 9,684
Non-recurring Charges............................... 9,846 1,910 -- 11,756
Pro forma EBITDA.................................... 27,632 3,850 -- 31,482
</TABLE>
44
<PAGE>
THE TITAN CORPORATION
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 ACS (NOTE 4) COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues............................................ $245,976 $31,665 $ -- $277,641
Costs and expenses:
Cost of revenues.................................. 192,657 19,307 -- 211,964
Selling, general and administrative expense....... 36,226 10,253 -- 46,479
Research and development expense.................. 5,023 -- -- 5,023
-------- ------- ------ --------
Total costs and expenses........................ 233,906 29,560 -- 263,466
-------- ------- ------ --------
Operating profit.................................... 12,070 2,105 -- 14,175
Interest expense.................................... (4,764) (257) -- (5,021)
Interest income..................................... 639 57 -- 696
-------- ------- ------ --------
Income from continuing operations before income
taxes............................................. 7,945 1,905 -- 9,850
Income tax provision................................ 2,603 -- -- 2,603
-------- ------- ------ --------
Income from continuing operations before cumulative
effect of change in accounting principle, net..... $ 5,342 $ 1,905 $ -- $ 7,247
======== ======= ====== ========
Basic earnings per share:
Income from continuing operations................. $ 0.14 $ 0.51 $ -- $ 0.16
======== ======= ====== ========
Weighted average shares......................... 32,068 3,733 3,658 39,459
======== ======= ====== ========
Diluted earnings per share:
Income from continuing operations................. $ 0.14 $ 0.50 $ -- $ 0.16
======== ======= ====== ========
Weighted average shares......................... 32,445 3,806 3,585 39,836
======== ======= ====== ========
Depreciation & Amortization......................... $ 8,044 $ 402 $ -- $ 8,446
Non-recurring Charges............................... -- -- -- --
Pro forma EBITDA.................................... 20,114 2,507 -- 22,621
</TABLE>
45
<PAGE>
THE TITAN CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
TITAN ACS (NOTE 4) PRO FORMA MAINSAVER ASSIST
-------- -------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 4,207 $ 1,615 $ -- $ 5,822 $ -- $ 413
Accounts receivable, net........................ 131,787 67,834 -- 199,621 1,559 2,627
Inventories..................................... 12,492 932 -- 13,424 -- --
Prepaid expenses and other...................... 8,938 2,896 -- 11,834 69 380
Deferred income taxes........................... 5,635 -- 3,345 8,980 -- --
-------- -------- ------- -------- -------- -------
Total current assets.......................... 163,059 73,277 3,345 239,681 1,628 3,420
Property and equipment, net..................... 28,476 7,908 -- 36,384 805 293
Goodwill, net................................... 89,064 61,603 -- 150,667 -- --
Other assets.................................... 11,929 414 -- 12,343 64 260
Net assets of discontinued operations........... 580 -- -- 580 -- --
-------- -------- ------- -------- -------- -------
Total assets.................................. $293,108 $143,202 $ 3,345 $439,655 $ 2,497 $ 3,973
======== ======== ======= ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................. $ 6,163 $ -- $ -- $ 6,163 $ 1,512 $ --
Accounts payable................................ 29,598 5,773 -- 35,371 953 1,219
Acquisition debt................................ 4,800 -- -- 4,800 -- --
Current portion of long-term debt............... 2,089 964 -- 3,053 211 187
Accrued compensation and benefits............... 17,008 -- -- 17,008 -- 508
Other accrued liabilities....................... 11,971 37,345 -- 49,316 2,244 445
Net liabilities of discontinued operations...... 39 -- -- 39 -- --
-------- -------- ------- -------- -------- -------
Total current liabilities..................... 71,668 44,082 -- 115,750 4,920 2,359
-------- -------- ------- -------- -------- -------
Line of credit.................................. 110,712 47,580 -- 158,292 -- --
Long-term debt.................................. 7,090 420 11,150 18,660 1,653 2,327
Other non-current liabilities................... 16,801 1,226 -- 18,027 485 197
Redeemable preferred stock...................... -- -- -- -- -- 305
STOCKHOLDERS' EQUITY:
Cumulative convertible
Series A junior participating................. 695 -- -- 695 -- --
Common stock.................................... 437 115 -- 552 6,197 5
Capital in excess of par value.................. 98,833 42,511 -- 141,344 -- 9
Retained earnings (deficit)..................... (10,492) 7,578 (7,805) (10,719) (10,758) (1,229)
Treasury stock.................................. (2,636) (310) -- (2,946) -- --
-------- -------- ------- -------- -------- -------
Total stockholders' equity.................... 86,837 49,894 (7,805) 128,926 (4,561) (1,215)
-------- -------- ------- -------- -------- -------
Total liabilities and stockholders' equity.... $293,108 $143,202 $ 3,345 $439,655 $ 2,497 $ 3,973
======== ======== ======= ======== ======== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS
SFG (NOTE 4) PRO FORMA
-------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ -- $ -- $ 6,235
Accounts receivable, net........................ 2,639 -- 206,446
Inventories..................................... -- -- 13,424
Prepaid expenses and other...................... 290 -- 12,573
Deferred income taxes........................... -- -- 8,980
------- ------- --------
Total current assets.......................... 2,929 -- 247,658
Property and equipment, net..................... 693 -- 38,175
Goodwill, net................................... -- 55,794 206,461
Other assets.................................... 128 -- 12,795
Net assets of discontinued operations........... -- -- 580
------- ------- --------
Total assets.................................. $ 3,750 $55,794 $505,669
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................. $ 947 $(1,512) $ 7,110
Accounts payable................................ 1,266 -- 38,809
Acquisition debt................................ -- -- 4,800
Current portion of long-term debt............... 400 (400) 3,451
Accrued compensation and benefits............... -- -- 17,516
Other accrued liabilities....................... 1,996 7,300 61,301
Net liabilities of discontinued operations...... -- -- 39
------- ------- --------
Total current liabilities..................... 4,609 5,388 133,026
------- ------- --------
Line of credit.................................. -- 39,352 197,644
Long-term debt.................................. 3,110 (6,590) 19,160
Other non-current liabilities................... 504 5,176 24,389
Redeemable preferred stock...................... -- (305) --
STOCKHOLDERS' EQUITY:
Cumulative convertible
Series A junior participating................. -- -- 695
Common stock.................................... -- (6,202) 552
Capital in excess of par value.................. 2,981 (2,990) 141,344
Retained earnings (deficit)..................... (7,454) 21,965 (8,195)
Treasury stock.................................. -- -- (2,946)
------- ------- --------
Total stockholders' equity.................... (4,473) 12,773 131,450
------- ------- --------
Total liabilities and stockholders' equity.... $ 3,750 $55,794 $505,669
======= ======= ========
</TABLE>
46
<PAGE>
THE TITAN CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Cayenta, a majority owned subsidiary of ours, acquired substantially all of
the assets and liabilities of Transnational Partners in January 1999.
Thereafter, Cayenta acquired Mainsaver in November 1999, and Assist and SFG
Technologies in December 1999. (See Note 3--The Acquired Companies). On
December 9, 1999, we entered into an agreement to acquire Advanced Communication
Systems.
2. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements are based on adjustments to our historical consolidated financial
statements to give effect to the acquisitions described in Note 3 below and the
proposed acquisition of Advanced Communication Systems. The pro forma condensed
consolidated statements of operations assume the acquisitions were consummated
as of the beginning of the periods presented. The pro forma condensed
consolidated statements of operations are not necessarily indicative of results
that would have occurred had the acquisitions been consummated as of the
beginning of the periods presented or the results that may be attained in the
future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the SEC. The pro forma
condensed consolidated financial statements should be read in conjunction with
the historical consolidated financial statements of Titan, Advanced
Communication Systems and the historical financial statements of the acquired
companies.
The information in the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1998 and for the nine months ended
September 30, 1999 and 1998 have been derived from (i) the audited statements of
operations of Titan, Advanced Communication Systems, Transnational Partners and
each of the acquired companies for the year ended December 31, 1998, (except
with respect to Advanced Communication Systems which includes the audited
statement of operations for the year ended September 30, 1998 and SFG
Technologies which includes the audited eight month period ended December 31,
1998 and the unaudited four month period ended April 30, 1998) (ii) our
unaudited statements of operations for the nine months ended September 30, 1999,
(iii) the unaudited statements of operations of Advanced Communication Systems
for the nine months ended June 30, 1999 and 1998 and (iv) the unaudited
statements of operations of the acquired companies for the nine months ended
September 30, 1999. The information in the unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1997 and
1996 have been derived from (i) our audited statements of operations for the
years ended December 31, 1997 and 1996 and the (ii) audited statements of
operations of Advanced Communication Systems for the years ended September 30,
1997 and 1996.
The financial statements of SFG Technologies are translated from Canadian
dollars to U.S. dollars based on the end of the period exchange rate for balance
sheet items and average for the period rates for statement of operations data.
There are no significant differences between U.S. and Canadian GAAP relative to
SFG Technologies.
EBITDA for any relevant period represents earnings before non-recurring
special acquisition related charges and other interest, taxes, depreciation and
amortization, assuming that we completed the acquisitions described in the
introductory paragraph to this financial data as of the dates stated therein. We
have included EBITDA because we understand that it is one measure used by some
investors to determine our operating cash flow and historical ability to service
our indebtedness. However, other companies in our business may present EBITDA
47
<PAGE>
THE TITAN CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. BASIS OF PRESENTATION (CONTINUED)
differently than we do. EBITDA is not a measurement of financial performance
under generally accepted accounting principles and should not be considered by
an investor as an alternative to net income or operating income as an indicator
of our operating performance or cash flow from operations, or as an alternative
to cash flows as a measure of liquidity.
Adjusted EBITDA for any relevant period (for the twelve months ended
September 30, 1999 and December 31, 1998 and the nine months ended
September 30, 1998 and 1999) represents EBITDA as adjusted, giving effect to the
acquisitions of System Resources Corporation and Atlantic Aerospace Electronics
Corporation, stated on a pro forma basis before non-recurring charges as if they
had occurred at the beginning of each such period. Adjusted EBITDA also includes
the effect of conforming Advanced Communication Systems' fiscal year end in 1998
and 1999 of September 30th to our fiscal year end. Also, Adjusted EBITDA
includes certain anticipated cost savings, net of certain incremental expenses,
of $4.9 million (for the acquisition of Advanced Communication Systems and for
our software acquisitions). Cost savings associated with the Advanced
Communication Systems acquisition include the retirement of the chief executive
officer, costs of operating as a public company and consolidation of legal and
audit services, among others. Cost savings associated with the acquisitions of
Mainsaver, Assist and SFG Technologies include consolidation of accounting
functions and employee benefits, consolidation of professional services, and
reduction in personnel. Actual results and cost savings may differ materially
from those reflected in Adjusted EBITDA due to higher than expected integration
costs, higher than expected costs associated with expanding our business
segments' operations or an increase in our other costs. Such estimated cost
savings do not qualify as pro forma adjustments under Regulation S-X promulgated
under the Securities Act and constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Accordingly,
such cost savings have been excluded from the pro forma adjustments in our
unaudited pro forma historical financial information. Arthur Andersen LLP does
not express any opinion or other form of assurance with respect to Adjusted
EBITDA or any components thereof. See "Cautionary Statement About
Forward-Looking Statements."
3. ACQUISITIONS
All acquisitions were accounted for as purchases. Accordingly the operating
results are reflected in the consolidated results of Cayenta from the date of
acquisition. Summary information on the acquisitions follows:
THE ACQUIRED COMPANIES
TRANSNATIONAL PARTNERS. In January 1999, Cayenta acquired substantially all
of the assets of Transnational Partners, an enterprise application integration
consulting company. Cayenta acquired these assets for an initial installment of
$7.0 million in cash and 2,345,000 shares of Cayenta's convertible preferred
stock. Cayenta will pay off an additional $2.8 million note that was issued as
part of its acquisition of Transnational Partners, plus 7% interest thereon, in
February 2000. Acquisition goodwill of $12.3 million is being amortized on a
straight-line basis over 30 years.
MAINSAVER. In November 1999, Cayenta acquired Mainsaver, an enterprise
asset management company. Cayenta acquired Mainsaver for $11.7 million in cash,
of which $8.2 million was paid at the closing. Of the $3.5 million withheld at
the closing, $500,000 is due in February 2000 and $3.0 million is due in May
2001, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, Cayenta paid approximately
$3.4 million to reduce outstanding indebtedness of Mainsaver.
48
<PAGE>
THE TITAN CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
ASSIST CORNERSTONE. In December 1999, Cayenta acquired Assist, an
e-commerce solutions and software company. Cayenta acquired Assist for 516,000
shares of its Class A common stock and approximately $12.9 million in cash, of
which $9.9 million was paid at the closing. Of the $3.0 million withheld at the
closing, $1.7 million is due in March 2000 and $1.3 million is due in June 2001,
after satisfaction of possible working capital adjustments or indemnification
obligations. In addition, Cayenta paid approximately $3.2 million to retire
outstanding indebtedness of Assist and redeem all of its outstanding redeemable
preferred stock.
SFG TECHNOLOGIES. In December 1999, Cayenta acquired SFG Technologies, a
solutions and software provider focusing on revenue cycle services for the
utility industry. Cayenta acquired SFG Technologies for $11.6 million in cash,
of which $9.5 million was paid at the closing. Of the approximately
$2.0 million placed into escrow at the closing, approximately $500,000 is due in
March 2000 and $1.5 million is due in June 2001, after satisfaction of possible
working capital adjustments or indemnification obligations. In addition, Cayenta
paid approximately $3.1 million to retire outstanding indebtedness of SFG
Technologies and redeem all of its outstanding redeemable preferred stock.
Acquisition costs related to the 1999 acquired companies approximated $5.1
million which includes approximately $2.1 million of estimated fair value
assigned to 495,800 warrants granted to an investment advisor for certain
advisory services performed in connection with these acquisitions. Goodwill
related to these acquisitions amounted to approximately $55.8 million and is
being amortized over 20 years.
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheets and statements of operations as if the
acquisitions described in Note 3 and the acquisition of Advanced Communication
Systems were consummated at September 30, 1999 and as of the beginning of the
periods presented, respectively:
BALANCE SHEETS
1999 Acquisitions:
(a) To reflect the goodwill related to the acquired companies,
(b) To reflect the retirement of certain debt of the acquired companies
using advances under our line of credit,
(c) To reflect the purchase price holdbacks and to accrue for
transaction costs, and
(d) To eliminate the acquired companies' equity accounts.
Advanced Communication Systems Acquisition:
(e) To reflect the impact of estimated direct transaction costs of the
acquisition of Advanced Communication Systems and estimated costs of
integrating the companies, of approximately $11.2 million. These transaction
costs consist primarily of investment banking fees, costs of filings with
regulatory agencies, and accounting, legal, financial printing and other
related costs.
49
<PAGE>
THE TITAN CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
1999 Acquisitions:
(f) To reflect incremental amortization (on a straight-line basis over
20 years) of goodwill related to the purchase of Mainsaver, Assist and SFG
Technologies and to reflect the amortization (on a straight line basis over
30 years) of goodwill related to the Transnational Partners acquisition.
(g) To reflect incremental interest expense on advances under our line
of credit to fund the cash portion of the purchase prices of the
Transnational Partners acquisition and of the purchases of Mainsaver, Assist
and SFG Technologies and to reflect interest expense related to holdback
amounts for the Mainsaver, Assist and SFG Technologies acquisitions.
(h) To reflect (i) the change in income taxes related to pro forma
adjustments, and (ii) income taxes on Transnational Partners as if it were a
C corporation for federal income tax purposes.
Advanced Communication Systems Acquisition:
(i) The unaudited pro forma combined net income (loss) per common share
is based upon the weighted average number of common and equivalent shares of
our common stock outstanding for each period at an assumed exchange ratio of
.7843 of a share of our common stock for each share of Advanced
Communication Systems common stock, assuming 9,424,000 shares of Advanced
Communication Systems common stock issued and outstanding, which amount
includes common stock subject to issued and outstanding stock options. The
exchange ratio assumes an average of our stock price of at least $22.95 but
less than $25.50, which is the range below which Advanced Communication
Systems has the right, subject to conditions, to terminate the merger
agreement. The effect of the assumed conversion of our convertible
subordinated debentures was antidilutive for all periods presented.
NON-RECURRING CHARGES
Non-recurring charges represent special acquisition related charges, plus
certain costs incurred by DBA in 1997 related to the write-down of certain
assets impaired in 1997, and costs incurred by Mainsaver in connection with its
1998 leveraged recapitalization.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
TITAN DERIVED THE FOLLOWING INFORMATION FROM ITS AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1994 THROUGH
1998 AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999. THE FOLLOWING INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF
TITAN AND RELATED NOTES CONTAINED ELSEWHERE IN THIS OFFERING CIRCULAR.
THE SUMMARY CONSOLIDATED STATEMENT OF OPERATIONS DATA FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1999 AND THE CONSOLIDATED BALANCE SHEET DATA AS OF
SEPTEMBER 30, 1999 ARE UNAUDITED BUT INCLUDE, IN THE OPINION OF MANAGEMENT, ALL
ADJUSTMENTS, CONSISTING OF ONLY NORMAL RECURRING ADJUSTMENTS, NECESSARY FOR A
FAIR PRESENTATION OF SUCH DATA. RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS WHICH MAY BE EXPECTED FOR ANY
OTHER INTERIM PERIODS OR FOR THE YEAR AS A WHOLE.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $230,611 $244,882 $245,976 $275,923 $303,428 $218,678 $274,059
Cost and expenses:
Cost of revenues....................... 172,947 189,237 192,657 216,553 232,041 168,816 211,147
Selling, general and administrative
expense.............................. 35,871 37,513 36,226 36,731 37,553 26,936 32,957
Research and development expense....... 5,749 6,907 5,023 7,466 5,590 4,025 5,317
Special acquisition related charges and
other................................ (1,200) 6,249 -- 6,600 9,891 4,553 --
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses............. 213,367 239,906 233,906 267,350 285,075 204,330 249,421
-------- -------- -------- -------- -------- -------- --------
Operating Profit......................... 17,244 4,976 12,070 8,573 18,353 14,348 24,638
Interest expense......................... (2,327) (2,817) (4,764) (6,643) (7,377) (5,399) (6,712)
Interest income.......................... 389 392 639 872 392 262 585
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
income taxes........................... 15,306 2,551 7,945 2,802 11,368 9,211 18,511
Income tax provision (benefit)........... 5,103 498 2,603 4,184 4,155 3,336 5,553
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
cumulative effect of change in
accounting principle................... 10,203 2,053 5,342 (1,382) 7,213 5,875 12,958
Cumulative effect of change in accounting
principle, net......................... -- -- -- -- (19,474) (19,474) --
Loss from discontinued operations, net of
taxes.................................. (4,024) (12,942) (6,326) (17,930) (7,444) (5,617) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... 6,179 (10,889) (984) (19,312) (19,705) (19,216) 12,958
Dividend requirements on preferred
stock.................................. (695) (695) (803) (875) (778) (605) (521)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to common
stock................................ $ 5,484 $(11,584) $ (1,787) $(20,187) $(20,483) $(19,821) $ 12,437
======== ======== ======== ======== ======== ======== ========
Basic earnings per share:
Income from continuing operations.... $ 0.31 $ 0.04 $ 0.14 $ (0.07) $ 0.18 $ 0.15 $ 0.33
Cumulative effect of change in
accounting principle............... -- -- -- -- (0.56) (0.56) --
Loss from discontinued operations.... (0.13) (0.42) (0.20) (0.54) (0.21) (0.16) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 0.18 $ (0.38) $ (0.06) $ (0.61) $ (0.59) $ (0.57) $ 0.33
======== ======== ======== ======== ======== ======== ========
Weighted average shares.............. 30,388 30,545 32,068 33,094 34,895 34,614 38,076
======== ======== ======== ======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations.... $ 0.31 $ 0.04 $ 0.14 $ (0.07) $ 0.18 $ 0.15 $ 0.29
Cumulative effect of change in
accounting principle............... -- -- -- -- (0.54) (0.54) --
Loss from discontinued operations.... (0.13) (0.42) (0.20) (0.54) (0.21) (0.16) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 0.18 $ (0.37) $ (0.06) $ (0.61) $ (0.57) $ (0.55) $ 0.29
======== ======== ======== ======== ======== ======== ========
Weighted average shares.............. 30,388 31,167 32,445 33,094 36,177 36,013 45,732
======== ======== ======== ======== ======== ======== ========
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Non-recurring charges.................. $ -- $ 6,249 $ -- $ 9,846 $ 9,891 $ 4,553 $ --
EBITDA (1)............................. $ 21,818 $ 17,766 $ 20,114 $ 27,632 $ 35,370 $ 24,278 $ 31,435
Depreciation and Amortization.......... 4,574 6,541 8,044 9,213 7,126 5,377 6,797
Capital Expenditures................... 7,894 10,869 6,638 6,647 4,038 2,284 5,672
Ratio of Earnings to Fixed Charges
(2).................................. 4.2x 1.5x 2.1x 1.3x 2.1x 2.3x 3.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF
NINE MONTHS
AS OF DECEMBER 31, ENDED
---------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents......................... $ 9,447 $ 9,477 $ 5,719 $ 11,383 $ 11,079 $ 4,207
Investments.................................. -- 5,000 9,888 -- -- --
Working capital.............................. 46,184 36,730 62,634 115,779 64,450 91,391
Property and equipment, net.................. 27,333 32,730 29,391 27,666 25,702 28,476
Total assets................................. 150,424 163,060 193,288 183,703 192,567 293,108
Total debt................................... 13,915 33,364 54,242 62,200 75,240 130,854
Stockholders' equity......................... 78,296 71,691 82,279 65,447 50,711 86,837
</TABLE>
- ------------------------------
(1) EBITDA for any relevant period represents earnings before non-recurring
special acquisition related charges and other interest, taxes, depreciation
and amortization. We have included EBITDA because we understand that it is
one measure used by some investors to determine our operating cash flow and
historical ability to service our indebtedness. However, other companies in
our business may present EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered by an investor as an alternative to
net income or operating income as an indicator of our operating performance
or cash flow from operations, or as an alternative to cash flows as a
measure of liquidity.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges and "fixed charges"
consist of interest expense (including amortization of debt discount and
expense), leasing expense and the estimated interest factor attributable to
rentals. The ratio of earnings to combined fixed charges and preferred
dividends was 3.8x during 1994, 1.4x during 1995, 2.0x during 1996, 1.3x
during 1997, 2.1x during 1998, 2.2x during the nine months ended
September 30, 1998, and 2.9x during the nine months ended September 30,
1999.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included in this offering circular or incorporated in this offering circular by
reference. You should carefully read this entire offering circular, including
the "Risk Factors" section above and the other risks detailed in this section,
before making an investment in the HIGH TIDES.
OVERVIEW AND OUTLOOK
We are a leading diversified technology company that provides information
technology, communications and electron beam food pasteurization and medical
product sterilization systems and services. Through extensive government-funded
research and development activities since 1981 under contracts totaling in
excess of $2 billion, we have accumulated a broad portfolio of technologies,
intellectual property and expertise from which we have developed many of our
commercial businesses. The core technologies supporting our Titan Scan and Titan
Wireless segments were derived from technologies originally developed for
government applications. We believe that our government contracts business
enhances our technical expertise with sophisticated technologies and facilitates
our ability to develop commercial applications. We fund the development of
commercial technologies from our technology base both internally as well as in
conjunction with partners. In 1996, for example, we contributed the core
technology to form Servnow! Nettechnologies, Inc., which is now known as
IPivot, Inc. IPivot develops software products that improve the performance of
server farms, web sites and software applications. We raised the capital
required to fund IPivot from venture capital sources. In November 1999, we
received approximately $42 million in cash for our 8.1% equity interest when
IPivot was acquired by Intel Corporation. We plan to continue building our
technology portfolio, identifying commercial applications and entering into
strategic relationships to further our growth.
We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
<TABLE>
<CAPTION>
SEGMENT SEGMENT DECRIPTION
- ------- -----------------------------------------------------
<S> <C>
Titan Systems Information technology and communications solutions
for defense, intelligence, and other U.S. and allied
government agencies
Cayenta Total services provider of comprehensive information
technology solutions for its customers' business
functions, including e-business, finance, accounting,
customer billing and collection, contract management,
supply chain integration and enterprise asset
management
Titan Scan Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless Satellite communication systems and services which
support telephony in developing countries
Emerging Technologies Development of commercial applications for
technologies created by our other business segments
through government-sponsored research and development
programs
</TABLE>
Each of Titan Systems, Titan Scan and Titan Wireless is a wholly owned
subsidiary of ours, and has a management team that has significant relevant
experience in the segment's particular business
53
<PAGE>
and market area. Consistent with our strategy of aligning management motivation
with stockholder interests, each of these wholly owned subsidiaries has its own
key employee stock option plan to foster an entrepreneurial environment. We have
created stock option plans for each of Titan Systems, Titan Scan and Titan
Wireless. As of December 31, 1999, Titan Systems had approximately 13% of its
fully diluted common stock that had been reserved for issuance under its plan,
and each of Titan Scan and Titan Wireless had approximately 16% of their fully
diluted common stock that had been reserved for issuance under their respective
plans.
We control approximately 97% of the voting power of Cayenta through our
ownership of 10 million shares of Class B common stock. Each Class A share is
entitled to one vote and each Class B share is entitled to ten votes, with Class
A and Class B shares voting together on all matters submitted to the vote of the
holders of common stock. Cayenta has filed a registration statement on Form S-1
for an initial public offering of an as yet undetermined number of shares of its
Class A common stock that are estimated to have an aggregate value, excluding
the over-allotment option, of $70.0 million. If the proposed offering is
completed, the 2,345,000 outstanding shares of Series A preferred stock of
Cayenta will convert into Class A common stock of Cayenta. We cannot be certain
that Cayenta will be able to complete its offering or complete the offering at
the currently expected offering size. We currently expect to retain in excess of
90% of the voting power of Cayenta following its proposed initial public
offering. In addition, Cayenta has reserved 2,450,000 shares of Class A common
stock under stock option plans. Cayenta has also issued warrants for 495,800
shares of its Class A common stock that have a weighted average exercise price
of $13.11 per share.
TITAN SYSTEMS
Titan Systems provides and is expected to continue to provide the largest
percentage of our consolidated revenues. During the nine months ended
September 30, 1999, Titan Systems had total revenues of $219.5 million, which
represented 80.1% of our consolidated revenues for the period. Titan System's
revenues have continued to grow internally and through our well-defined strategy
of increasing our core competencies through acquiring defense information
technology companies as part of the industry consolidation of defense companies.
We expect to continue to support this segment's growth through strategic
acquisitions.
On December 9, 1999, we entered into an Agreement and Plan of Merger to
acquire Advanced Communication Systems, Inc. in a stock-for-stock, pooling of
interest transaction that we expect to close by the end of our first quarter of
2000. Advanced Communication Systems provides communications, information
systems and aerospace services and solutions primarily to U.S. government
agencies. During the twelve months ended September 30, 1999, Advanced
Communication Systems had revenues from government contracts of approximately
$199 million. Advanced Communication Systems itself has participated in the
industry consolidation and acquired another company in September 1999 in a cash
transaction accounted for as a purchase. As of September 30, 1999, Advanced
Communication Systems had recorded goodwill of $57.6 million that is being
amortized over a period from five to 40 years in connection with its
acquisitions. Advanced Communication Systems also expects to record additional
goodwill of up to approximately $10 million at December 31, 1999 relating to a
potential $10 million earn-out that will be payable in February 2000 in
connection with an acquisition it made in 1998. The additional goodwill will be
amortized over 40 years.
During 1999, Titan Systems acquired System Resources Corporation ("System
Resources") for a cash purchase price of approximately $35.0 million, subject to
certain post-closing working capital adjustments and offsets for indemnification
claims, consisting of $33.0 million in cash paid at closing, less a
$0.5 million holdback, and $2 million in promissory notes which bear interest at
7% per annum and become fully payable on June 9, 2000, the one year anniversary
of the closing of the transaction. In addition, we agreed to pay the System
Resources stockholders one-half of approximately $1.5 million in System
Resources receivables aged more than 720 days to the extent that any of those
receivables are
54
<PAGE>
collected within the two-year period following the closing date. We also retired
approximately $10 million in System Resources indebtedness. On July 22nd, Titan
Systems also acquired Atlantic Aerospace Electronics Corporation for
approximately $18 million, all of which was paid at closing. In addition, we may
pay up to $3 million in connection with earn-outs tied to the receipt of
specific future contract awards, subject to offsets for indemnification claims.
We accounted for both of these acquisitions as purchases and recorded
approximately $41 million in goodwill, which is being amortized on a
straight-line basis over 40 years.
During 1998, we completed five acquisitions, DBA Systems, Inc. on
February 27th, The Validity Corporation on March 31st, Horizons
Technology, Inc. on June 30th, VisiCom Laboratories, Inc. on August 24th, and
Delfin Systems, Inc. on October 23rd. With the exception of the Validity
acquisition, each of these mergers was a stock-for-stock transaction accounted
for as a pooling of interests. We recorded goodwill of approximately $18 million
in connection with the Validity transaction, which is being amortized over 30
years.
Titan Systems' backlog, including both funded and unfunded backlog, was
approximately $621.3 million at September 30, 1999. Titan Systems also had
remaining priced options of approximately $207 million at September 30, 1999. If
Titan Systems' completes its acquisition of Advanced Communication Systems, it
expects a substantial increase in its backlog. At September 30, 1999, Advanced
Communication Systems had funded and unfunded backlog of $704.6 million.
Although backlog represents only business which is considered to be firm, we
cannot guarantee that cancellations or scope adjustments will not occur.
Titan Systems' operating margin is affected by the mix of contract types
(cost reimbursement, fixed-price or time and materials) as well as by the mix of
prime contracts versus subcontracts. Significant portions of Titan Systems'
contracts are cost reimbursement contracts, under which Titan Systems is
reimbursed for all actual costs, plus a fee or profit. The financial risks under
these contracts generally are lower than those associated with other types of
contracts, and margins are also typically lower. The U.S. government also has
awarded Titan Systems fixed-price contracts. Such contracts carry higher
financial risks because Titan Systems must deliver the contracted services at a
cost below the fixed price in order to earn a profit.
The following table summarizes the percentage of revenues of Titan Systems
attributable to each contract type for the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
CONTRACT TYPE 1998 1999
- ------------- -------- --------
<S> <C> <C>
Cost Reimbursement................................ 49.8% 44.6%
Fixed-Price....................................... 32.0 27.0
Time and Materials................................ 18.2 28.4
------ ------
100.0% 100.0%
====== ======
</TABLE>
The percentage of Advanced Communication Systems' revenues attributable to cost
reimbursement contracts was 45.0%, the percentage attributable to fixed-price
contracts was 23.0%, and the percentage attributable to time and materials
contracts was 32.0%, for the twelve months ended September 30, 1999.
Revenues on cost reimbursement contracts are recognized to the extent of
costs incurred plus a proportionate amount of fees earned. Revenues on time and
materials contracts are recognized at the contractual rates as labor hours and
direct expenses are incurred. Revenues on fixed-price contracts are recognized
on the percentage-of-completion method based on costs incurred in relation to
total estimated costs.
55
<PAGE>
CAYENTA
During the period between 1995 and January 1999, Cayenta developed its
systems integration and software application expertise. In January 1999, Cayenta
acquired substantially all of the assets of Transnational Partners II, LLC
("Transnational Partners"), an enterprise application integration consulting
company, to broaden its systems integration capabilities and access
Transnational Partners' customer base. Cayenta acquired these assets for an
initial installment of $7.0 million in cash and 2,345,000 shares of its
convertible preferred stock. Cayenta will pay off an additional $2.8 million
note that it issued as part of its acquisition of Transnational Partners, plus
7% interest thereon, in February 2000. During late 1999, Cayenta acquired J.B.
Systems, Inc., an enterprise asset management company doing business under the
name Mainsaver ("Mainsaver"). Cayenta acquired Mainsaver for $11.7 million in
cash, of which $8.2 million was paid at the closing. Of the $3.5 million
withheld at the closing, $0.5 million is due in February 2000 and $3.0 million
is due in May 2001, plus 7.5% interest thereon in each case, after satisfaction
of possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $3.4 million to reduce outstanding
indebtedness of Mainsaver. Also during late 1999, Cayenta acquired Assist
Cornerstone Technologies, Inc. ("Assist"), an e-commerce solutions and software
provider. Cayenta acquired Assist for 516,458 shares of its Class A common stock
and approximately $12.9 million in cash, of which $9.9 million was paid at the
closing. Of the $3.0 million withheld at the closing, $1.7 million is due in
March 2000 and $1.3 million is due in June 2001, plus 8% interest thereon in
each case, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, Cayenta paid approximately $3.2
million to retire outstanding indebtedness of Assist and redeem all of its
outstanding redeemable preferred stock. Cayenta also acquired SFG
Technologies, Inc. ("SFG Technologies"), a solutions and software provider
focusing on revenue cycle services for the utility industry, during the fourth
quarter of 1999. Cayenta acquired SFG Technologies for $11.6 million in cash, of
which $9.5 million was paid at the closing. Of the approximately $2.0 million
placed into escrow at the closing, approximately $0.5 million is due in
March 2000 and $1.5 million is due in June 2001, after satisfaction of possible
working capital adjustments or indemnification obligations. In addition, Cayenta
paid approximately $3.1 million to retire outstanding indebtedness of SFG
Technologies and redeem all of its outstanding redeemable preferred stock.
Cayenta intends to integrate the software and solutions developed by these
companies into its total services provider, or TSP, offering.
In September 1999, together with Sempra Energy's information solutions
subsidiary and modis, an application integrator, Cayenta established Soliance,
LLC, a joint venture that markets and delivers systems and solutions, including
TSP offerings, to the utility industry. Cayenta owns a 10% equity interest in
Soliance and has a management services agreement with Soliance under which it
provides TSP services to Soliance's customers.
Cayenta has historically derived its revenues from its application
integration and consulting services and from sales of its proprietary software
solutions. Cayenta provides its services primarily on a fixed-time, fixed-price
basis and, to a lesser extent, on a time and materials basis. Under its
fixed-time, fixed-price contracts, Cayenta recognizes revenues on a percentage
of completion basis. Cayenta's fixed-time, fixed-price contracts usually require
an advance payment from its customer with additional payments due on achievement
of specific milestones or on a predetermined schedule. Revenues earned but not
yet billed are recorded as unbilled receivables. Under its time and materials
contracts, Cayenta is paid at an agreed upon hourly rate for the actual time
spent on a customer's projects, and revenues are recorded at the time services
are performed. For the nine months ended September 30, 1999, Cayenta's revenues
from fixed-time, fixed-price contracts represented 66% of its actual revenues
and its revenues from time and materials contracts represented 34% of its actual
revenues. Each of Mainsaver, Assist and SFG Technologies recognizes revenues
from the sale of its proprietary software when the software is delivered and
accepted, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 97-2, "Software Revenue Recognition." The
related software
56
<PAGE>
support and maintenance is billed at the beginning of the maintenance period,
recognized ratably over the term of the applicable contract and recorded as
deferred revenues until recognized.
As Cayenta expands the portion of its business that is based on its TSP
offering, Cayenta intends to enter into contracts with terms of between three
and five years. Cayenta expects revenues from its TSP offering to consist of
periodic recurring fees from ongoing services that will be recognized ratably
over the applicable contract's term. In addition, Cayenta expects to receive
application integration and consulting fees that will be recognized in
accordance with its revenue recognition policies discussed above.
Historically, Cayenta's interest expense has related to borrowings from us
to fund its acquisitions and working capital requirements. As of January 21,
2000, Cayenta owed approximately $54.0 million to us under a credit facility on
which Cayenta will make quarterly interest payments at the greater of the rate
of 10% per annum or our effective weighted average interest rate under our
senior credit facility. Cayenta may not use the proceeds of its proposed initial
public offering to pay amounts outstanding under its credit facility with us.
Under its variable stock option plan, Cayenta has granted options to certain
employees who have agreed to resell shares purchased with those options to
Cayenta. Cayenta has recorded deferred compensation related to these option
grants in an aggregate amount of $155,000 through September 30, 1999. As of
September 30, 1999, there are 628,000 options outstanding that are subject to
this buyback provision, for which Cayenta expects to record deferred
compensation expense equal to the difference between these options' exercise
price of $0.36 per share and the price per share in the proposed initial public
offering multiplied by all 628,000 options. Cayenta also issued 245,000 options
to employees not covered by this buyback option at exercise prices that were
less than the deemed fair market value of the underlying common shares on the
date of grant. Cayenta has recognized deferred compensation relating to these
grants of $514,000 and will amortize this deferred charge to expense over the
four-year vesting period of these options. We expect that there will be an
additional charge related to deferred compensation at the time the initial
public offering closes, and that this charge may be material.
If Cayenta completes its proposed initial public offering, Cayenta expects
to incur operating losses as it invests in the further development of its total
services provider, or TSP, offering. Cayenta expects its selling, general and
administrative expenses to increase significantly as it expands its recruiting
efforts, further develops and launches its TSP offering, initiates its branding
campaign, increases its direct sales staff and builds its administrative
infrastructure. Cayenta also expects its research and development expenses to
increase as it integrates recently acquired software into, and further develops,
its TSP offering.
TITAN SCAN
Titan Scan currently derives primarily all its revenues from providing
turnkey medical product sterilization systems for use at a customer's own
facility and from providing medical product sterilization services at
Titan-owned facilities in San Diego and Denver. Titan Scan's San Diego and
Denver facilities currently run seven days per week, perform sterilization
services for an average of 19 hours per day, and have performed over 100,000
hours of contract sterilization services.
Titan Scan currently derives a small portion of its revenues, and in the
future expects to derive significant revenues, from providing electron beam food
pasteurization services using our SureBeam technology. In December 1999, the
U.S. Department of Agriculture ("USDA") issued regulations setting forth
guidelines for the irradiation of meats. In anticipation of these regulations,
Titan Scan built, at Cloverleaf Cold Storage's facility in Sioux City, Iowa, the
first electron beam food pasteurization facility in the United States. In
addition, Titan Scan entered into multiyear arrangements with many of the major
poultry and meat providers in the United States, including Cargill, IBP, Tyson
Foods, Emmpak and Huisken Meats, among others. Titan Scan's multiyear
arrangements with its
57
<PAGE>
customers generally provide that Titan Scan will be the exclusive provider of
electronic pasteurization services whenever these companies elect to use
pasteurization technology. Our Sioux City, Iowa facility became operational in
December 1999 and once at full capacity will be able to pasteurize in excess of
250 million pounds of product annually. In January 2000, Titan Scan agreed to
build a second facility in Arkansas with a strategic partner. The strategic
partner will form a new entity to operate the SureBeam system, and Titan Scan
will own a minority interest in the new entity. The facility is scheduled to
become operational in December 2000. Also in January 2000, Titan Scan announced
that it had sold a SureBeam system to Japan's Mitsubishi Corp. that is expected
to be fully operational by the first quarter of 2001. In connection with the
sale, Mitsubishi will form a new entity to operate the SureBeam system, which is
expected to be initially used for medical product sterilization, Titan Scan will
hold an equity interest in the new entity, and Mitsubishi will market Titan
Scan's SureBeam technology in Japan. We cannot be certain that consumers will
accept irradiated foods and that meat and poultry providers and producers will
begin to use our pasteurization services. We also cannot guarantee the volume of
beef or poultry that meat and poultry providers and producers will elect to have
electronically pasteurized.
Together with a strategic partner, we are currently building a facility in
Hilo, Hawaii that will use our SureBeam technology for the disinfestation of
fruits and vegetables produced in Hawaii. Titan Scan will receive revenues from
the installation of our system in the plant and has an option to purchase a less
than 20% minority equity interest in the entity operating the facility, which
will receive revenues from disinfestation services. We cannot be certain that
the facility will attain market acceptance or generate significant revenues that
will be realized by Titan Scan through profit allocations if Titan Scan
exercises its option to purchase an equity interest in the entity operating the
facility.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position. However, a finding in favor of Ion Beam Applications in this
action could adversely affect our business, financial condition and results of
operation by reducing the growth of our Titan Scan business segment and
preventing us from generating the revenues that we expect from food
pasteurization.
With respect to equipment sales, we recognize revenue on a percentage of
completion basis. Service revenues are recognized as the related services are
performed.
If irradiated foods gain market acceptance, Titan Scan expects that its
revenues from pasteurization services would increase significantly. Depending
upon market demand, Titan Scan may build additional food pasteurization
facilities, which would increase its level of capital expenditures.
TITAN WIRELESS
Titan Wireless develops and produces advanced satellite ground terminals,
satellite voice/data modems, networking systems and other products to support
telephony in developing countries for government and commercial customers
worldwide. Titan Wireless's technology relies heavily on our Demand Assigned
Multiple Access, or DAMA, technology, which enables more cost-effective and
efficient use of satellite transmission capacity by allowing each ground
terminal in a satellite network to communicate with any other terminal in the
network.
To date, Titan Wireless's revenues have been generated primarily through the
sale of products to commercial carriers of telephony services. Titan Wireless is
increasingly seeking to generate recurring service revenues from the telephony
systems it installs, and intends to derive at least 50% of all future revenues
from providing telecommunications services. In 1999, Titan Wireless formed Sakon
LLC with
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Sakon Corporation to provide carrier, direct dial telephony and enhanced
communications services in certain developing countries. In November 1999, Titan
Wireless formed a strategic relationship with Telecel International Limited, a
large wireless communications service provider to the African continent, to
provide satellite-based telecommunications services in Africa.
Titan Wireless also owns a 50% equity interest in Titan Africa, Benin, which
is building a satellite-based telephone system for Benin's national telephone
company. Titan Wireless, the prime contractor for the project, will install the
major satellite hub, the Very Small Aperture Terminal hardware, the billing
system and network control system. Alcatel of France is a major subcontractor to
Titan Wireless on this project, and will handle the delivery, installation and
integration of the digital cellular system, wireless local loop, fiber optic
system and primary hub switching technology of the system. Titan Wireless will
build out the entire system, which is expected to be completed in 2001, co-
operate the system with the national telephone company for approximately eight
years, and then transfer the operations to the national telephone company. A
majority of the build-out costs under this contract will be subcontract costs
payable by Titan Wireless to Alcatel. Titan Wireless's operating margin on work
performed by subcontractors is substantially lower than its operating margin on
work it performs itself. In addition to realizing revenue and profit on the
equipment portion of the project, Titan Wireless will share in the revenue and
profit generated by the system while it is co-operating the system.
With respect to systems sales, we recognize revenue on a percentage of
completion basis. For equipment sales, we recognize revenue on shipment. Service
revenues are recognized as the related services are performed. As Titan Wireless
increases the number of developing countries in which it provides international
long distance telecommunications, Titan Wireless expects its revenues and
operating income to increase.
EMERGING TECHNOLOGIES.
This segment's operating activities consist primarily of the ImagClear 5000
fingerprint digitization system business, our truck and train tracking and
monitoring system business and other early stage commercial businesses,
including businesses in which we have less than a 20% equity interest. Emerging
Technologies pursues commercial applications for technologies originally
developed in our Titan Systems' segment or developed by defense companies we
have acquired.
In November 1999, we received approximately $42 million in cash for our 8.1%
equity interest in IPivot, Inc., which was acquired by Intel Corporation. IPivot
develops software products that improve the performance of server farms, web
sites and software applications. In 1996, we contributed the core technology to
form Servnow! Nettechnologies, Inc., which later changed its name to IPivot.
IPivot was one of the businesses contained in our Emerging Technologies segment.
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
(IN THOUSANDS) (IN THOUSANDS)
------------------------------ ---------------------
CONSOLIDATED FINANCIAL DATA 1996 1997 1998 1998 1999
- --------------------------- -------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $245,976 $275,923 $303,428 $218,678 $274,059
Cost of revenues.......................... 192,657 216,553 232,041 168,816 211,147
Selling, general and administrative....... 36,226 36,731 37,553 26,936 32,957
Research and development.................. 5,023 7,466 5,590 4,025 5,317
Special acquisition related charges and
other................................... -- 6,600 9,891 4,553 --
-------- -------- -------- -------- --------
Operating profit.......................... 12,070 8,573 18,353 14,348 24,638
Interest expense, net..................... 4,125 5,771 6,985 5,137 6,127
Income tax provision...................... 2,603 4,184 4,155 3,336 5,553
Cumulative effect of change in accounting
principle, net.......................... -- -- (19,474) (19,474) --
Loss from discontinued operations, net.... (6,326) (17,930) (7,444) (5,617) --
-------- -------- -------- -------- --------
Net income (loss)......................... $ (984) $(19,312) $(19,705) $(19,216) $ 12,958
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
AS A PERCENTAGE OF REVENUES 1996 1997 1998 1998 1999
- --------------------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 78.4 78.5 76.5 77.2 77.0
Selling, general and administrative....... 14.7 13.3 12.4 12.3 12.0
Research and development.................. 2.0 2.7 1.8 1.8 1.9
Special acquisition related charges and
other................................... -- 2.4 3.3 2.1 --
-------- -------- -------- -------- --------
Operating profit.......................... 4.9 3.1 6.0 6.6 9.0
Interest expense, net..................... 1.7 2.1 2.3 2.3 2.2
Income tax provision...................... 1.1 1.5 1.4 1.5 2.0
Cumulative effect of change in accounting
principle, net.......................... -- -- (6.4) (8.9) --
Loss from discontinued operations, net.... (2.6) (6.5) (2.4) (2.5) --
-------- -------- -------- -------- --------
Net income (loss)......................... (0.4) (7.0) (6.5) (8.8) 4.7
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
(IN THOUSANDS) (IN THOUSANDS)
------------------------------ ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SEGMENT FINANCIAL DATA:
TITAN SYSTEMS
Revenues................................ $211,124 $225,686 $259,442 $188,366 $219,545
Operating profit........................ 18,770 8,361 25,270 18,356 21,604
TITAN SOFTWARE SYSTEMS
Revenues................................ 18,505 17,374 21,470 13,242 29,330
Operating profit (loss)................. (137) 4,580 5,137 3,232 6,173
TITAN SCAN
Revenues................................ 7,930 8,254 11,184 8,049 9,985
Operating profit (loss)................. (390) (204) 1,121 503 1,668
TITAN WIRELESS
Revenues................................ 3,430 18,405 6,717 6,004 9,885
Operating profit (loss)................. (5,421) (1,074) (6,732) (3,057) 1,656
EMERGING TECHNOLOGIES AND BUSINESSES
Revenues................................ 4,987 6,204 4,615 3,017 5,314
Operating profit (loss)................. (209) (286) 34 (235) 732
CORPORATE/OTHER........................... (543) (2,804) (6,477) (4,451) (7,195)
-------- -------- -------- -------- --------
TOTAL REVENUES............................ $245,976 $275,923 $303,428 $218,678 $274,059
TOTAL OPERATING PROFIT.................... $ 12,070 $ 8,573 $ 18,353 $ 14,348 $ 24,638
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
SEGMENT REVENUES AS A PERCENTAGE OF TOTAL
REVENUES:
TITAN SYSTEMS............................. 85.9% 81.8% 85.5% 86.1% 80.1%
TITAN SOFTWARE SYSTEMS.................... 7.5% 6.3% 7.1% 6.1% 10.7%
TITAN SCAN................................ 3.2% 3.0% 3.7% 3.7% 3.6%
TITAN WIRELESS............................ 1.4% 6.7% 2.2% 2.7% 3.6%
EMERGING TECHNOLOGIES AND BUSINESSES...... 2.0% 2.2% 1.5% 1.4% 1.9%
-------- -------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
</TABLE>
Historically, we operated our business in five segments--Information
Technologies, Software Systems, Medical Sterilization and Food Pasteurization,
Communications Systems and Emerging Technologies and Businesses. We have renamed
three of our five historical segments as follows: Information Technologies has
been renamed Titan Systems, Medical Sterilization and Food Pasteurization has
been renamed Titan Scan and Communications Systems has been renamed Titan
Wireless. All of our segments are comprised of multiple operating entities.
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RESULTS OF OPERATIONS
REVENUES
CONSOLIDATED. Revenues increased from $218.7 million for the nine months
ended September 30, 1998 to $274.1 million for the nine months ended
September 30, 1999.
TITAN SYSTEMS. Titan Systems' revenues increased from $188.4 million for
the nine months ended September 30, 1998 to $219.5 million for the nine months
ended September 30, 1999. This increase was due primarily to revenues generated
as a result of the acquisitions of Validity, System Resources and Atlantic
Aerospace and increased subcontract revenues and to a lesser degree due to
internal growth experienced by several of the information technologies and
systems businesses. These increased revenues were partially offset by reduced
shipments of certain defense communications products.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues increased
from $13.2 million for the nine months ended September 30, 1998 to $29.3 million
for the nine months ended September 30, 1999. This growth resulted primarily
from a significant new contract with a customer that accounted for $9.8 million
in revenues in the period and $8.3 million in revenues contributed by the
Transnational Partners business that was acquired in January 1999.
TITAN SCAN. Titan Scan's revenues increased from $8.0 million for the nine
months ended September 30, 1998 to $10.0 million for the nine months ended
September 30, 1999. This increase primarily relates to the completion of two
medical sterilization systems during the second quarter of 1999, and to
increased utilization at the San Diego and Denver contract medical sterilization
facilities and at the medical sterilization facility in the Dominican Republic
that we operate for Baxter Corporation.
TITAN WIRELESS. Titan Wireless's revenues increased from $6.0 million for
the nine months ended September 30, 1998 to $9.9 million for the nine months
ended September 30, 1999. The increase in revenues was due principally to
revenues recorded on its contract to provide a telecommunications system in
Benin, Africa, and to a lesser extent, due to revenues related to the launching
of long distance service in El Salvador and Cameroon. Also included in revenues
for the nine months ended September 30, 1999 is $1.5 million reflecting the
collection of a portion of receivables from PT. Pasifik Satelit Nusantara
("PSN"), for which we had previously provided a valuation allowance against the
amounts outstanding.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $3.0 million for the nine months ended September 30, 1998 to $5.3
million for the nine months ended September 30, 1999. This increase was due
primarily to increased shipments of fingerprint digitization systems.
SELLING, GENERAL AND ADMINISTRATIVE
Our selling, general and administrative expenses ("SG&A") increased from
$26.9 million for the nine months ended September 30, 1998 to $33.0 million for
the nine months ended September 30, 1999. SG&A, as a percentage of revenue,
decreased slightly from 12.3% for the nine months ended September 30, 1998 to
12.0% for the nine months ended September 30, 1999. This decrease resulted
primarily from the cost reduction measures implemented in our Titan Systems
segment.
RESEARCH AND DEVELOPMENT
Research and development costs ("R&D") increased from $4.0 million for the
nine months ended September 30, 1998 to $5.3 million for the nine months ended
September 30, 1999. These increases were due to the increased level of R&D
spending in the Titan Systems segment, specifically related to imaging products.
We anticipate that the level of R&D spending will continue to increase for the
remainder of fiscal 1999 and through fiscal 2000 across all of our core business
segments.
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OPERATING PROFIT
CONSOLIDATED. Our operating profit increased from $14.3 million for the
nine months ended September 30, 1998 to $24.6 million for the nine months ended
September 30, 1999. This increase was due primarily to the increased revenues
noted above and a special charge for merger-related and other expenses of $4.6
million included in operating results for the nine months ended September 30,
1998.
TITAN SYSTEMS. Titan Systems' operating profit increased from $18.4 million
for the nine months ended September 30, 1998 to $21.6 million for the nine
months ended September 30, 1999. This increase was due primarily to the
increased revenues noted above. Included in Titan Systems' results of operations
for the nine months ended September 30, 1998 are special acquisition related
charges of $3.4 million and $0.4 million related to costs incurred to file a
registration statement with the Securities and Exchange Commission ("SEC").
Excluding these special charges, operating income decreased $0.6 million from
$22.2 million in the nine months ended September 30, 1998 to $21.6 million in
the same period in 1999. One time credits in the nine months ended
September 30, 1998 resulted in higher than normal operating profit margins. In
addition, a change in product and service revenue mix, an increase in lower
margin subcontract revenue volumes, and increased R&D expenditures for certain
imaging and defense satellite communications products also resulted in lower
operating margins during the nine months ended September 30, 1999. The impact of
the change in revenue mix and increased R&D investment was partially offset by
credits related to favorable determinations from certain government agencies.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' operating profit
increased from $3.2 million for the nine months ended September 30, 1998 to $6.2
million for the nine months ended September 30, 1999. This increase resulted
primarily from the increase in revenues noted above.
TITAN SCAN. Titan Scan's operating profit increased from $0.5 million for
the nine months ended September 30, 1998 to $1.7 million for the nine months
ended September 30, 1999. This increase resulted primarily from the increase in
revenues noted above.
TITAN WIRELESS. Titan Wireless's operating results improved from an
operating loss of $3.1 million for the nine months ended September 30, 1998 to
an operating profit of $1.7 million for the nine months ended September 30,
1999. This increase resulted primarily from the increase in revenues noted
above. Titan Wireless's operating results for the nine months ended September
30, 1999 include $2.1 million reflecting the collection of a portion of
receivables from PSN, for which we had previously provided a valuation allowance
against the amounts outstanding. Titan Wireless's operating results for the nine
months ended September 30, 1998 include special charges of $0.4 million related
to costs incurred in connection with a withdrawn registration statement.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results improved from an operating loss of $0.2 million for the nine months
ended September 30, 1998 to an operating profit of $0.7 million for the nine
months ended September 30, 1999. This increase resulted primarily from the
increased revenues noted above.
INTEREST EXPENSE, NET
Our net interest expense increased from $5.1 million for the nine months
ended September 30, 1998 to $6.1 million for the nine months ended
September 30, 1999. This increase resulted primarily from increased borrowings
under our bank credit facility, principally in connection with our acquisitions
of System Resources and Atlantic Aerospace.
INCOME TAXES
Our income tax provision decreased from a 36% effective rate for the nine
months ended September 30, 1998 to a 30% effective rate for the nine months
ended September 30, 1999. The higher rate for the nine months ended
September 30, 1998 was due primarily to the inability to offset losses of
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certain acquired entities with income of other entities. We expect our effective
income tax rate to remain stable in the foreseeable future at an approximate
rate of 30% to 34%.
NET INCOME (LOSS)
We reported net income of $13.0 million for the nine months ended
September 30, 1999 compared to a net loss of $19.2 million for the nine months
ended September 30, 1998. Included in the results for the nine months ended
September 30, 1998 is a special pre-tax charge for merger-related and other
expenses of $4.6 million. Included in the results for the nine months ended
September 30, 1998 are losses from discontinued operations of $5.6 million. In
addition, we adopted Statement of Position ("SOP") 98-5 ("Start-up Costs") in
1998, which resulted in a $19.5 million write-off of capitalized start-up costs
recorded as a cumulative effect of a change in accounting principle.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
CONSOLIDATED. Our consolidated revenues increased from $246.0 million in
1996 to $275.9 million in 1997 and from $275.9 million in 1997 to $303.4 million
in 1998. Increased revenues were reported in the Titan Systems, Software Systems
and Titan Scan segments in 1998. Revenue growth in 1998 was primarily
attributable to the impact of acquisitions made and integrated into our Titan
Systems segment, work performed on new business in the Software Systems segment,
and the near-completion of two SureBeam systems in the Titan Scan segment.
Revenue growth in 1997 was primarily attributable to revenues generated by
Eldyne, Inc. and Unidyne Corporation, which integrate, install and maintain
information systems on U.S. ships and submarines and we acquired in May 1996 and
integrated into Titan Systems, as well as increased deliveries of telephony
units and Mini-DAMA units in our Titan Wireless and Titan Systems segments.
TITAN SYSTEMS. Titan Systems' revenues increased from $211.1 million in
1996 to $225.7 million in 1997 and from $225.7 million in 1997 to $259.4 million
in 1998. The increase in 1998 primarily relates to $23.0 million of revenue
generated from Validity, which was purchased in March 1998, and to a lesser
degree, revenues related to a claim with the U.S. government for work performed
in a prior year, increased shipments of Mini-DAMA units and increased sales
volume of certain VisiCom products. The increased revenue in 1997 was primarily
related to a full-year's revenues generated from Eldyne and Unidyne, which were
acquired in May 1996, increased shipments of Mini-DAMA units and increased
revenues generated under a contract awarded to DBA in 1996.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues decreased
from $18.5 million in 1996 to $17.4 million in 1997 and increased from $17.4
million in 1997 to $21.5 million in 1998. The increase in 1998 resulted
primarily from several new customers and from increased revenues from one
federal agency which accounted for approximately $6.8 million, $8.9 million and
$11.2 million of Software Systems' revenues during 1996, 1997 and 1998,
respectively, partially offset by a reduction in revenues from a major
telecommunications customer. The decline in 1997 resulted primarily from reduced
demand from the latter customer, substantially offset by increased revenues from
several new and existing customers. Cayenta expects to diversify its customer
base as it expands its sales and marketing efforts and further develops and
launches its TSP offering.
TITAN SCAN. Titan Scan's revenues increased from $7.9 million in 1996 to
$8.3 million in 1997 and from $8.3 million in 1997 to $11.2 million in 1998. The
increase in 1998 is a result of revenue recognized, using the
percentage-of-completion method of accounting, for two turnkey sterilization
systems which were ordered by customers in late 1997 and substantially completed
in 1998. Increased processing of medical products at our two medical
sterilization facilities also contributed to this revenue growth. Revenues in
1997 were also favorably impacted by increased processing of medical products as
well as the sale of our turnkey sterilization systems to Guidant Corporation and
Baxter Healthcare.
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TITAN WIRELESS. Titan Wireless's revenues increased from $3.4 million in
1996 to $18.4 million in 1997 and decreased from $18.4 million in 1997 to $6.7
million in 1998. The decline in 1998 revenues was due primarily to the decreased
shipments made on our contract with PSN for telephony units in Indonesia. The
revenue increase in 1997 primarily reflected the fulfillment of our initial
contract with PSN for telephony units and increased market acceptance for
certain of our modem and networking products.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $5.0 million in 1996 to $6.2 million in 1997 and decreased from
$6.2 million in 1997 to $4.6 million in 1998. The decline in 1998 was due
primarily to the wind-down of our environmental consulting business during the
first quarter of 1998, partially offset by increased sales volume of our
fingerprint digitization systems. The increase in 1997 revenues was due to
increased sales volume of fingerprint digitization systems.
SELLING GENERAL AND ADMINISTRATIVE
Our SG&A expenses increased from $36.2 million in 1996 to $36.7 million in
1997 and from $36.7 million in 1997 to $37.6 million in 1998. SG&A, as a
percentage of revenues, decreased from 14.7% in 1996 to 13.3% in 1997 and from
13.3% in 1997 to 12.4% in 1998. The reductions in 1997 and 1998 reflect the
impact of cost reduction measures as well as economies of scale and efficiencies
that have been achieved. In addition, we have eliminated many duplicate
functions and costs as part of our process of integrating certain of our
acquired businesses. In early 1997, we implemented a streamlining process of our
administrative functions. This process focused on eliminating redundancies, and
resulted in increased efficiencies, reduced infrastructures, and, ultimately,
reduced costs. This process continued throughout 1998, and we intend to continue
it.
RESEARCH AND DEVELOPMENT
Our R&D expenses increased from $5.0 million in 1996 to $7.5 million in 1997
and decreased from $7.5 million in 1997 to $5.6 million in 1998. The reduced
level of R&D expenditures in 1998 primarily reflects the completion of certain
development and certification efforts of certain defense communications products
within our Titan Systems segment which were substantially completed in 1997. The
increase in 1997 was due primarily to these development and certification
efforts that were completed in 1998, certain of which took longer than expected
to complete.
OPERATING PROFIT
CONSOLIDATED. Our operating profit decreased from $12.1 million in 1996 to
$8.6 million in 1997 and increased from $8.6 million in 1997 to $18.4 million in
1998. Our operating profits have been significantly impacted by a number of
factors in each of 1996, 1997 and 1998. The 1998 operating results include a
charge of $9.9 million primarily related to the direct transaction costs
incurred on the Delfin, VisiCom, Horizons and DBA mergers, and to a lesser
degree certain costs incurred to integrate these businesses into us, as well as
certain integration costs incurred in other business segments. The 1997
operating results include a charge of $9.8 million related primarily to
provisions taken to reflect certain asset impairments and an estimated
environmental liability pertaining to a DBA manufacturing facility which is held
for sale. The 1996 operating performance reflects our continuing investment in
and funding of our commercial ventures.
TITAN SYSTEMS. Titan Systems' operating profit decreased from $18.8 million
in 1996 to $8.4 million in 1997 and increased from $8.4 million in 1997 to $25.3
million in 1998. The 1998 operating income includes a charge of $7.2 million
related to $6.8 million of special acquisition and integration related charges
principally comprised of direct transaction and integration costs incurred by us
in conjunction with the mergers of DBA, Horizons, VisiCom and Delfin and $0.4
million of costs incurred
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to file a registration statement with the SEC which was ultimately withdrawn.
The 1997 operating income includes charges of $9.8 million related to the write
down of property held for sale, an estimated environmental liability for DBA,
which we acquired during 1998 and for which we recorded a special charge of $3.0
million during 1997, and certain other asset write-downs recorded in connection
with the acquisition of DBA. Excluding the impact of these charges, Titan
Systems' operating income decreased from $18.8 million in 1996 to $18.2 million
in 1997 and increased from $18.2 million in 1997 to $32.5 million in 1998,
primarily from the increased revenues discussed above, as well as from certain
cost reduction efforts taken during 1997 and 1998.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' operating profit
improved from an operating loss of $0.1 million in 1996 to an operating profit
of $4.6 million in 1997 and from an operating profit of $4.6 million in 1997 to
an operating profit of $5.1 million in 1998. The 1998 increase in operating
performance reflects the impact of the increased revenues discussed above. 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 conclusion of
contracts.
TITAN SCAN. Titan Scan's operating results improved from an operating loss
of $0.4 million in 1996 to an operating loss of $0.2 million in 1997 and from an
operating loss of $0.2 million in 1997 to an operating profit of $1.1 million in
1998. This improvement was primarily due to the increase in revenues mentioned
above.
TITAN WIRELESS. Titan Wireless's operating results improved from an
operating loss of $5.4 million in 1996 to an operating loss of $1.1 million in
1997 and worsened from an operating loss of $1.1 million in 1997 to an operating
loss of $6.7 million in 1998. The 1998 operating results include special charges
of $2.4 million including pre-operating and start-up costs of $0.5 million
related to the Titan Africa, Benin operation, $1.4 million related to employee
termination and retention costs related to the reorganization of this business,
as well as approximately $0.5 million related to costs incurred to file a
registration statement with the SEC which was ultimately withdrawn. Excluding
the impact of these charges, operating loss, as adjusted, was $4.3 million in
1998 compared to an operating loss of $1.1 million in 1997 and an operating loss
of $5.4 million in 1996. The increase in operating loss in 1998 was attributable
to the decline in revenues noted above. Operating performance improved in 1997
from 1996 due primarily to increased revenues combined with decreased SG&A and
R&D expenses as a percentage of revenues.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results declined from an operating loss of $0.2 million in 1996 to an operating
loss of $0.3 million in 1997 and improved from an operating loss of $0.3 million
in 1997 to an operating profit of $0.03 million in 1998. The improved operating
results in 1998 were due primarily to the increase in revenues discussed above.
INTEREST EXPENSE, NET
Our net interest expense increased from $4.1 million in 1996 to $5.8 million
in 1997 and from $5.8 million in 1997 to $7.0 million in 1998. Net interest
expense has increased over 1996, 1997 and 1998, primarily as a direct result of
the increased level of our borrowings, primarily to fund the growth in the
various segments. In 1998 and 1997, the principal component of interest expense
was related to our convertible senior subordinated debentures, substantially all
of which had been converted into our common stock by the end of the fourth
quarter of 1999. In 1996, the principal component of interest expense was
related to our borrowings under our bank lines of credit. Borrowings from our
primary bank lines of credit, excluding working capital lines from acquired
companies, averaged $28.9 million at a weighted average interest rate of 7.7%
during 1998, $10.8 million at a weighted average interest rate of 8.1% during
1997, and $12.3 million at a weighted average interest rate of 8.2% during 1996.
Also
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included in interest expense is interest on our deferred compensation and
retiree medical obligations. Interest expense related to these items was $0.9
million for 1998, $0.8 million for 1997 and $0.8 million for 1996.
INCOME TAXES
Income taxes reflect effective rates of 37% in 1998, 149% in 1997 and 33% in
1996. The difference between the actual provision and the effective rate (based
on the United States statutory tax rate) in 1998 and 1996 was due primarily to
state income taxes. The increased rate in 1997 was due primarily to significant
non-deductible expenses which were recorded for financial reporting purposes, as
well as the inability to offset losses of certain acquired entities with income
of other entities. We anticipate that our effective income tax rate will remain
stable in the foreseeable future at an approximate rate of 30% to 34%.
NET LOSS
Our reported net loss increased from $1.0 million in 1996 to $19.3 million
in 1997 and from $19.3 million in 1997 to $19.7 million in 1998. Included in the
net losses for 1996, 1997 and 1998 are net losses from discontinued operations
of $6.3 million, $17.9 million and $7.4 million, respectively, relating to our
winding down of our access control systems and broadband communications
businesses as well as operations discontinued by certain of the companies
acquired by us during 1998. In addition, we adopted Statement of Position (SOP)
98-5 ("Start-up Costs") in 1998, which resulted in a $19.5 million write-off of
capitalized start-up costs recorded as a cumulative effect of a change in
accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, we used $8.7 million for
the operating requirements of continuing operations. Cash of $50.9 million was
used for our acquisitions of Transnational Partners, System Resources and
Atlantic Aerospace and cash used for discontinued operations was $5.8 million.
Cash was provided primarily by borrowings under our line of credit of $76.9
million.
We have a receivable of approximately $3.9 million from our Indonesian
customer, PSN, due on September 30, 2000, which accrues interest at 10% per
annum. At any time prior to the payment of the obligation in full, we may elect
to convert all or a portion of the principal and interest due into common stock
of PSN, based on its then current market value. In addition, if PSN sells any of
its interest in its wholly-owned subsidiary, subject to other third party
obligations, PSN is required to immediately pay to us the lesser of the $3.9
million or the total amount of the outstanding balance owed to us. In the event
that PSN obtains financing from additional sources, the payment terms of its
obligations to us will be renegotiated at that time. Titan has received payments
from PSN in accordance with the negotiated payment terms.
On June 9, 1999, in conjunction with the acquisition of System Resources,
our bank syndicate, with The Bank of Nova Scotia as the administrative agent,
amended and increased our existing credit facility. The revised credit facility,
totaling $190 million, includes a $55 million line of credit for working capital
and general corporate purposes, $60 million ($25 million original and $35
million new facility) in lines of credit dedicated to acquisitions and a $75
million term loan. The credit facility is secured by substantially all of the
assets of Titan. Quarterly repayment schedules are in increasing percentages
over 4 years beginning September 1999 for the $25 million original portion of
the acquisition line and June 2000 for the $35 million new portion of the
acquisition line. The $75 million term loan is to be repaid quarterly at .25% of
original principal beginning September 30, 1999 through September 29, 2004 and
at 23.75% thereafter until the final payment at maturity on June 9, 2005. We
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have the option to borrow at the bank's base rate plus a margin of 2% or at
LIBOR plus a margin of 3% on the $75 million term loan. Margins applicable to
the remaining lines are based on the ratio of total debt to earnings before
interest, taxes, depreciation and amortization, or EBITDA. As of January 21,
2000, we had approximately $141 million of indebtedness outstanding under this
credit facility.
We have received a commitment letter from Credit Suisse First Boston, New
York branch, pursuant to which Credit Suisse First Boston, New York branch, has
agreed, subject to the terms and conditions set forth in the commitment letter,
to provide a new credit facility to us. We expect to replace our existing credit
facility with this new credit facility, which we anticipate will be secured by
substantially all of our and our subsidiaries' assets and guaranteed by
substantially all of our subsidiaries. Credit Suisse First Boston, a New York
branch, has committed to provide a senior secured multi-draw term loan facility
in an aggregate principal amount of up to $75 million, a senior secured term
loan facility in an aggregate principal amount of $75 million, and a five-year
senior secured revolving credit facility in an aggregate principal amount of up
to $100 million. Loans made under the multi-draw term loan facility would mature
on the sixth anniversary of the closing date of the new credit facility, and
amortize as follows: 2.5% quarterly in year two of the credit facility, 3.75%
quarterly in year three of the credit facility, 5% quarterly in year four of the
credit facility, 6.25% quarterly in year five of the credit facility and 7.5%
quarterly in year six of the credit facility. Loans made under the term loan
facility would mature on the seventh anniversary of the closing date of the new
credit facility, and amortize as follows: 0.25% quarterly for years one through
six of the credit facility and 23.5% quarterly for year seven of the credit
facility. Under each of the term loan facilities and the revolving facility, we
would have the option to borrow at the bank's base rate or at adjusted LIBOR
plus, in each case, an applicable ratio based on the ratio of our total debt to
EBITDA. We expect that the definitive documentation for the new credit facility
would also contain, among others, financial covenants that set maximum debt to
EBITDA limits and require us to maintain minimum interest and fixed charge
coverages and levels of net worth. We cannot guarantee that we will be able to
enter into satisfactory definitive documentation for, and ultimately access, the
new credit facility described above. We expect to use borrowings of
approximately $77 million under our new credit facility to repay existing
indebtedness of Advanced Communications Systems when we close the acquisition
and to pay certain acquisition-related expenses.
In November 1999, we received approximately $42 million in cash for our 8.1%
equity interest in IPivot, Inc. when IPivot was acquired by Intel Corporation.
IPivot develops software products that improve the performance of server farms,
web sites and software applications, and was one of the businesses in our
Emerging Technologies segment. In 1996, we formed Servnow! Nettechnologies,
Inc., which later changed its name to IPivot, and contributed its core
technology. We are entitled to receive up to approximately $3 million in
additional purchase price upon expiration of the escrow arrangements for this
transaction.
During the fourth quarter of 1999, Cayenta acquired Mainsaver, Assist and
SFG Technologies to further develop its TSP offering. Cayenta paid cash at the
closings for these acquisitions of approximately $39.1 million, which went to
the applicable sellers as well as to retire outstanding indebtedness and redeem
outstanding redeemable preferred stock of the entities acquired.
After deducting the commissions to the initial purchasers that we have
agreed to pay on behalf of the trust, and other offering expenses, we estimate
that we will receive net proceeds of $193 million from the sale of the
debentures to the trust, or $241.5 million if the over-allotment option of the
initial purchasers is exercised in full. We will be required to make a
repurchase offer for up to 50% of the aggregate liquidation amount of each of
the HIGH TIDES and the trust's common securities if our acquisition of Advanced
Communication Systems does not close on or prior to March 31, 2000. We will
dedicate 50% of the proceeds from the sale of debentures to the trust, plus an
amount equal to 2.5% of that portion of those proceeds, to fund the repurchase
offer, and use the remaining net proceeds to
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repay indebtedness outstanding under our existing credit facility. If our
acquisition of Advanced Communication Systems closes on or prior to March 31,
2000, we will use the proceeds from the sale of debentures to the trust that
otherwise would have been used to fund the repurchase offer for general
corporate purposes, including funding of our working capital requirements. In
addition, a portion of these proceeds also may be used to acquire or invest in
complementary businesses, technologies and products.
Funding for the advancement of our strategic goals, including acquisitions
and continued investment in targeted commercial businesses and start-up
ventures, is expected to continue. We plan to finance these requirements from a
combination of sources, which include cash generation from our core businesses,
our new credit facility as described above and other available cash sources.
Management believes that the combination of net proceeds from this offering,
amounts available under the new credit facility and cash flow expected to be
generated from our operations will be sufficient to fund planned investments and
working capital requirements for at least the next twelve months. However, we
could elect, or we could be required, to raise additional funds during that
period and we may need to raise additional capital in the future. Additional
capital may not be available at all, or may not be available on terms favorable
to us. Any additional issuance of equity or equity-linked securities may result
in substantial dilution to our stockholders. Management is continually
monitoring and reevaluating its level of investment in all of its operations,
specifically the increased investment required in fiscal 2000 to further grow
its commercial businesses, and the financing sources available to achieve our
goals in each business area.
YEAR 2000 READINESS DISCLOSURE
We implemented a Year 2000 compliance program to address our current
hardware and software products and development tools and all of our major
computing information systems networks, desktop systems and infrastructure. In
addition, we contacted business associates such as our third party vendors,
business partners, contractors and service providers to assess their level of
readiness. We estimate that the cost of moving business units to new systems
will ultimately range from $1.0 million to $2.0 million. We do not expect to
experience any material disruptions or other problems relating to the Year 2000
rollover in the operation of our internal hardware and software systems. As a
result of prior assessments, we do not expect our current products or services
to have material Year 2000 issues, and, to date, we have not received any claims
or other indications that any of our segment's products and services are not
Year 2000 compliant. Our products and services generally do not have provisions
for extended warranties; as such, we do not expect that we will have to spend
any material amounts to make any of our prior products Year 2000 compliant.
Since September 30, 1999, our subsidiary Cayenta has completed three
acquisitions of computer software companies. Each of the acquired companies
represented to Cayenta that they used commercially reasonable efforts to make
their systems and products Year 2000 compliant. We cannot predict whether any of
the products of our recently acquired businesses may have Year 2000 issues.
Most of our customers, in particular the U.S. government, utilize complex
billing and accounting systems to determine the timing and the amounts that will
be paid to us under our various contracts. In addition, several of our major
strategic partners rely on complex software systems to coordinate and control
their day-to-day operations. These complex systems may not be Year 2000
compliant. Although these customers and strategic partners have advised us that
they expect to resolve any Year 2000 issues prior to December 31, 1999, we
cannot guarantee that our billing procedures and cycles, or our joint sales and
marketing efforts, will not be interrupted. If these customers' or business
partners' Year 2000 issues are not resolved on time, or at all, our financial
position, results of operations or cash flows could be materially and adversely
affected.
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BUSINESS
OVERVIEW
We are a leading diversified technology company that provides information
technology, communications and electron beam food pasteurization and medical
product sterilization systems and services. Through extensive government-funded
research and development activities since 1981 under contracts totaling in
excess of $2 billion, we have accumulated a broad portfolio of technologies,
intellectual property and expertise from which we have developed many of our
commercial businesses. The core technologies supporting our Titan Scan and Titan
Wireless segments were derived from technologies originally developed for
government applications. We believe that our government contracts business
enhances our technical expertise with sophisticated technologies and facilitates
our ability to develop commercial applications. We fund the development of
commercial technologies from our technology base both internally as well as in
conjunction with partners. In 1996, for example, we contributed the core
technology to form Servnow! Nettechnologies, Inc., which is now known as IPivot.
IPivot develops software products that improve the performance of server farms,
web sites and software applications. We raised the capital required to fund
IPivot from venture capital sources. In November 1999, we received approximately
$42 million in cash for our 8.1% equity interest when IPivot was acquired by
Intel Corporation. We plan to continue building our technology portfolio,
identifying commercial applications and entering into strategic relationships to
further our growth.
We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
<TABLE>
<CAPTION>
SEGMENT SEGMENT DECRIPTION
- ------- -----------------------------------------------------
<S> <C>
Titan Systems Information technology and communications solutions
for defense, intelligence, and other U.S. and allied
government agencies
Cayenta Total services provider of comprehensive information
technology solutions for its customers' business
functions, including e-business, finance, accounting,
customer billing and collection, contract management,
supply chain integration and enterprise asset
management
Titan Scan Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless Satellite communication systems and services which
support telephony in developing countries
Emerging Technologies Development of commercial applications for
technologies created by our other business segments
through government-sponsored research and development
programs
</TABLE>
Each of our segments has a management team with significant relevant
experience in the segment's particular business and market area. Consistent with
our strategy of aligning management motivation with stockholder interests, each
of our segments (except Emerging Technologies which is not a separate
subsidiary) has its own key employee stock option plan to foster an
entrepreneurial environment.
On a pro forma basis for the acquisitions we completed during 1999 as well
as our proposed acquisition of Advanced Communication Systems, our revenues were
approximately $593 million and our earnings before non-recurring special
acquisition related charges and other interest, taxes,
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depreciation and amortization, or EBITDA, were approximately $61.6 million for
the twelve months ended September 30, 1999.
We believe that the markets in which we operate are large and growing:
<TABLE>
<CAPTION>
SEGMENT TARGET MARKET PROFILE
- ------- ------------------------------------------------------------
<S> <C>
Titan Systems The U.S. government is among the largest buyers of
information technology systems and services in the world.
According to the Government Electronic Industries Alliance,
the U.S. government's information technology budget for its
fiscal year 2000 is expected to be approximately $34
billion. In a statement to the House Committee on National
Security, Secretary of Defense William S. Cohen stated that
the defense budget will emphasize advanced information
technologies related to Command, Control, Communications,
Computers, Intelligence, Surveillance and Reconnaissance, or
C4ISR.
Cayenta Forrester Research projects that the market for business to
business e-business will grow from $43 billion in 1998 to
$1.3 trillion in 2003. In addition, International Data
Corporation estimates that the worldwide market for
consulting, design, systems integration, support, management
and outsourcing services associated with the development,
deployment and management of Internet sites will grow at a
five year compounded annual growth rate of 59% from $7.8
billion in 1998 to $78.5 billion in 2003.
Titan Scan With 75.4 billion pounds of meat, including beef, pork and
poultry, produced in the United States in 1999, Titan Scan
estimates that the market for food pasteurization systems
and services could develop to be in excess of $3.0 billion
annually if irradiated foods gain consumer acceptance. If
such consumer acceptance occurs, Titan Scan believes that
meat producers will initially elect to pasteurize a portion
of their ground beef and poultry production. According to a
market research report, the global market for sterilization
services for medical products was approximately $368 million
in 1999.
Titan In our targeted markets, telephone availability is
Wireless relatively low. In 1998, according to the International
Telecommunication Union, countries in our targeted markets,
which represent approximately one-third of the world's
population, had fewer than two subscriber lines per 100
inhabitants compared to 66.13 in the United States.
</TABLE>
COMPETITIVE STRENGTHS
We attribute our growth and performance to several factors within each of our
business segments:
TITAN SYSTEMS
LONG STANDING CUSTOMER RELATIONSHIPS. Founded in 1981, Titan Systems has an
extensive history of providing information systems and communications solutions
to defense, intelligence and other U.S. and allied government agencies.
Collectively, Titan Systems' senior management has on average 20 years of
industry experience and has developed long-standing, key customer relationships
across all of the U.S. military services and several NATO countries, which have
contributed to Titan Systems' success in securing new contracts.
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BROAD SOLUTION CAPABILITIES. Titan Systems has extensive knowledge of the
operations and information systems and communications requirements of the
defense industry and provides a full range of systems engineering and technical
support for the C4ISR initiatives of the Department of Defense, or DoD. Titan
Systems designs, builds, tests, installs and maintains systems that collect,
digitize, compress, transmit, receive, decompress, and display information and
permit their users to analyze data in a secured environment. This ability to
provide full-service solutions, coupled with our employee base of over 1,500
"Secret" and above-cleared personnel, enables us to bid on larger, more
comprehensive C4ISR defense contracts. Advanced Communication Systems' employee
base includes more than 1,300 "Secret" and above-cleared personnel.
PROVEN ACQUISITION STRATEGY. In anticipation of changes in U.S. government
procurement policies toward awarding more comprehensive contracts to meet its
defense-related requirements, we initiated an acquisition strategy in 1997.
Since January 1, 1998, we have acquired and integrated seven defense information
technology companies into Titan Systems. If acquired, Advanced Communication
Systems will also be integrated into Titan Systems. We believe the enhanced
technology and personnel resources provided by our acquisitions enable Titan
Systems to serve its customers with comprehensive solutions for their
information systems needs.
CAYENTA
TOTAL SERVICES PROVIDER. As a total services provider, or TSP, Cayenta
delivers comprehensive, tailored solutions to its customers that combine its
customers' information technology strategy, application development and
configuration, systems integration, hosting and support. We believe Cayenta's
TSP offering provides its customers with a number of benefits over internally
developed and hosted systems, including lower and more predictable capital and
operating costs, timely deployment, adaptable solutions, and scalable and
reliable hosted applications.
COMPLETE E-BUSINESS SOLUTION. Cayenta integrates customers' web sites and
other e-business portals with business support systems and provides its
customers with a single point of contact for managing and monitoring their
e-business transactions. Cayenta integrates a customer's web site and other
business support systems with its proprietary solutions for order processing,
catalog management, customer service, inventory management, order fulfillment,
billing, collections, and account settlement.
REVENUE CYCLE SERVICES OFFERING. Cayenta offers solutions that enable its
customers to address their complex pricing, billing, settlement and supply-chain
requirements and improve their e-business capabilities. Cayenta's software also
provides audit and compliance functions that accommodate the complex contract
terms prevalent in e-business and permit Cayenta's customers to more effectively
monitor their receivables and manage the fulfillment process.
INTEROPERABLE AND ADAPTABLE SOLUTIONS. Cayenta's solutions are
interoperable, permitting its customers to integrate different systems within
their organizations and between their organizations and those of their trading
partners. Cayenta's solutions also are adaptable, accommodating customer
technology preferences while facilitating easy access across the Internet.
Cayenta offers solutions that reduce its customers' manual and redundant
business processes and permit them to add or change software applications as
their businesses evolve.
TAILORED SOLUTIONS FOR CUSTOMERS' BUSINESS PROCESSES. Cayenta has expertise
in its target industries that helps it to define and deliver timely solutions
tailored to its customers' market dynamics and business opportunities. All of
Cayenta's solutions allow customers to supplement standard software applications
with additional functionality tailored to their business needs. To achieve this
additional functionality, Cayenta uses software components that extend the
capabilities of standard software applications.
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TITAN SCAN
SUPERIOR ELECTRON BEAM PASTEURIZATION AND STERILIZATION TECHNOLOGY. Titan
Scan provides patented and proprietary systems and services which pasteurize
food and sterilize medical products in an efficient, safe and environmentally
friendly manner. The market for pasteurization and sterilization systems has
historically been served by two technologies--Gamma and etholene oxide, or EtO.
We believe Titan Scan's proprietary electron beam process, or SureBeam system,
which uses commercial electricity as its source of power, is superior to Gamma
and EtO technology because it:
- requires significantly less processing time;
- poses no known environmental risks;
- may result in reduced product degradation; and
- can be introduced directly into a food processor's or manufacturer's
production line and is scalable to meet customer processing requirements.
Gamma and EtO technologies require the handling and use of hazardous materials.
Other costs associated with Gamma and EtO typically include the cost of
transporting the product from the customer's production site to the Gamma or EtO
facility, and the associated inventory carrying cost. We believe our SureBeam
systems offer a reliable, efficient, more environmentally acceptable and
generally superior alternative to Gamma and EtO.
REGULATORY CLEARANCE FOR SUREBEAM TECHNOLOGY. In December 1997, the Food
and Drug Administration, or FDA, approved irradiation of meat, finding that
irradiation of meat, at its recommended doses, does not diminish the food's
nutritional value in any detectable way. In December 1999, the U.S. Department
of Agriculture, or USDA, issued regulations setting forth guidelines for the
irradiation of meat.
EXCLUSIVE CUSTOMER ARRANGEMENTS. Titan Scan has executed multiyear
arrangements with many of the major poultry and meat providers and producers in
the United States, including Cargill, IBP, Tyson Foods, Emmpak and Huisken
Meats, among others. These companies produced approximately 75% of the
25.8 billion pounds of beef and approximately 43% of the 75.4 billion pounds of
meat, including beef, pork and poultry, produced in the United States in 1999.
Titan Scan believes that if irradiated foods gain market accceptance, these
producers will initially elect to pasteurize a portion of their ground beef and
poultry production. Titan Scan's multiyear arrangements with its customers
generally provide that it will be the exclusive provider of electronic
pasteurization services whenever any of these companies elect to use
pasteurization technology. In addition, at Cloverleaf Cold Storage's facility in
Sioux City, Iowa, Titan Scan has built the first electron beam pasteurization
facility in the United States, and also has arrangements with Zero Mountain Cold
Storage, Mitsubishi and Hawaii Pride to build similar facilities.
TITAN WIRELESS
SOLUTIONS ARE WELL-SUITED TO TARGET MARKETS. Telephone service for remote
areas of many developing countries has not been practical for a number of
economic and technical reasons. In our targeted markets, telephone availability
is relatively low. In 1998, according to the International Telecommunication
Union, countries in our targeted markets, which represent approximately
one-third of the world's population, had fewer than two subscriber lines per 100
inhabitants compared to 66.13 in the United States. Titan Wireless has designed
a network of fixed-site satellite terminals that provide cost-effective
telephone, facsimile and data communications services to areas not previously
served by developing countries' national public switched telephone networks, or
PSTNs. These solutions are well-suited to conditions in developing countries,
which are Titan Wireless's target markets, because they combine the following
characteristics:
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LOW OPERATING COSTS. Titan Wireless's telephony products utilize its
defense-derived DAMALink network management software system, which allows
for multiple simultaneous users to efficiently access the same satellite
channel, resulting in "space segment" cost savings and improved
operational flexibility.
CONNECTS TO NATIONAL AND INTERNATIONAL TELEPHONE NETWORKS. Titan
Wireless's telephony system is one of the first revenue generating
systems to provide a direct connection to a country's PSTN. This system
makes it possible for telephone calls to be placed from remote terminals
to any phone within the country through a national PSTN and any phone in
the world through an international PSTN.
SCALABLE AND ADAPTABLE. Titan Wireless's telephony systems are scalable
to provide the capacity required to meet a specific location's
communications needs. In addition, the core technologies and designs of
Titan Wireless's telephony terminals can be adapted for private
commercial networks.
ACCOMMODATES A VARIETY OF POWER SOURCES. Titan Wireless's ground
terminals are capable of operating on a wide range of locally available
power sources. For example, its Xpress Connection is capable of operating
on solar power.
STRONGLY POSITIONED THROUGH STRATEGIC ALLIANCES. Titan Wireless develops
and markets its telephony products through strategic alliances in developing
countries in Africa, Latin America and Asia. Through its Sakon joint venture,
Titan Wireless is currently providing long distance telecommunications services
in eight developing countries, and expects to provide long distance
telecommunications in at least six additional developing countries.
EMERGING TECHNOLOGIES AND BUSINESSES
PROVEN ABILITY TO TRANSITION OUR TECHNOLOGY TO COMMERCIAL
BUSINESSES. Emerging Technologies introduces new commercial applications from
our rich technology portfolio, superior research and development capabilities
and stream of government-funded projects. The core technologies supporting Titan
Scan and Titan Wireless were created from technologies originally developed for
government use. In 1996, we contributed the core technology to form Servnow!
Nettechnologies, Inc., which is now known as IPivot. In November 1999, as a
result of the acquisition by Intel Corporation of IPivot, we received
approximately $42 million for our 8.1% equity interest.
BUSINESS STRATEGY
We believe a key element of Titan's success is our innovative use of technology
that provides comprehensive, efficient solutions to our government and
commercial customers. We believe that our sophisticated technical abilities will
allow us to expand our customer base, improve our operating results and continue
to grow.
Our objectives are:
- to enhance our leading position in providing information technology and
communications solutions to defense, intelligence and other U.S. and
allied government agencies; and
- to further our strong track record of commercializing proprietary
technologies designed to serve global markets.
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To achieve these objectives, we intend to pursue the following strategies:
MAINTAIN TECHNOLOGY LEADERSHIP. Since inception, we have received
substantial government funding to conduct research and development and
create advanced information technology solutions and communications
systems for government uses. Based largely on activities that have been
supported by government funding, we have created a diversified portfolio
of technology and developed many of our commercial businesses, like Titan
Scan and Titan Wireless. We will continue to bid for government-funded
research and development work and government contracts that we believe
will expose our technical personnel to sophisticated technologies,
challenge their skills, and increase their abilities to transition
systems and solutions developed for the government to commercial
applications. We will also continue to actively seek acquisition
candidates whose technology portfolio and personnel resources complement
and supplement our own. We believe that these efforts, combined with our
extensive expertise and capabilities, will allow us to further our
government relationships and position us to win new government contracts,
while also strengthening our ability to provide systems and solutions to
commercial customers in a variety of markets.
PURSUE STRATEGIC TRANSACTIONS. Our acquisition program is a key
component to our overall business strategy. We believe the enhanced
technology and personnel resources which our acquisitions have provided
enable us to complete larger, more comprehensive government contracts and
to market our services to new customers. To further our growth and enter
new markets, we intend to pursue strategic acquisitions of complementary
businesses, technologies and products. We plan to achieve operating
efficiencies and cost savings following our acquisitions through
centralization of strategic planning, corporate development,
administrative, financial and other services. We also intend to pursue
strategic alliances, primarily to access new customers and establish
additional channels of distribution for our core businesses and
technologies.
GROW PROFITABLY. We are dedicated to growing our business and enhancing
our profitability. We have instituted successful cost reduction programs
for each of our acquired companies and continually seek opportunities to
improve our operating margins. In early 1997, we implemented a
streamlining process for our administrative functions. This process
focused on eliminating redundancies and resulted in increased
efficiencies and reduced infrastructures and costs. We plan to continue
implementing similar initiatives and to improve cash flow through
enhanced receivables management.
PURSUE INITIAL PUBLIC OFFERINGS FOR CORE SUBSIDIARIES. We intend to
finance the growth of Cayenta, Titan Scan and Titan Wireless by obtaining
public or private financing, including through initial public offerings
of common stock of these segments. To the extent possible, we intend to
structure these initial public offerings in order to preserve the ability
to later distribute the stock we retain in these segments to our
stockholders on a tax-free basis. Under existing law, we must own at
least 80% of the total voting power and 80% of any class of nonvoting
capital stock of a subsidiary to be able to effect a tax-free
distribution of a subsidiary's stock. In addition, both Titan and the
subsidiary must meet numerous other requirements under the Internal
Revenue Code, including requirements relating to the subsidiary's
operating history and the subsidiary must have a business purpose for the
spin-off distribution. To date, our subsidiary Cayenta has filed a
registration statement for an initial public offering of its stock. If
the offering is completed, we have no present intention of distributing
our Cayenta shares to the Titan stockholders. Our existing credit
facility does not permit us to distribute the stock of our subsidiaries
to Titan stockholders without consent of the lenders. It also requires
that if we complete an offering of securities of a subsidiary, we must
pay down the credit facility by the amount of the net proceeds of the
offering. We expect our new credit facility will contain similar
restrictions except that we will not have to pay down the credit facility
if Cayenta completes its initial public offering and Cayenta will no
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longer be a guarantor of the new credit facility. As a result of the
foregoing factors and other factors, we may not be able to distribute
interests in these segments to our stockholders.
OPERATING SEGMENTS
TITAN SYSTEMS
OVERVIEW. Titan Systems provides comprehensive information systems
solutions to defense, intelligence, and other U.S. and allied government
agencies with sophisticated data management, information processing, information
fusion, knowledge-based systems and communications requirements. Titan Systems
also develops and manufactures digital imaging products, electro-optical
systems, threat simulation/training systems and intelligence electronic hardware
primarily used in defense and intelligence applications. Titan Systems also
installs, tests and maintains all of these specialized products. In addition,
Titan Systems develops and delivers defense communications products to the U.S.
military and allied governments. For the twelve months ended September 30, 1999,
Titan Systems had revenues of approximately $290.6 million and EBITDA of
approximately $37.4 million. As of September 30, 1999, Titan Systems had a total
backlog of approximately $621.3 million, consisting of $171.6 million in U.S.
government funded backlog and $449.8 million in U.S. government unfunded
backlog.
INDUSTRY OVERVIEW. The U.S. government is among the largest buyers of
information technology systems and services in the world. According to the
Government Electronic Industries Alliance, the U.S. government's information
technology budget for its fiscal year 2000 is expected to be approximately $34
billion. In a statement to the House Committee on National Security, Secretary
of Defense William S. Cohen stated that the defense budget will emphasize
advanced information technologies related to Command, Control, Communications,
Computers, Intelligence, Surveillance and Reconnaissance, or C4ISR. The U.S.
government's focus on information technology reflects the critical role that
this capability plays both in national security and in improving government
efficiency. The U.S. military is placing greater emphasis on increasing
productivity while using fewer resources by employing systems that act as "force
multipliers." To further this strategy, military agencies are relying on
communications products and systems that provide secure, reliable and efficient
transmission of voice and data in demanding environments. Additionally, the
government is increasingly using open systems that incorporate commercial
off-the-shelf products, which are generally less expensive and more available
than products specifically designed for military purposes, to minimize the
impact of the shrinking defense budget.
STRATEGY. Titan Systems' objective is to be the premier provider of
information technology and communications solutions to defense, intelligence and
other U.S. and allied government agencies. To achieve this objective, Titan
Systems intends to pursue the following strategies:
FURTHER TECHNOLOGY ADVANTAGE. Titan Systems has received in excess of $2
billion in government funds, the majority of which have been directed
towards the research and development of advanced information technology
and communications systems and solutions. Titan Systems' successful track
record with research and development projects has helped us create a
diversified portfolio of technology and obtain additional research and
development funding. We believe that, because of Titan Systems' expertise
and capabilities with a wide range of technologies, it is well positioned
to provide information technology and communications systems and services
to its customers. Titan Systems will seek to maintain this advantage by
keeping pace with new developments in technology, by continuing to
compete for contracts that require high-quality, sophisticated technical
solutions, and by continuing to make strategic acquisitions that bring it
additional technology and enhance its overall solutions capabilities.
BUILD UPON OUR COMPETITIVE STRENGTHS IN THE DEFENSE MARKET. Founded in
1981, Titan Systems has an extensive history of providing information
systems and communications solutions to
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defense and intelligence-related government agencies. Through this
experience, we have established a broad base of customer relationships,
comprehensive information systems and communications solutions, extensive
intellectual property and more than 1,500 "Secret" and above cleared
personnel. Advanced Communication Systems' employee base includes more
than 1,300 "Secret" and above-cleared personnel. We intend to build upon
these competitive strengths to further existing customer relationships
and to secure new opportunities.
PURSUE STRATEGIC ACQUISITIONS. Strategic acquisitions are a key
component to Titan Systems' overall business strategy. We believe that
the enhanced technical and personnel resources resulting from our recent
and pending acquisitions will enable Titan Systems to provide more
comprehensive information technology solutions to serve its customers'
needs. We intend to continue to pursue strategic acquisitions of
complementary businesses, technologies and products that will enable
Titan Systems to expand further its existing businesses and to gain
access to new markets, technologies, and products.
SERVICES AND PRODUCTS
INFORMATION SYSTEMS SOLUTIONS. Titan Systems' information technology
solutions and services include systems analysis and design, object-oriented
software development services and systems integration. Titan Systems' initial
work in this area generally involves a joint analysis of the customer's
enterprise structure and processes and information system needs. Once this
analysis is completed, Titan Systems provides process re-engineering and designs
the technology solution to meet the customer's needs. This process typically
involves software development by Titan Systems, coupled with integration of
commercial off-the-shelf software and hardware as available. Titan Systems 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. As a result of
the complex nature of Titan Systems' customer solutions, its engagements often
are long-term and involve follow-on contracts. Titan Systems markets its
information systems solution services to military and intelligence agencies of
the U.S. government, countries within NATO and other U.S. defense partners
worldwide.
Examples of Titan Systems' information systems solution services and
products include the following:
- NATO INFORMATION SYSTEMS. Titan Systems' initial contract with NATO
provided for the design and delivery of an integrated secure
communications and information system for automated support of data
transfer between intelligence sites throughout Europe. Titan Systems has
since won NATO's three follow-on command and control system contracts and,
to date, has been NATO's primary contractor for its command and control
systems.
- JOINT INTEROPERABILITY TEST COMMAND C4I SUPPORT. Titan Systems supports a
wide range of the Joint Interoperability Test Command's Command, Control,
Communications, Computers and Intelligence, or C4I, information systems
initiatives under a $141 million five-year contract. Its activities in
support of these initiatives include planning, conducting, evaluating and
reporting all C4I testing, as well as designing, developing, engineering
and acquiring selected items of equipment, instrumentation and systems
used in the testing process.
- SUPPORT OF JOINT STARS AIRCRAFT AND GROUND SYSTEMS. Titan Systems supports
a variety of research and development and test and evaluation efforts on
the Joint Surveillance Target Attack Radar System, or STARS, aircraft and
related ground systems. This contract is the latest in a series of sole
source and competitive awards under which Titan Systems has provided
engineering services to the Joint STARS Joint Task Force since its
inception. Titan Systems was awarded this $49 million "indefinite
delivery, indefinite quantity" labor hour contract in April 1997. Under
this contract, Titan Systems provides the following: flight test
engineering and test mission planning, test engineering, operations and
ground/flight execution support, test management, computer operations,
configuration management, human factors engineering,
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administrative support, logistics support, computer analysis and modeling,
resource management, and prototyping in support of test and contingency
operations.
- FAA SYSTEM ENGINEERING. Titan Systems has been instrumental in providing
high quality technical support and services and related infrastructure to
the FAA's National Airspace System, or NAS, modernization program. Under
this five-year contract awarded in 1999, Titan Systems provides engineers,
mathematicians, computer scientists and other technical personnel to
support high fidelity simulations and to perform technical studies and
evaluations for the NAS's system engineering and laboratory development
operations.
COMMUNICATIONS PRODUCTS. Titan Systems designs and develops its
communications products using an approach that is similar to the approach it
uses to design, develop and implement its information technology solutions and
services. Titan Systems offers a range of turnkey, fully functional line of
defense communications products. Examples of Titan Systems' communications
products include the following:
- DAMA PRODUCTS. Titan Systems' Demand Assigned Multiple Access, or DAMA,
products combine low cost, low power, reduced weight and size, and reduced
component count for high reliability. Each of Titan Systems' DAMA products
has been developed with an open-architecture format that allows future
upgrades and enhancements to be provided as communications needs evolve,
and are designed to support commercial off-the-shelf components. Titan
Systems markets its DAMA products directly to all branches of the U.S.
military, its allies and international companies that supply such allies,
and also works with strategic partners such as Motorola Corporation to
incorporate its technologies into their products.
- SIGNAL INTELLIGENCE MANPACK SYSTEMS. Titan Systems provides small, low
weight communications intercept and direction finding Manpack systems to
U.S. special forces under a contract with the U.S. Special Operations
Command. An incumbent on this program for 10 years, these systems are worn
by individual soldiers and used to intercept and exploit enemy signals for
force protection and early detection of enemy location. Manpacks are
designed to operate and survive in urban, forested and desert terrain
battlefield environments.
ADVANCED COMMUNICATION SYSTEMS ACQUISITION. Advanced Communication Systems
provides a wide range of technology services and solutions, predominantly to
U.S. government as well as to commercial customers. Advanced Communication
Systems operates primarily in three interrelated areas:
COMMUNICATION SERVICES. Advanced Communication Systems' communication
services include the design, development, integration and implementation
of complete communications solutions across the full spectrum of media,
ranging from land lines to wireless technologies, with particular
strengths in satellite communication services, information systems and
aerospace services.
INFORMATION SERVICES. Advanced Communication Systems' information
services include the design and installation of and support services for
information management and local area network/wide area network systems,
as well as multimedia training, Internet/intranet solutions and database
support.
AEROSPACE SERVICES. Advanced Communication Systems' aerospace services
include systems engineering, life-cycle support, and program management
services for a broad range of military systems.
We intend to acquire Advanced Communication Systems (and expect to do so in
the first quarter of 2000) for the following reasons:
- the acquisition will result in a significant increase in our revenues and
cash flow;
- we will acquire technical personnel with skills and expertise that are in
great demand as well as applicable to technologies and products that are
complementary to our own;
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- the increased technical and personnel resources of Titan Systems resulting
from the acquisition will enable it to better serve the defense industry
and complete larger and more comprehensive contracts; and
- the acquisition will provide us with additional U.S. Navy and U.S. Air
Force contracts and otherwise allow us to increase our customer base.
CONTRACT PROFILE
TITAN SYSTEMS. Titan Systems is one of a select group of qualified
suppliers of information technology solutions and services to the U.S.
government under multiple long-term contract vehicles. Titan Systems is
currently performing work under approximately 520 contracts. No single Titan
Systems contract accounted for more than 6.0% of our total 1999 revenues, and no
single Titan Systems or Advanced Communication Systems contract accounted for
more than 4.0% of our 1999 revenues combined with Advanced Communication
Systems' fiscal 1999 revenues. In 1999, approximately 28.4% of our revenues were
generated by time and materials contracts, approximately 44.6% of our revenues
were generated by cost reimbursement contracts, and approximately 27.0% of our
revenues were generated by fixed-price contracts.
ADVANCED COMMUNICATION SYSTEMS. Advanced Communication Systems also
maintains a diversified government contract base. Advanced Communication Systems
is currently performing work under approximately 120 contracts. Two of Advanced
Communication Systems' contracts accounted for approximately 12.3% of its fiscal
1999 revenues. In its fiscal year 1999, approximately 32% of Advanced
Communication Systems' revenues were generated by time and materials contracts,
approximately 45% of its revenues were generated by cost reimbursement
contracts, and approximately 23% of its revenues were generated by fixed-price
contracts.
BACKLOG. Titan Systems and Advanced Communication Systems possess a
substantial backlog of contracts that provide multiyear revenues. Most of their
contracts generate revenue over a one to five-year period. In the past, Titan
Systems and Advanced Communication Systems have generally been successful in
expanding the scope of their principal contracts by offering more comprehensive
information technology solutions. On a pro forma basis which reflects our
acquisition of Advanced Communication Systems, Titan Systems' had an estimated
total funded contract backlog of $236.4 million and a total unfunded contract
backlog of $1,089.6 million as of September 30, 1999.
These backlog amounts consist of "funded" backlog, which is based upon
aggregate contract revenues remaining to be earned by Titan Systems or Advanced
Communication Systems 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 the aggregate contract
revenues expected to be earned as customers incrementally allot funding to
existing contracts, whether Titan Systems or Advanced Communication Systems is
acting as a prime contractor or subcontractor, and the aggregate contract
revenues to be funded on contracts which have been newly awarded to Titan
Systems or Advanced Communication Systems.
Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. Titan Systems' and Advanced
Communication Systems' backlog is typically subject to large variations from
quarter to quarter as existing contracts are renewed or new contracts are
awarded. Additionally, all United States government contracts included in
backlog, whether or not funded, may be terminated at the convenience of the
United States government.
CAYENTA
OVERVIEW. Cayenta is a total services provider, or TSP, of comprehensive
information technology solutions for its customers' business functions. Cayenta
operates, hosts, manages and supports standard and proprietary software
applications tailored for its customers' business processes, including
e-business, finance, accounting, customer billing and collection, contract
management, supply chain integration and
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enterprise asset management. By using its proprietary software applications in
addition to standard software application packages, Cayenta can rapidly build
and deploy solutions that best meet its customers' needs. Cayenta's solutions
are scalable and reliable and enable its customers to manage the increasing
frequency and complexity of e-business transactions. Cayenta's solutions also
interoperate with its customers' existing internal systems and with those of
their trading partners. Cayenta's customers include 800.com, the District of
Columbia, the FAA, Sempra Energy and Waste Management. For the twelve months
ended September 30, 1999, Cayenta had pro forma revenues of approximately
$37.6 million and pro forma EBITDA of approximately $8.8 million.
INDUSTRY OVERVIEW. The rapid growth of the Internet and increased frequency
of e-business transactions is creating significant new opportunities and
challenges for businesses. Businesses are using the Internet to improve
communications internally and with their trading partners, to enhance
operational efficiencies and to strengthen customer relationships. The impact of
the Internet encompasses both business-to-business and business-to-customer
transactions. Forrester Research, an independent research firm, projects that
the market for business-to-business e-business will grow from $43 billion in
1998 to $1.3 trillion in 2003 while business-to-consumer e-business will grow
from $8 billion to $108 billion over the same period.
The complexity of e-business transactions has accelerated with the
widespread adoption of the Internet. For example, these transactions frequently
contain complex billing mechanics and settlement terms that involve multiple
parties who participate in the supply and fulfillment chain. Tracking these
payments and settlements requires scalable and reliable information technology
systems that facilitate the flow of information both within organizations and
externally. Businesses face significant challenges in their efforts to
capitalize on the opportunities presented by the Internet, including:
- developing comprehensive end-to-end e-business solutions that link web
sites with accounting and fulfillment systems and accommodate and account
for complex billing, settlement and supply-chain transactions;
- tailoring standard software applications to their business processes while
ensuring that these applications are compatible with those of their
trading partners;
- solving integration and compatibility issues caused by the patchwork of
legacy systems that businesses often implemented without a focused
information technology strategy;
- integrating data from disparate systems to increase its value; and
- adopting and integrating new and rapidly changing technologies while
preserving investments in existing systems.
Companies must meet these challenges while overcoming a number of obstacles,
including:
- capital constraints and total cost of ownership;
- technological obsolescence of many current systems;
- ensuring that e-business applications are available at all times;
- meeting increased online customer service demands; and
- attracting and retaining qualified information technology professionals.
International Data Corporation, an independent research firm, expects the
worldwide market for Internet services to grow at a five-year compounded annual
growth rate of 59% from $7.8 billion in 1998 to $78.5 billion in 2003.
International Data Corporation defines Internet services as the consulting,
design, systems integration, support, management and outsourcing services
associated with the development, deployment and management of Internet sites.
Many businesses currently have to juggle multiple applications, integrators
and vendors to address their e-business challenges. Most information technology
companies specialize in only a single aspect of total services delivery, such as
web design, application development, systems integration or hosting of
commercially available applications. For example, application service providers,
or ASPs, generally only
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host and manage standard third-party software applications at a centrally
managed facility. The complexity of combining all of these elements from
different providers makes it difficult for businesses to implement e-business
solutions in a cost-effective and timely manner.
Accordingly, businesses are increasingly demanding that information
technology services companies have a comprehensive understanding of their
business processes and deliver a tailored solution that combines strategy,
systems integration, hosting and support. Cayenta believes that this demand is
largely unmet in the information technology service provider and ASP
marketplaces.
STRATEGY. Cayenta's objective is to be the leading TSP. To achieve this
objective, Cayenta intends to pursue the following strategies:
BUILD ITS TSP CUSTOMER BASE. Cayenta intends to capitalize on its
existing customer relationships to generate TSP sales as its customers
replace or upgrade systems and increase their e-business activities.
Cayenta will also market its TSP offering to new customers by developing
an industry-focused direct sales force specializing in TSP sales. Cayenta
will provide special incentives to its sales force to convert existing
customers to its new TSP offering. Cayenta also intends to create new
sales channels for its TSP offering by developing relationships with
hosting companies and third-party software providers. Cayenta believes
its TSP offering will allow it to establish stronger relationships with
customers, provide a recurring revenue stream, and enable it to sell
additional services.
CONTINUE TO ENHANCE ITS TSP OFFERING. Cayenta intends to expand its TSP
capabilities by establishing command centers where it will monitor,
manage and support its customer solutions, including elements of those
solutions provided by third parties. Cayenta also intends to establish
additional solution centers in strategic locations to develop its TSP
offering and other solutions in collaboration with customers. Cayenta
further intends to enhance its TSP offering by developing solutions for
other business processes such as customer relationship management.
Cayenta plans to add these new solutions by establishing strategic
alliances and partnerships with industry and technology leaders as well
as by enhancing its current solutions.
TARGET SPECIFIC INDUSTRIES. Cayenta targets industries whose complex
information technology and time to market requirements make them natural
customers for its TSP offering. Cayenta currently has expertise in
multiple industries, including utilities, telecommunications, basic
services, such as waste disposal and retail. Cayenta intends to further
penetrate these industries by establishing strategic alliances and joint
ventures with industry sector leaders and hiring senior executives from
within these industries. As part of these efforts, Cayenta intends to
engage in joint systems development, whereby both Cayenta and its partner
retain rights to developed solutions, and enter into joint arrangements
with customers to resell solutions. For example, through a joint venture,
Cayenta provides TSP services to that joint venture's customers in the
utility industry. Cayenta expects that these ventures will provide it
with opportunities to broaden its technical offerings and to create new
sales and marketing channels. Cayenta believes that focusing on specific
industries provides it with a competitive advantage in developing
solutions for those industries, and expands its market coverage while
decreasing its dependence on individual industries.
PROMOTE THE CAYENTA BRAND. Cayenta's goal is to create brand recognition
of Cayenta as the leading TSP. To promote its brand, Cayenta intends to
expand its corporate marketing and advertising efforts, with the specific
objective of targeting selected industries. Cayenta believes establishing
the Cayenta brand will enable it to market its TSP offering more
effectively and to differentiate it from its competitors.
PURSUE RESCUE MISSIONS. Cayenta plans to provide rescue services for
customers faced with failing information technology projects and to use
these rescue projects to establish long-term customer relationships.
Cayenta believes that providing these solutions and services will result
in sustained revenues and future opportunities to sell its TSP offering.
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ATTRACT AND TRAIN QUALIFIED PERSONNEL. To expand its business and
satisfy anticipated increases in customer demand for its TSP offering,
Cayenta intends to aggressively recruit new staff. Cayenta also may add
new staff through strategic acquisitions. Cayenta believes opening new
solution centers that allow it to support its customers locally will
relieve its staff's travel burdens and be attractive to potential
technical and consulting employees.
CONTINUE TO DEVELOP CORE COMPETENCIES. Cayenta will expand its systems
integration and software application development expertise. Cayenta
intends to continue incorporating advanced systems technologies into both
standard and tailored software applications that Cayenta designs and
implements for customers. Cayenta seeks out and tests new technologies as
part of its internal research activities and in conjunction with customer
projects. Cayenta invests in advanced systems technology such as Internet
and portal applications, data warehouses and custom client server and
distributed systems. Cayenta augments its software offerings by utilizing
software from open source and other Internet-based software development
initiatives. Cayenta's ability to successfully implement solutions based
on leading technology enables it to gain insight into the relative
strengths and weaknesses of competing technologies and to sell
value-added consulting and integration services.
SERVICES. Cayenta is a TSP of comprehensive information technology
solutions for its customers' business functions. Cayenta operates, hosts,
manages, and supports standard and proprietary software applications tailored
for its customers' business processes, including e-business, finance,
accounting, customer billing and collection, contract management, supply chain
integration and enterprise asset management.
Cayenta has a well-defined approach that enables it to deliver
cost-effective and timely solutions. This approach is grounded on reusable
processes and software applications, including industry-specific templates, and
the use of solution centers to develop solutions in collaboration with
customers. These solution centers afford the collaborating Cayenta/customer team
complete access to Cayenta's reusable processes, software applications and
industry-specific templates. Cayenta has expertise in multiple industries,
including utilities, telecommunications, basic services, such as waste disposal
and retail, and intends to further penetrate these industries by establishing
strategic alliances and joint ventures. Cayenta also participates in partnership
programs with leading providers of software, hardware and other elements of its
TSP offering.
The following examples are representative of the information technology
challenges that Cayenta has addressed, and the solutions it has provided to its
customers.
- Sempra Energy Challenge:
To facilitate the integration of the information technology operations
of two large utilities that merged and create an information technology
solution for operations in the deregulated industry.
CAYENTA SOLUTION. Cayenta developed a set of shared software development
and integration components that reduced Sempra Energy's development and
operational support costs, linked SAP with Sempra Energy's legacy systems
in less than 200 days, developed a new billing and contract management
system for the deregulated environment, implemented enterprise directory
and security systems, and deployed Internet business applications for
Sempra Energy. Cayenta also created training and mentoring programs to
assist Sempra Energy's information technology staff.
- Energy America Challenge:
To build a complete revenue cycle services solution in under eight weeks
for a rapidly growing retailer of gas and electricity and provide ongoing
operational support, through Soliance, as a TSP.
CAYENTA SOLUTION. Cayenta provided customer enrollment, contract
management, and customer billing and care applications to Energy America
that are reusable and facilitate its entrance into new markets. Cayenta
also integrated Energy America's accounting and
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wholesale commodity purchase systems with the systems of its banking,
utility, and printing service providers. As part of its TSP offering,
Cayenta assists Energy America in developing new rates, resolving
customer disputes, and performing both operational and regulator-driven
analysis.
- Federal Aviation Administration Challenge:
To create a unified information system to monitor and analyze the status
of the U.S. air traffic control system for the FAA.
CAYENTA SOLUTION. Cayenta developed a web portal application that
utilizes its systems integration, data warehousing, and web technology to
link major information systems of the FAA, and integrated and organized
data from these operational and reporting systems to enable the FAA to
consolidate data and gain insight on the operating performance of the
U.S. air traffic control systems. These solutions are accessible on the
FAA's intranet using standard browser technology.
- Waste Management Challenge:
To provide Waste Management with scalable systems that integrate
operations resulting from its merger and acquisition activity.
CAYENTA SOLUTION. In one week, Cayenta created web-based tracking and
status tools that enable Waste Management to monitor financial and key
operational measures. Cayenta also provided a complete information
technology blueprint to enhance Waste Management's information technology
environment, including recommendations for application packages, system
integration architecture, system management tools, data architecture, and
Internet strategy and recommended improvements in Waste Management's
revenue cycle management process. Cayenta continues to build and deploy
Internet solutions to help Waste Management better manage its core
operations.
- 800.com Challenge:
To create a scalable end-to-end e-business solution for a leading
Internet retailer of consumer electronics and home entertainment products.
CAYENTA SOLUTION. Cayenta installed and integrated its e-business order
and revenue cycle services with 800.com's web site and accounting and
fulfillment systems, enabling 800.com to handle over 10,000 orders per
day, reduce its manual business processes and provide customer care over
the Internet and through its call centers. With Cayenta's system, 800.com
can recognize and process an order as soon as it is placed.
TITAN SCAN
OVERVIEW. Titan Scan utilizes its patented electron beam technology to
provide food pasteurization turnkey systems and services to the food processing
industry and sterilization systems and services to medical product
manufacturers. Titan Scan developed its proprietary electron beam pasteurization
and sterilization process from technology developed during our involvement in
the Strategic Defense Initiative, or "Star Wars," program of the 1980s. Titan
Scan's electron beam process disrupts the DNA structure of microorganisms on or
within the product being pasteurized or sterilized. We believe that our patented
electron beam pasteurization and sterilization systems, or SureBeam systems,
which use commercial electricity as their source of power, offer a reliable,
efficient, more environmentally acceptable and generally superior alternative to
their principal competition, Gamma and EtO.
Titan Scan has executed multiyear arrangements with many of the major
poultry and meat providers and producers in the United States, including
Cargill, IBP, Tyson Foods, Emmpak, and Huisken Meats, among others. These
companies produced approximately 75% of the 25.8 billion pounds of beef and
approximately 43% of the 75.4 billion pounds of meat, including beef, pork and
poultry, produced in the United States in 1999. Titan Scan believes that if
irradiated foods gain market
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acceptance, these producers will initially elect to pasteurize a portion of
their ground beef and poultry production. Titan Scan's multiyear arrangements
with its customers generally provide that it will be the exclusive provider of
electronic pasteurization services whenever any of these companies elect to use
pasteurization technology. For the twelve months ended September 30, 1999, Titan
Scan had revenues of approximately $13.2 million and EBITDA of approximately
$3.1 million.
INDUSTRY OVERVIEW. Although contaminated food is one of the most widespread
health problems in the world, lack of regulatory approval and consumer
acceptance historically have limited the development of the market for
electronic food pasteurization. In December 1997, the FDA approved irradiation
of meat, finding that irradiation of meat, at its recommended doses, does not
diminish the food's nutritional value in any detectable way. In December 1999,
the USDA issued regulations setting forth guidelines for the irradiation of
meat. We believe our SureBeam technology meets these regulations. Subject to
consumer acceptance of irradiated foods, Titan Scan estimates that the U.S.
market for food pasteurization systems and services could develop to be in
excess of $3.0 billion annually. If such consumer acceptance occurs, Titan Scan
believes that meat producers will initially elect to pasteurize a portion of
their ground beef and poultry production.
Commercial sterilization of medical products began in the early 1960s.
Government regulations in the United States and many other countries require
medical products to be sterile or to have minimal microbial levels. Accordingly,
sterilization has become an essential step in the manufacturing process for
medical products in many countries throughout the world. In order to provide
safe products and to comply with applicable government regulations,
manufacturers generally have either developed internal sterilization
capabilities or have outsourced their sterilization needs through service
contracts. According to a market research report, the global market for
sterilization services for medical products was approximately $368 million in
1999.
STRATEGY. Titan Scan's objectives are to be the world's leading provider of
food pasteurization systems and services, and to increase its presence as a
provider of sterilization services for medical product manufacturers. To achieve
these objectives, Titan Scan intends to pursue the following strategies:
BUILD STRATEGICALLY LOCATED FACILITIES. Titan Scan intends to continue
to build food pasteurization facilities that provide electron beam
pasteurization services in strategic locations that are near major
producers or providers of beef, chicken, fruits or vegetables. For
example, our facility in Sioux City, Iowa is located in proximity to
several leading meat producers, including IBP and Cargill. We expect that
building facilities in strategic locations will accelerate the
development of a market for food pasteurization services.
INSTALL MORE TURNKEY FOOD PASTEURIZATION SYSTEMS. We intend to sell or
lease turnkey food pasteurization systems directly into customer
production lines. Where feasible, we intend to enter into strategic
relationships where we will receive equity in the production line's
operator and/or continued service revenues in exchange for providing our
pasteurization products and services.
DEVELOP NEW OPPORTUNITIES FOR SUREBEAM. While currently focused on
pasteurizing beef, chicken, fruits and vegetables and sterilizing medical
products, we are evaluating new applications for our SureBeam technology.
In addition, we are seeking to enter new geographic markets. In January
2000, Titan Scan announced that it had sold a SureBeam system to Japan's
Mitsubishi Corp. that is expected to be fully operational by the first
quarter of 2001. In connection with the sale, Mitsubishi will form a new
entity to operate the SureBeam system, which is expected to be initially
used for medical product sterilization, Titan Scan will hold an equity
interest in the new entity, and Mitsubishi will market Titan Scan's
SureBeam technology in Japan.
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TURNKEY SYSTEMS AND SERVICES. Titan Scan's SureBeam technology provides
customers with distinct advantages compared to Gamma and EtO technologies:
INCORPORATED INTO CUSTOMER PRODUCTION LINE. SureBeam can be incorporated
into customers' production lines, which eliminates the transportation and
associated inventory carrying costs that are common with Gamma and EtO
technologies.
SCALABLE SYSTEM. SureBeam systems are scalable and can be easily
integrated into a customer's production line or in a facility to meet
large processing requirements.
FASTER PROCESSING TIME. An electron beam pasteurizes food products or
sterilizes medical products in a matter of seconds, as compared to Gamma
and EtO technologies that require several hours.
REDUCED MATERIAL DEGRADATION. Because of the shorter exposure time to
the irradiation source, electron beam processing reduces the oxidation
effects to products and thus reduces material degradation.
FLEXIBLE DOSING. Titan Scan's electron beam systems can switch from one
targeted dose to another in a matter of a few seconds.
UNIFORM, CONTROLLED DOSE. Electron beam processing delivers a measurable
and consistent dose to products based upon pre-set accelerator
parameters. All processing parameters are under constant measurement by a
built-in computer, and variation occurring during a processing run
automatically shuts down the system until the reason for the variation
can be determined and corrected.
NO RE-SOURCING REQUIRED. SureBeam processing is not accomplished via a
radioactive isotope such as Cobalt 60, which is used in Gamma
sterilization, but rather through accelerated electrical energy.
Accordingly, a SureBeam facility does not need to be out of service for
any period of time in order to re-introduce the pasteurization or
sterility source into operation.
SAFETY. SureBeam facilities do not use Gamma or EtO radiation. They
operate using electrical power and, in the event of a problem, can be
deactivated by simply shutting off the power.
Titan Scan provides its customers with turnkey SureBeam systems for use in
their own production lines and provides processing services for food
pasteurization and medical device sterilization. In anticipation of the recently
issued USDA regulations, Titan Scan built, at Cloverleaf Cold Storage's facility
in Sioux City, Iowa, the first electron food pasteurization facility in the
United States. This facility is specifically designed for the pasteurization of
various types of food. The Sioux City facility became operational in
December 1999 and, at full capacity, will be able to pasteurize in excess of 250
million pounds of product annually. The facility has the capability of
pasteurizing large cases of products as well as products that are not uniform in
shape or size. In January 2000, Titan Scan announced that it will build a
facility in Arkansas with its partner, Zero Mountain Cold Storage. The facility
is scheduled to become operational in December of 2000. Zero Mountain Cold
Storage will form a new entity to operate the SureBeam system, and Titan Scan
will own a minority interest in the new entity. In January 2000, Titan Scan
announced that it had sold a SureBeam system to Japan's Mitsubishi Corp. that is
expected to be fully operational by the first quarter of 2001. In connection
with the sale, Mitsubishi will form a new entity to operate the SureBeam system,
which is expected to be initially used for medical product sterilization, Titan
Scan will hold an equity interest in the new entity, and Mitsubishi will market
Titan Scan's SureBeam technology in Japan. Titan Scan is also currently
building, with a partner, a SureBeam facility in Hilo, Hawaii for the
disinfestation of fruits and vegetables.
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To date, turnkey SureBeam systems are used in medical device production
lines of Guidant Corporation in San Diego, California, Baxter Corporation in the
Dominican Republic and Rochialle Corporation in Wales. In addition, Titan Scan
offers contract sterilization services for medical product manufacturers at
facilities that it owns in San Diego and Denver. These facilities have performed
over 100,000 hours of contract sterilization services and are currently running
seven days per week and performing sterilization services 19 hours per day.
TITAN WIRELESS
OVERVIEW. Titan Wireless develops and produces advanced satellite ground
terminals, satellite voice/data modems, networking systems and other products to
support telephony in developing countries for government and commercial
customers worldwide. Additionally, Titan Wireless is increasingly seeking to
generate recurring service revenues from the telephony systems it installs.
Titan Wireless's technology relies heavily on our DAMA technology, which enables
more cost-effective and efficient use of satellite transmission capacity by
allowing each ground terminal in a satellite network to communicate with any
other terminal in the network. Our DAMA technology was developed under DoD
contracts beginning in 1986. Titan Wireless has also developed substantial
expertise in critical engineering disciplines such as satellite ground system
design, radio frequency and digital engineering, digital and communications
signal processing software, network management and modem technology.
Titan Wireless's leading product, Xpress Connection, uses existing
geosynchronous satellites to provide low-cost voice, facsimile and data services
to connect villages to a national public switched telephone network, making it
possible to provide low-cost telephone service to vast unserved areas. Titan
Wireless develops and markets its telephony systems through strategic alliances
for sales of products in developing countries. For example, through its
strategic relationship with Sakon, Titan Wireless is providing international
long distance telephony services in El Salvador, Cameroon, Kuwait, Jordan, Saudi
Arabia, Guatemala, Nigeria and Bangladesh. For the twelve months ended
September 30, 1999, Titan Wireless had revenues of approximately $10.6 million
and EBITDA of approximately $0.4 million.
INDUSTRY OVERVIEW. Vast regions of the world remain without adequate
telecommunications infrastructure. In 1998, according to the International
Telecommunication Union, countries in our targeted markets, which represent
one-third of the world's population, had fewer than two subscriber lines per 100
inhabitants compared to 66.13 in the United States. Although many of these
countries are developing urban wired telephony systems, economic considerations
in these countries have made the provision of wired telephone service to remote
areas cost prohibitive. A combination of several factors, including advancement
in voice transmission technologies, development of low cost ground terminals and
the existence of commercial satellite availability has made telephone service
(including voice, fax and data services) possible in these remote areas.
Today, there are principally three transmission alternatives available for
providing telephone service in remote areas: wired, terrestrial wireless and
satellite networks. Of these three alternatives, satellite networks are uniquely
suited to provide a rapidly available, lower cost solution for the telephony
market. Wired networks require the installation of significant infrastructure
over long distances and difficult terrain and are generally cost prohibitive for
use in remote areas and can take a number of years to complete. Terrestrial
wireless systems, in particular microwave radio networks, are subject to
line-of-sight limitations requiring a large number of microwave towers (one
approximately every 20 to 50 kilometers), compete for use of radio frequencies
and require substantial time and expense to install. Satellite networks, on the
other hand, provide broad geographic coverage. In fact, most areas with large
rural populations are within the range of one or more commercial satellites in
orbit today. At any location within the range of these satellite networks,
telephony services can be established simply by installing small, low-cost
ground terminals with links to the country's public switched telephone network.
Moreover, such satellite networks have relatively lower infrastructure costs
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compared to wired and terrestrial wireless networks, are not constrained by
topographical or climatic characteristics and can be rapidly and economically
deployed, upgraded and reconfigured.
The three principal types of satellite communications networks are direct
broadcast, mobile, and fixed-site. Direct broadcast satellite networks, which
provide a direct transmission link from high-power satellites to customers over
a wide geographic area, are best suited for one-way, continuous transmissions
such as direct-to-home television, music and data. For this reason, direct
broadcast is not optimal in the telephony market. Mobile satellite networks,
which enable voice and data communications through small portable terminals,
utilize specially designed satellites which operate at higher power and at lower
frequencies with less bandwidth. As a result, mobile satellite systems generally
are more expensive and are not as well suited for telephony applications in
developing countries. Fixed-site satellite telephony systems, which provide
television, voice, facsimile and data communications between fixed ground
terminals and geosynchronous satellites, are increasingly being utilized by
developing countries.
STRATEGY. Titan Wireless's objective is to become a leading provider of
telephony systems and services in developing countries. To achieve this
objective, Titan Wireless intends to pursue the following strategies:
INCREASE SERVICE REVENUES. Titan Wireless intends to expand its sales,
installation and integration activities for telephony systems and
participate in the service revenues from installed equipment. One of its
key initiatives is to provide long distance telecommunications services
in developing countries. Through its Sakon joint venture, Titan Wireless
is currently providing long distance telecommunications services in eight
developing countries, and expects to provide long distance
telecommunications in at least six additional developing countries. Titan
Wireless's business plan is to derive at least 50% of all future revenues
from providing telecommunications services.
EXPAND STRATEGIC ALLIANCES. Titan Wireless utilizes strategic alliances
to enter new markets. Titan Wireless continually evaluates potential
additional strategic alliances that can provide financial, technological
and/or marketing resources for its products. Titan Wireless seeks
partnerships with regional and local telephone service providers who can
obtain operating permits and play a key role in the installation and
operation of a satellite telephone network in a developing country.
LEAD SATELLITE COMMUNICATIONS TECHNOLOGY INNOVATION. Titan Wireless has
combined expertise gained under government-sponsored development projects
and its own internal development efforts to become a leader in low-cost,
efficient satellite communications technology. Titan Wireless's close
ties with satellite-based telecommunications service providers enable it
to identify and understand the current needs of the market, anticipate
future trends and develop technologies and products that are designed to
address those needs and trends.
PRODUCTS AND SERVICES. Titan Wireless develops and sells bandwidth
efficient, turnkey systems and products which address the demand for telephony
solutions in developing countries. Titan Wireless's commercial products include:
<TABLE>
<CAPTION>
PRODUCT DECRIPTION
- ------- --------------------------------------------
<S> <C>
Xpress Connection Network of fixed-site satellite ground
terminals designed to provide basic
telephony solutions to remote areas of
developing countries. Interoperable with
national public switched telephone network.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRODUCT DECRIPTION
- ------- --------------------------------------------
<S> <C>
Multi-Media Very Small Aperture Key portions of ground terminal, primarily
Terminals or VSATs software and Application Specific Integrated
Circuit chip sets to be used in a
satellite-based communication system
designed to provide quality and cost
competitive multi-function
telecommunications services to individual
homes and businesses in areas not adequately
served by the public switched telephone
network. Interoperable with Xpress
Connection and public switched telephone
network, the Internet and other public data
networks.
CCM 4000 Modem product designed to allow a single
ground terminal to provide service for up to
four simultaneous users. Utilized in Xpress
Connection networks and in private telephone
and data networks. Cost-effective
alternative to installing additional
terminals where demand warrants.
MRVC Voice digitizing, compression and
multiplexing product sold to commercial
markets.
</TABLE>
Titan Wireless establishes switched telephone network gateways in developing
countries that effectively route calls via satellite through a bank of local
telephone lines. The quality of service provided by Titan Wireless is near toll
quality, which we believe will satisfy the quality demands of many citizens of
developing countries. Through one network management center, or hub, Titan
Wireless can manage up to 50 gateways, which connect directly into the hub, and
10,000 VSATs. Titan Wireless currently operates a hub and intends to add other
hubs in key geographic locations which will enable it to provide global
telephony coverage.
Titan Wireless's project for the national telephone company of Benin,
Africa, illustrates the combination of Titan Wireless's product and services
offerings. Titan Wireless, the prime contractor for the project, will install
the major satellite hub, the VSAT hardware, the billing system and network
control system. Alcatel of France is a major subcontractor to Titan Wireless on
this project, and will handle the delivery, installation and integration of the
digital cellular system, wireless local loop, fiber optic system and primary hub
switching technology of the system. Titan Wireless will build out the entire
system, which is expected to be completed in 2001, co-operate the system with
the national telephone company for approximately eight years, and then transfer
the operations to the national telephone company. In addition to realizing
revenue and profit on the equipment portion of the project, Titan Wireless will
share in the revenue and profit generated by the system while it is co-
operating the system.
Titan Wireless is also building upon its experience in telephony to
selectively pursue private networking opportunities in developing countries. For
example, in Thailand, Titan Wireless sold key elements of a private voice, data
and facsimile communications network to The Bank for Agriculture and
Agricultural Cooperatives.
EMERGING TECHNOLOGIES AND BUSINESSES
Emerging Technologies consists of new technologies and early-stage
businesses, including businesses in which we own only a minority interest.
Emerging Technologies pursues commercial
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applications for technologies originally developed in government-sponsored
research and development programs and, to a lesser extent, in internally funded
programs. Emerging Technologies employs our rich technology portfolio, superior
research and development capabilities and stream of government-funded projects
to create solutions to technology-related problems that we can sell to multiple
commercial markets. For the twelve months ended September 30, 1999, Emerging
Technologies had revenues of approximately $6.9 million and EBITDA of
approximately $1.0 million.
The following are examples of some of the technologies and businesses that
are currently included in our Emerging Technologies segment.
TOMOTHERAPEUTICS, a majority-owned company of ours, 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. TomoTherapeutics licensed its technology
to Influence, Inc. in exchange for a potential equity interest in
Influence and royalty payments.
FLASHCOM, a private company in Florida, is utilizing our technology to
provide tracking and monitoring systems for trucks, trains and cargo
containers, using a nationwide two-way wireless network to link
dispatchers, managers and customers with remote shipments and equipment
assets. We have retained an approximate 5% ownership position in
FlashCom.
WAVX, a publicly traded company, acquired its core encryption technology
from us. WAVX's core product, the embedded application security system,
is a firewall-on-a-chip technology that enables localization of secure
e-commerce transactions at a personal computer, set-top box, or other
information sharing device. We have realized several million dollars from
sales of our residual equity interest in WAVX over the past few years. We
no longer have an equity interest in WAVX. We are entitled to receive 5%
of any revenues derived from WAVX products that utilize our technology
for the first $1 million in revenues, and 2% on any revenues in excess of
$1 million.
IMAGCLEAR 5000 automatically scans over 2,500 fingerprint cards per day
and can extract individual fingerprints from each card for electronic
distribution to the FBI and other law enforcement agencies around the
globe. This technology has received the highest level of certification
attainable from the FBI for capturing fingerprint images. To date, we
have received orders to provide over 40 ImagClear 5000 card scan systems
and supporting equipment, including to NEC Technologies, which will use
the fingerprint processors as part of its participation in the FBI's Card
Scan Service program.
In 1996, we contributed the core technology to form Servnow! Technologies,
Inc., which is now known as IPivot. IPivot develops software products that
improve the performance of server farms, web sites and software applications. In
1997, we secured $4.6 million of venture capital and ultimately raised a total
of $15 million of venture capital for the development of this business. In
November 1999, we received approximately $42 million in cash for our 8.1% equity
interest in IPivot when IPivot was acquired by Intel Corporation.
We intend to utilize both public and private investments as the primary
funding source for the continued commercial development of our rich technology
portfolio. We have no capitalized amounts on our consolidated balance sheets for
any of the developing technologies and businesses within our Emerging
Technologies segment.
GOVERNMENT CONTRACTS
A substantial portion of our revenues are dependent upon continued funding
of United States and allied government agencies, as well as continued funding of
the programs targeted by our businesses. Our revenues from U.S. government
business represented approximately 81% of our total revenues for
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the year ended December 31, 1996, approximately 82% of our total revenues for
the year ended December 31, 1997, approximately 80% of our total revenues for
the year ended December 31, 1998, and approximately 80% of our total revenues
for the nine months ended September 30, 1999. On a pro forma basis giving effect
to our acquisition of Advanced Communication Systems, our revenues from U.S.
government business represented approximately 88% of our total revenues for the
twelve months ended September 30, 1999. Any significant reductions in the
funding of United States government agencies or in the funding areas targeted by
our businesses could materially and adversely affect our business, results of
operations and financial condition.
U.S. government contracts are subject to termination for the convenience of
the government, as well as termination, reduction or modification in the event
of budgetary constraints or any change in the government's requirements. When we
subcontract with prime contractors, such subcontracts are also subject to the
ability of the prime contractor to perform its obligations under its prime
contract. We 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 our loss of
our subcontract. In addition, our contract-related costs and fees, including
allocated indirect costs, are subject to audits and adjustments by negotiation
between us 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
our contract-related costs and fees could result in material adjustments to our
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 Congress makes appropriations for future
fiscal years. Any failure of such agencies to continue to fund such contracts
could have a material adverse effect on our business, results of operations and
financial condition.
Our business with the U.S. government and prime contractors is generally
performed under cost reimbursement, fixed-price or time and materials contracts.
Cost reimbursement contracts for the government provide for reimbursement of
costs plus the payment of a fee. Under fixed-price contracts, we agree to
perform certain work for a fixed price. Under time and materials contracts, we
are reimbursed for labor hours at negotiated hourly billing rates and are
reimbursed for travel and other direct expenses at actual costs plus applied
general and administrative expense. The following table gives the percentage of
revenues realized by us from the three primary types of government contracts
during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
CONTRACT TYPE 1997 1998 1999
- ------------- -------- -------- --------
<S> <C> <C> <C>
Cost Reimbursement............................... 51.6% 49.8% 44.6%
Fixed-Price...................................... 32.8 32.0 27.0
Time and Materials............................... 15.6 18.2 28.4
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
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The following table gives the percentage of revenues realized by Advanced
Communication Systems from the three primary types of government contracts
during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
CONTRACT TYPE 1997 1998 1999
- ------------- -------- -------- --------
<S> <C> <C> <C>
Cost Reimbursement............................... 59.0% 41.0% 45.0%
Fixed-Price...................................... 35.0 22.0 23.0
Time and Materials............................... 6.0 37.0 32.0
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
RAW MATERIALS
We operate both fabrication and assembly facilities and also purchase
certain components and assemblies from other suppliers. No one supplier accounts
for a significant portion of total purchases.
PATENTS, TRADEMARKS AND TRADE SECRETS
Our policy is to apply for patents and other appropriate statutory
protection when we develop new or improved technology. We presently hold 130
U.S. and international patents, as well as a number of trademarks and
copyrights. However, we do not rely solely on these statutory protections to
protect our technology and intellectual property. In addition to seeking patent
protection for our inventions, we rely on the laws of unfair competition and
trade secrets to protect our unpatented proprietary rights. We attempt to
protect our trade secrets and other unpatented proprietary information through
agreements with customers, vendors, employees and consultants. In addition,
various names used by us for our products and services have been registered with
the United States Patent and Trademark Office.
BACKLOG
Contracts undertaken by us may extend beyond one year. 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 our backlog. Although backlog
represents only business which is considered to be firm, we cannot guarantee
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 us to all or a portion of our costs incurred and potential fees.
Many of our 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 us 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 the aggregate
contract revenues expected to be earned as our customers incrementally allot
funding to existing contracts, whether we are acting as a prime contractor or
subcontractor, and the aggregate contract revenues to be funded on contracts
which have been newly awarded to us. "Backlog" is the total of the government
and commercial funded and unfunded backlog.
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Our backlog consisted of the following approximate amounts as of the
following dates:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
BACKLOG 1997 1998 1999
- ------- -------- -------- --------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Government funded backlog.............. $126,720 $106,635 $ 171,574
U.S. Government unfunded backlog............ 356,052 466,149 449,769
Commercial backlog.......................... 48,367 47,227 47,651
-------- -------- --------------------------
Total backlog............................... $531,139 $620,011 $ 668,994
======== ======== ==========================
</TABLE>
In addition to the backlog described above, at September 30, 1999, we had
remaining priced options of over $207 million for the delivery of certain C4ISR
systems and program management services. We expect that a substantial number of
these options will be exercised in the future, although we cannot guarantee that
any options will be exercised.
Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. Our backlog is typically
subject to large variations from quarter to quarter as existing contracts are
renewed or new contracts are awarded. Additionally, all United States government
contracts included in backlog, whether or not funded, may be terminated at the
convenience of the United States government.
We expect to realize approximately 46% of our September 30, 1999 backlog by
September 30, 2000.
Advanced Communication Systems' backlog consisted of the following
approximate amounts as of the following dates:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
BACKLOG 1997 1998 1999
- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Funded........................................ $ 5,323 $ 57,454 $ 64,797
Unfunded...................................... 141,314 456,592 639,809
-------- -------- --------
Total......................................... $146,637 $514,046 $704,606
======== ======== ========
</TABLE>
Advanced Communication Systems includes remaining priced options in its
unfunded backlog amount, which we exclude from unfunded backlog. Advanced
Communication Systems believes that approximately 29.6% of its backlog as of
September 30, 1999 will result in revenues on or prior to September 30, 2000.
Included in Advanced Communication Systems' total contract backlog at
September 30, 1999, is approximately $52.5 million attributable to its two
significant cost plus fixed fee contracts with the U.S. Navy. During 1999, the
U.S. Navy established an Omnibus contract, that was awarded to a competitor in
September 1999. This contract encompassed a number of the tasks that previously
were performed under these two contracts. Management of Advanced Communication
Systems believes that it will be able to utilize other contract vehicles to
perform a substantial number of tasks previously performed under these
contracts, however there is no assurance that Advanced Communication Systems
will be able to do so.
COMPETITION
TITAN SYSTEMS. Titan Systems 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
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agencies. Most activities in which Titan Systems engages are very competitive
and require highly skilled and experienced technical personnel. Many of Titan
Systems' competitors have significantly greater financial and personnel
resources than Titan Systems. Competitors in this industry include Anteon Corp.,
Autometrics, BTG, Inc., Booz-Allen Hamilton Inc., CACI International, Inc.,
Comptek Research, Inc., Computer Sciences Corporation, Dynamics Research
Corporation, General Dynamics Corporation, GRC International, Government
Technology Services, Inc., Lockheed Martin Corporation, Metric, Raytheon
Company, Science Applications International Corporation, Tracor, TRW, and
ViaSat. Titan Systems believes that the primary competitive factors for its
information systems services include technical skills, experience in the
industry and customer relationships.
CAYENTA. The information technology services business is intensely
competitive and subject to rapid technological change. Cayenta expects the
competition to continue and intensify. Cayenta's competitors include:
- application service providers, such as Breakaway Solutions and
USinternetworking;
- information technology service providers and system integrators, such as
Andersen Consulting, Answerthink, Cambridge Technology, EDS, KPMG, Sapient
and Tanning Technology;
- Internet professional service providers, such as Proxicom, Scient, and US
Interactive; and
- internal information technology departments of current and potential
clients.
In comparison with Cayenta, many of its competitors, are larger, and have
more brand recognition and substantially greater financial infrastructure,
personnel, and marketing resources. In addition, there are low barriers to entry
into Cayenta's business. Cayenta does not own any technologies that preclude or
inhibit competitors from entering its industry. Existing or future competitors
may independently develop and patent or copyright technologies that are superior
or substantially similar to Cayenta's technologies. The costs to develop and to
provide information technology services are relatively low. Moreover, barriers
to entry, particularly in the application integration and consulting components
of Cayenta's TPS offering, are low. Therefore, Cayenta will likely continue to
face additional competition from new entrants into its industry, like software
product companies.
TITAN SCAN. The market for turnkey food pasteurization systems and services
has only recently begun to develop. We expect that food producers and providers
will continue to be reluctant to use Gamma radiation to pasteurize foods. As the
market for electronic pasteurization of food develops, we expect competition to
increase.
The market for medical product sterilization services is intensely
competitive and is characterized by significant price competition. Titan Scan's
market for medical product sterilization services is fragmented as a result of
geographical limitations on the transportation of products for sterilization,
multiple technologies and the mix of in-house and contract sterilization
facilities. Although Titan Scan believes that it is the only provider of
relatively small, low-cost, turnkey systems for in-house use by medical product
manufacturers, Titan Scan currently faces competition from several providers of
contract Gamma sterilization services, several providers of contract electron
beam sterilization services and a significantly larger number of providers of
contract EtO sterilization services. Certain of Titan Scan's competitors and
potential competitors in the medical product sterilization market have
substantially greater financial, marketing, distribution, technical and other
resources than Titan Scan, or offer multiple sterilization technologies or
operate multiple sterilization facilities at geographically advantageous sites,
which may enable them to address a broader range of the sterilization
requirements of individual customers.
TITAN WIRELESS. The industries and markets in which Titan Wireless competes
are highly competitive, and we expect that competition will increase in such
markets. Titan Wireless encounters intense competition from numerous companies,
including large and emerging domestic and
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international companies, many of which have far greater financial, engineering,
technological, marketing, sales and distribution and customer service resources
than Titan Wireless. Some of Titan Wireless's 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.
EMERGING TECHNOLOGIES AND BUSINESSES. Because it is attempting to
commercialize a number of diverse technologies and products, Emerging
Technologies effectively competes in many areas. Other companies are engaged in
significant research and development activities in these areas, either on their
own or in collaboration with others. Some of these companies have greater
financial and personnel resources, and more experience in these specific areas
than we do. We anticipate that Emerging Technologies will face increased
competition in the future as new companies enter these areas and additional and
potentially more sophisticated technologies become available.
RESEARCH AND DEVELOPMENT
We maintain a staff of engineers, other scientific professionals and support
personnel engaged in development of new applications of technology and
improvement of existing products. These programs' costs are expensed as
incurred. Total expenditures for research and development were $9.8 million in
1996, $12.8 million in 1997, $10.0 million in 1998 and $8.2 million for the nine
months ended September 30, 1999. These expenditures included Titan-funded
research and development of $5.0 million in 1996, $7.5 million in 1997, $5.6
million in 1998 and $5.3 million for the nine months ended September 30, 1999.
The remainder of our research and development expenditures was customer-
sponsored. The majority of our customer-sponsored research and development
activity is funded under contracts with the United States government.
GOVERNMENT AND ENVIRONMENTAL REGULATIONS
We must comply with and are affected by various government regulations.
These regulations affect how we and our customers can do business and, in some
instances, impose added costs to our businesses. Any changes in applicable laws
could adversely affect the financial performance of the business affected by the
changed regulations. Any failure to comply with applicable laws could result in
material fines and penalties or affect how we conduct our business in the
future.
We are subject to environmental and safety laws and regulations governing
the use, storage and disposal of hazardous substances or wastes and imposing
liability for the cleanup of contamination from these substances. We cannot
completely eliminate the risk of contamination or injury from these substances
or wastes, and, in the event of such an incident, we could be held liable for
any damages that result. From time to time, we have been notified of violations
of government and environmental regulations. We attempt to correct these
violations promptly without any material impact on our operations. In addition,
we may be required to incur significant additional costs to comply with
environmental laws and regulations in the future. These costs, and any future
violations or liability under environmental laws or regulations, could have a
material adverse effect on our business, financial condition and results of
operations.
EMPLOYEES
As of September 30, 1999, we employed approximately 3,000 employees,
predominantly located in the United States. Advanced Communication Systems
employed approximately 1,974 employees as of September 30, 1999.
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MANAGEMENT
The following table provides information concerning our directors and
executive officers.
Our executive officers and their respective positions with Titan and ages
are set forth in the following table. There are no family relationships between
any of our directors or executive officers and other directors or executive
officers of Titan. Executive officers serve at the discretion of the board of
directors.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
YEAR IN WHICH
HE/SHE BECAME
NAME POSITION AGE OFFICER/DIRECTOR
- ---- ------------------------------------------ -------- ----------------
<S> <C> <C> <C>
OFFICERS
Gene W. Ray...................... Chairman of the Board of Directors, 61 1981
President and Chief Executive Officer
Eric M. DeMarco.................. Executive Vice President and Chief 36 1997
Financial Officer
Nicholas J. Costanza............. Senior Vice President, General Counsel and 44 1999
Secretary
Larry A. Oberkfell............... Senior Vice President, President and Chief 46 1999
Executive Officer of Titan Scan
Corporation
Mellon C. Baird.................. Senior Vice President, and President and 68 1998
Chief Executive Officer of Titan Systems
Herbert L. Bradley............... Senior Vice President, and President and 58 1999
Chief Executive Officer of Titan Wireless
David P. Porreca................. Senior Vice President, and President and 57 1999
Chief Executive Officer of Cayenta
Ronald B. Gorda.................. Senior Vice President 44 1994
Deanna Hom Petersen.............. Vice President and Corporate Controller 32 1997
Louis L. Fowler.................. Vice President and Assistant Secretary 61 1989
Dianne D. Scott.................. Vice President 50 1995
DIRECTORS
Charles R. Allen................. Director 73 1989
Joseph F. Caligiuri.............. Director 71 1984
Daniel J. Fink................... Director 73 1985
Robert Hanisee................... Director 61 1998
Robert E. La Blanc............... Director 65 1996
Thomas G. Pownall................ Director 78 1992
James Roth....................... Director 63 1998
</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. The board of directors elects officers annually at its
first meeting following the Annual Meeting of Stockholders.
DR. RAY was a co-founder of Titan Systems, Inc., the parent of which merged
into us 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 our
Chairman of the Board of Directors since May 1999 and President and Chief
Executive Officer since the merger.
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MR. DEMARCO has been our Executive Vice President and Chief Financial
Officer since August 1998 and was our Senior Vice President and Chief Financial
Officer from January 1997 to August 1998. From June 1986 to January 1997, he
held various positions at Arthur Andersen LLP, most recently as a Senior
Manager.
MR. COSTANZA has been our Senior Vice President, General Counsel and
Secretary since August 1999. From mid-1998 to the end of 1998, he was Executive
Vice President, General Counsel and Secretary of Enfinity Corporation, a
manufacturing company. From 1980 to early 1998, he held various positions at
Exide Electronics Group, Inc., most recently as Vice President, Chief
Administrative Officer, General Counsel and Secretary.
MR. OBERKFELL has been our Senior Vice President and the President and Chief
Executive Officer of Titan Scan Corporation since November 1999. From December
1995 to November 1999, he held various positions at Anchor Food Products, Inc.,
a manufacturer of frozen food appetizers, most recently as Chief Executive
Officer. From October 1992 to December 1995, he held various positions at Orval
Kent Food Company, a refrigerated salad company, most recently as Chief
Executive Officer.
MR. BAIRD has been our Senior Vice President, and President and Chief
Executive Officer of Titan Systems since September 1998. Since November 1990 he
has been President and Chief Executive Officer of Delfin Systems, now a
wholly-owned subsidiary of Titan. From 1986 to 1990, Mr. Baird was President and
Chief Executive Officer of Tracor. Prior thereto, Mr. Baird held senior
positions at Eaton Corporation, Sanders Associates, Inc., F&M Systems Company,
and Varo, Inc.
MR. BRADLEY has been our Senior Vice President, and President and Chief
Executive Officer of Titan Wireless, Inc. since January 1999. Prior thereto, he
had been executive director of product development at Global One since February
1996. From February 1989 to February 1996, Mr. Bradley was President of Sprint
China, Sprint International.
MR. PORRECA has served as our Senior Vice President, and President and Chief
Executive Officer of Cayenta since January 1999. From June 1995 to December
1998, he served as Chief Executive Officer and Senior Member of an enterprise
software consulting company, Transnational Partners II. From August 1989 to
June 1995, he served as Chief Executive Officer of Expersoft Corporation, a
software development and services company.
MR. GORDA has been our Senior Vice President since February 1995 and Chief
Operating Officer of Linkabit Wireless, Inc., a division of Titan Systems, since
September 1997. He served as President of the Linkabit division of Titan from
June 1993 to September 1997. From May 1994 to February 1995, he was a Vice
President of Titan. From August 1991 to June 1993, he served as Senior Vice
President of the SATCOM Systems business unit of the Linkabit division. Prior
thereto, he was Senior Program Manager of the SATCOM Command and Control
division of Rockwell International from April 1986 to July 1991.
MS. PETERSEN has been our Corporate Controller since December 1996 and Vice
President of Titan since July 1998. From September 1993 to December 1996,
Ms. Petersen was our Corporate Manager of Operations Analysis. From January 1990
to September 1993, she held various positions at Arthur Andersen LLP, most
recently as a Senior Auditor.
MR. FOWLER has been our Vice President and Assistant Secretary 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.
MS. SCOTT has been Vice President since June 1995. From July 1992 to April
1995 she was an independent consultant. From April 1987 to June 1992 she was a
principal with the Scott Group, Inc.
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.
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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. HANISEE was a founding partner of Amdec Securities, and later was
President of Seidler Amdec Securities. From 1992 to 1998, he managed the
Convertible Securities Group of Trust Company of the West, and until recently
was Portfolio Manager for the Global Telecom Trust. He is currently the Chief
Investment Officer for Asset Allocation in the Private Client Services Group of
Trust Company of the West.
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.
He currently serves on the board of directors of Salient 3
Communications, Inc., a telecommunications and equipment and services company,
Storage Technology Corp., a provider of network computing storage, Tribune
Company, a media company, Chartered Semiconductor Manufacturing Ltd., a
semiconductor manufacturer, and a family of Prudential mutual funds.
MR. 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.
MR. ROTH was formerly Chairman, President and Chief Executive Officer of GRC
International, where he held numerous key executive management positions
throughout a 24-year career.
In the event we close our acquisition of Advanced Communication Systems,
George A. Robinson, who currently is the Chairman, President and Chief Executive
Officer of Advanced Communication Systems, will become a director of Titan after
the acquisition. Mr. Robinson is a founder of Advanced Communication Systems and
has served as Chairman, President and Chief Executive Officer of Advanced
Communication Systems since its inception in 1987. From 1986 to 1987,
Mr. Robinson held the position of Vice President for East Coast Operations of
Advanced Digital Systems, Inc., a military communication software development
company. Before working at Advanced Digital Systems, Mr. Robinson spent over
20 years as a civilian employee in the U.S. Navy Satellite Communication
program, most recently as Deputy Director.
COMMITTEES OF THE BOARD OF DIRECTORS
Titan's board of directors has an Audit Committee and a Compensation, Stock
Option and Pension Committee. The members of the Audit Committee are Mr. Allen,
Chairman, and Messrs. Caligiuri, Fink, Hanisee, La Blanc, Pownall and Roth. This
Committee monitors our basic accounting policies, reviews audit and management
reports and makes recommendations regarding the appointment of the independent
auditors. The members of the Compensation, Stock Option and Pension Committee
are Mr. Pownall, Chairman, and Messrs. Allen, Caligiuri, Fink, Hanisee, La Blanc
and Roth. This Committee deals with the hiring and election of corporate
officers, salary and incentive compensation policies for officers and
executives, and the granting of stock options and stock appreciation rights to
employees.
As of January 1999, directors who are not officers receive directors' fees
at an annual rate of $30,000, paid quarterly, and $1,500 per meeting for each
meeting attended in excess of five meetings
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per calendar year. Additionally, directors who serve as chairs to committees of
the board of directors receive $1,000 per quarter. In addition to the above
compensation, pursuant to the terms of our existing 1996 Directors' Stock Option
and Equity Participation Plan, as amended, or the Plan, options to purchase
5,000 shares of our common stock are granted to each director at fair market
value upon election to the board of directors. Directors also receive
non-discretionary annual grants of options to purchase 5,000 shares of common
stock under the Plan. The options vest at 25% per year. Directors who are not
also our employees may elect to receive their directors' fees in common stock,
pursuant to the terms of the Plan.
AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into agreements with our executive officers (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 occurring to us. The terms of the agreements provide that, in
the event of a change in control (as defined in the agreements), and the
termination of the Executive's employment at any time during the period
beginning fifteen days prior to a change in control and ending two years
following a change in control (hereinafter referred to as the "termination
period") by us other than for cause or disability or by the Executive for good
reason (as defined in the agreements), 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.
If the Executive's employment is terminated prior to the termination period
but following a potential change in control (as defined in the agreements), such
termination would be deemed to be within the termination period and to have been
(i) by us without cause (if such termination was at the direction of the
acquiring person) or (ii) by the Executive with good reason (if the Executive
terminates his employment and the event which constitutes good reason occurs
following such potential change in control and at the direction of the acquiring
person).
Under the agreements, a change in control is defined as the occurrence of
any of the following:
- the acquisition by any person, together with its affiliates, of beneficial
ownership of capital stock of ours possessing 25% or more of the combined
voting power of our outstanding capital stock;
- within any two year period, the majority of the members of the board of
directors 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 board
of directors still in office who were members of the board of directors at
the beginning of such two-year period;
- all or substantially all of our assets are sold as an entirety to any
person or related group of persons; or
- a merger of us with or into another corporation or the merger of another
corporation into us with the effect that immediately after such
transaction, our stockholders 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.
A potential change in control shall be deemed to have occurred, for purposes
of the agreements, if we enter into an agreement, the consummation of which
would result in a change in control.
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of January 14, 2000 by:
- each person known by us to be the beneficial owner of more than 5% of our
outstanding common stock;
- each of our directors;
- our chief executive officer and our four most highly compensated executive
officers in 1998 other than the chief executive officer;
- all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS(3)
- --------------------------------------- ------------ -----------
<S> <C> <C>
Charles R. Allen............................................ 47,420 (4) *
Mellon C. Baird............................................. 250,036 (5) *
Herbert L. Bradley.......................................... 10,000 (6) *
Joseph F. Caligiuri......................................... 38,500 (7) *
Nicholas J. Costanza........................................ 179 (8) *
Eric M. DeMarco............................................. 94,316 (9) *
Daniel J. Fink.............................................. 37,584 (10) *
L.L. Fowler................................................. 67,994 (11) *
Ronald B. Gorda............................................. 211,633 (12) *
Robert I. Hanisee........................................... 1,930 (13) *
Robert E. La Blanc.......................................... 30,500 (14) *
Lawrence A. Oberkfell....................................... -- --
Deanna Hom Petersen......................................... 23,324 (15) *
David P. Porreca............................................ 7,500 (16) *
Thomas G. Pownall........................................... 62,048 (17) *
Gene W. Ray................................................. 772,177 (18) 1.68 %
James E. Roth............................................... 11,250 (19) *
Dianne D. Scott............................................. 20,630 (20) *
All directors and executive officers as a group (16 1,687,021 (21) 3.62 %
persons)..................................................
</TABLE>
- ------------------------
* Less than 1%
(1) Except as otherwise provided, the address of each owner is c/o The Titan
Corporation, 3033 Science Park Road, San Diego, California 92121.
(2) The information regarding beneficial ownership of our common stock has been
presented according to rules of the SEC and is not necessarily indicative
of beneficial ownership for any other purpose. Under the SEC rules,
beneficial ownership of our common stock includes any shares as to which a
person has sole or shared voting power or investment power and also any
shares which a person has the right to acquire within 60 days through the
exercise of any stock option or other right. Under California and some
other state laws, personal property owned by a married person may be
community property that either spouse may manage and control. We have no
information as to whether any shares shown in this table are subject to
such community property laws.
(3) Percentage of beneficial ownership as to any person as of a particular date
is calculated by dividing the number of shares beneficially owned by that
person by the sum of the number of shares outstanding as of such date and
the number of shares as to which that person has the right to acquire
voting or investment power with respect to their shares. Information with
respect to
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beneficial owners of more than 5% of the common stock is based upon the
most recent Schedule 13D or Schedule 13G on file with the SEC.
(4) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 27,500 shares.
(5) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 249,502 shares and 534 shares held by the trustees of our
401(k) Retirement Plan and Employee Stock Ownership Plan.
(6) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 10,000 shares.
(7) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 22,500 shares.
(8) Includes 179 shares held by the trustees of our 401(k) Retirement Plan.
(9) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 77,500 shares and 1,496 shares held by the trustees of our
401(k) Retirement Plan and Employee Stock Ownership Plan.
(10) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 27,500 shares.
(11) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 48,500 shares and 18,381 shares held by the trustees of
our 401(k) Retirement Plan and Employee Stock Ownership Plan.
(12) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 180,000 shares and 22,419 shares held by the trustees of
our 401(k) Retirement Plan and Employee Stock Ownership Plan.
(13) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 1,250 shares.
(14) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 22,500 shares.
(15) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 18,375 shares and 4,449 shares held by the trustees of
our 401(k) Retirement Plan and Employee Stock Ownership Plan.
(16) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 7,500 shares.
(17) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 21,250 shares.
(18) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 467,500 shares and 75,935 shares held by the trustees of
our 401(k) Retirement Plan and Employee Stock Ownership Plan.
(19) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 1,250 shares.
(20) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 18,000 shares and 2,630 shares held by the trustees of
our 401(k) Retirement Plan and Employee Stock Ownership Plan.
(21) Includes outstanding options exercisable within 60 days after January 14,
2000 to purchase 1,094,652 shares and 100,384 shares held by the trustees
of our 401(k) Retirement Plan and Employee Stock Ownership Plan.
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TITAN CAPITAL TRUST
Titan Capital Trust is a statutory business trust created under Delaware law
on January 19, 2000 pursuant to a declaration of trust among the trustees and
Titan and a certificate of trust filed with the Delaware Secretary of State. The
declaration of trust will be amended and restated in its entirety as of the date
the trust initially issues the HIGH TIDES. Unless the context requires
otherwise, "Titan," "we," "us," "our" or similar terms in this section refer
solely to Titan Corporation and not the trust or any of our other consolidated
subsidiaries.
The trust's assets consist principally of the debentures, and payments under
the debentures are its sole revenue. The trust exists for the exclusive purposes
of:
- issuing the HIGH TIDES and the common securities representing undivided
beneficial ownership interests in the trust's assets;
- investing the gross proceeds of those securities in the debentures; and
- engaging in only those other activities necessary or incidental to those
purposes.
Titan will directly acquire common securities of the trust in an aggregate
liquidation amount equal to at least 3% of the total capital of the trust. The
trust will generally make payments on the common securities on a pro rata basis
with the HIGH TIDES. However, if an event of default under the declaration of
trust occurs and is continuing, Titan's right to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to your rights.
Pursuant to the declaration of trust, the trust will have four trustees,
which we refer to in this offering circular as declaration trustees:
- two of the trustees, referred to as administrative trustees, will be
officers of Titan; and
- the third trustee will be the property trustee and the fourth trustee will
be the Delaware statutory trustee, each of which will be Wilmington Trust
Company.
In limited circumstances, the holders of a majority in aggregate stated
liquidation amount of the outstanding HIGH TIDES will be entitled to appoint one
additional trustee, referred to as the special trustee. The special trustee need
not be an officer or employee of or otherwise affiliated with Titan. Generally,
the special trustee will have the same rights, powers and privileges as the
administrative trustees. See "Description of HIGH TIDES--Voting Rights;
Amendment of the Declaration."
The property trustee holds title to the debentures for your benefit and the
benefit of the holders of the trust's common securities. As the holder of the
debentures, the property trustee has the power to exercise all the rights,
powers and privileges granted to the holder of the debentures under the
indenture governing the debentures between Titan and Wilmington Trust Company,
as debenture trustee. In addition, the property trustee maintains exclusive
control of a segregated non-interest bearing bank account to hold all payments
made in respect of the debentures for your benefit and the benefit of the
holders of the trust's common securities.
Subject to your right to appoint a special trustee, we, as the direct or
indirect holder of all of the trust's common securities, have the right to
appoint, remove or replace any of the trustees and to increase or decrease the
number of trustees; provided, however, that during an event of default under the
indenture, the property trustee and the Delaware trustee may only be removed by
the holders of a majority in liquidation amount of the HIGH TIDES. However, the
number of trustees must always be at least two, one of which must be an
administrative trustee, and, unless otherwise required by applicable law, there
must always be a Delaware statutory trustee. See "Description of Convertible
Senior Subordinated Debentures."
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The address of the principal office of the trust is c/o The Titan
Corporation, 3033 Science Park Road, San Diego, California 92121-1199, and its
telephone number is (858) 552-9500.
THE REMARKETING
NOTICE OF REMARKETING; TENDER FOR SALE BY REMARKETING; RETENTION OF HIGH
TIDES
At least 30 business days but not more than 90 business days prior to the
final reset date, the trust will send to you a remarketing notice stating
whether it intends to remarket the HIGH TIDES as securities that either will be
convertible into common stock or nonconvertible. So that no holder of HIGH
TIDES, through inadvertence or otherwise, may fail to tender any HIGH TIDES for
sale in the remarketing, each outstanding HIGH TIDES you own will be deemed to
have been tendered for remarketing unless you have given irrevocable notice to
the contrary to the tender agent. The tender agent will promptly remit the
notice to the remarketing agent. The irrevocable notice, which may be telephonic
or written, must be delivered prior to 5:00 p.m., New York City time on the
tender notification date. The tender notification date is a business day no
earlier than 10 business days following the remarketing notice date, or a
shorter period as shall be agreed to by the remarketing agent. If you elect to
retain HIGH TIDES, your notice must state:
- the number of HIGH TIDES to be retained (which must be all of the HIGH
TIDES represented by the applicable certificate, unless such certificate
is a global HIGH TIDES certificate);
- the number of the certificate representing the HIGH TIDES not being
tendered (unless such certificate is a global HIGH TIDES certificate); and
- the number of HIGH TIDES represented by such certificate (unless such
certificate is a global HIGH TIDES certificate).
Any transferee of a HIGH TIDES is bound to the terms of any such notice
which has been given relating to the transferred HIGH TIDES.
Any failure by you to give timely notice of an election to retain all or any
part of your HIGH TIDES will constitute an irrevocable tender for sale in the
remarketing of all the HIGH TIDES you hold. On and after the reset date, the
terms of all HIGH TIDES, whether or not tendered for remarketing, will be
modified by the term provisions, as the same shall be established by the
remarketing agent.
If the HIGH TIDES are not held by DTC or its nominee in the form of one or
more global HIGH TIDES, certificates representing remarketed HIGH TIDES will be
issued to the purchasers thereof, irrespective of whether the certificates
formerly representing such HIGH TIDES have been delivered to the tender agent.
If you do not duly give notice that you will retain your HIGH TIDES, your rights
with respect to the HIGH TIDES will cease upon the successful remarketing of the
HIGH TIDES, except your right to receive an amount equal to:
- from the proceeds of the remarketing, 101% of the aggregate liquidation
amount of the HIGH TIDES; plus
- from us, any accrued and unpaid distributions on the HIGH TIDES to, but
excluding, the reset date (upon surrender of the certificate representing
the HIGH TIDES to the tender agent properly endorsed for transfer, in the
case of a holder other than DTC, which has taken physical delivery of a
HIGH TIDES certificate) but without any additional interest thereon (and
the certificate will cease to represent outstanding HIGH TIDES).
If no HIGH TIDES are tendered for remarketing, the remarketing will not take
place, although the remarketing will not be deemed to have failed. Under these
circumstances, the remarketing agent
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will set the term provisions in a manner consistent with the remarketing notice
that it believes, in its sole discretion, would result in a price per HIGH TIDES
equal to 101% of the liquidation amount thereof were a remarketing actually to
occur.
THE REMARKETING PROCESS
The remarketing agent has agreed to use its best efforts to remarket all
HIGH TIDES tendered for remarketing in accordance with the remarketing
agreement. The remarketing agent will establish, effective beginning on the
reset date:
- the term rate per annum at which distributions will accrue on the HIGH
TIDES;
- the term conversion ratio and price, which determine the number of shares
of common stock, if any, into which each HIGH TIDES may be converted; and
- the term call protections, which are the price, manner and time, if any,
at which the HIGH TIDES may be redeemed.
In this offering circular, we refer to the term rate, the term conversion
ratio and price and the term call protections as the term provisions.
The remarketing agent will use its best efforts to establish the term
provisions most favorable to us consistent with the successful remarketing of
all HIGH TIDES tendered at a price equal to 101% of the aggregate liquidation
amount. The remarketing agent may purchase HIGH TIDES tendered for remarketing,
but it shall not be obligated to purchase any HIGH TIDES except to the extent
expressly provided under the remarketing agreement.
The remarketing will be done without charge to the holders of the HIGH
TIDES, but we shall be obligated to pay the remarketing agent fees for its
services. Neither we nor any of our affiliates will be permitted to submit
orders for or purchase tendered HIGH TIDES in the remarketing.
In establishing the term provisions during the remarketing, the remarketing
agent will take into account the following remarketing conditions:
- short-term and long-term market interest rates and indices of the
short-term and long-term interest rates;
- market supply and demand for short-term and long-term securities;
- yield curves for short-term and long-term securities comparable to the
HIGH TIDES;
- industry and financial conditions which may affect the HIGH TIDES;
- the number of HIGH TIDES to be remarketed;
- the number of potential purchasers;
- the number of shares of common stock, if any, into which the HIGH TIDES
will be convertible;
- the current ratings by nationally recognized statistical rating
organizations of our long-term subordinated debt and of other outstanding
capital securities of the trust, including the HIGH TIDES and the common
securities; and
- the length and type of call protections, if any.
We currently have no intention of causing the applicable conversion price on
the reset date to be less than 100% of the fair market value of the common stock
on the reset date.
If any HIGH TIDES are tendered for remarketing, on the business day
following the tender notification date, the remarketing agent will commence a
convertible remarketing or a nonconvertible
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remarketing, as the case may be, in accordance with the remarketing agreement
and pursuant to the instructions set forth in the remarketing notice. The
remarketing agent will determine, and upon request make available to interested
persons, non-binding indications of the term provisions based upon then-current
remarketing conditions. The remarketing agent will solicit and receive orders
from prospective investors to purchase tendered HIGH TIDES. The remarketing
agent will continue using its best efforts to remarket the HIGH TIDES as
described above, adjusting the non-binding indications of the term provisions as
necessary to establish the term conditions most favorable to us consistent with
remarketing all HIGH TIDES tendered at a price equal to 101% of the aggregate
liquidation amount until the remarketing is completed or is deemed to have
failed for any of the reasons set forth under "--Effect of a Failed
Remarketing."
If the remarketing agent determines that the remarketing has not failed, the
remarketing agent will promptly communicate the term provisions to the tender
agent. The initial remarketing termination date is the tenth business day
following the tender notification date, or a shorter period as shall be agreed
to by the remarketing agent. The tender agent will communicate the term
provisions to the declaration trustees, the debenture trustee, the trust, the
paying agent, us and each holder, if any, which timely elected not to tender all
of its HIGH TIDES for remarketing, by written notice or by telephone promptly
confirmed by telecopy or other writing. On the reset date, new holders will
tender the reset price for the tendered HIGH TIDES as set forth below under
"--Settlement" and the term provisions will become effective.
EFFECT OF A FAILED REMARKETING
The initial remarketing will fail if:
- despite using its best efforts the remarketing agent is unable to
establish, prior to the initial remarketing termination date, a term rate
that is less than or equal to the treasury rate plus 10% per annum, which
we refer to in this offering circular as the maximum rate;
- the remarketing agent is excused from remarketing the HIGH TIDES because
of the failure by us or the trust to satisfy a condition in the
remarketing agreement or the occurrence of certain market events specified
in the remarketing agreement;
- there is no remarketing agent on the first day of the initial remarketing
period; or
- prior to the initial remarketing termination date, term provisions are
established by the remarketing agent, but the remarketing agent is unable
to sell one or more HIGH TIDES tendered for remarketing because of the
occurrence of certain market events specified in the remarketing
agreement.
If the initial remarketing fails because the remarketing agent was not able
to establish a term rate less than or equal to the maximum rate, the remarketing
agent will commence a final remarketing during the period beginning on the
business day following the initial remarketing termination date and ending on
the date which is 10 business days later, or a shorter period as shall be agreed
to by the remarketing agent. The final remarketing will be a convertible
remarketing if the initial remarketing was a nonconvertible remarketing and vice
versa.
If the remarketing agent is able to establish a term rate less than or equal
to the maximum rate during the final remarketing period, it shall promptly
communicate the term provisions to the tender agent, who will communicate the
term provisions to the declaration trustees, the trust, the paying agent, us and
each holder, if any, which timely elected not to tender all of its HIGH TIDES
for remarketing, by written notice or by telephone promptly confirmed by
telecopy or other writing. On the reset date, new holders will tender the reset
price for the tendered HIGH TIDES as set forth below under "--Settlement" and
the term provisions will become effective.
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If despite using its best efforts, the remarketing agent is still not able
to establish a term rate less than or equal to the maximum rate prior to the
expiration of the final remarketing period or the remarketing agent is excused
from remarketing the securities because of the failure by us or the trust to
satisfy a condition in the remarketing agreement or the occurence of certain
market events, the final remarketing will fail. In addition, if term provisions
are established by the remarketing agent but the remarketing agent is unable to
sell one or more HIGH TIDES tendered for remarketing because of the occurrence
of certain market events specified in the remarketing agreement, then the final
remarketing will fail. In the event of a failed final remarketing, the term rate
shall be a rate equal to the treasury rate plus 10% per annum, and the term
conversion price will be equal to 105% of the average closing price of our
common stock for the five consecutive trading days after the final failed
remarketing termination date. In the event of a failed final remarketing, all
outstanding HIGH TIDES will be redeemable by us, in whole or in part, at any
time on or after the third anniversary of the reset date at a redemption price
equal to 100% of the aggregate liquidation amount thereof, plus accrued and
unpaid distributions thereon. There can be no assurance that all of the HIGH
TIDES tendered will be remarketed.
If for any reason term provisions are established by the remarketing agent
but the remarketing agent is unable to sell one or more HIGH TIDES tendered for
remarketing, the remarketing agent will be obligated, subject to some
conditions, to purchase the HIGH TIDES for the reset price.
The term "treasury rate" means (A) the yield, under the heading which
represents the average for the week immediately prior to the date of
calculation, appearing in the most recently published statistical release
designated H.15(519) or any successor publication which is published weekly by
the Federal Reserve and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the remaining
life (if no maturity is within three months before or after the remaining life,
yields for the two published maturities most closely corresponding to the
remaining life shall be determined and the treasury rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (B) if such release, or any successor release, is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the comparable treasury issue, calculated using a price for the
comparable treasury issue (expressed as a percentage of its principal amount)
equal to the comparable treasury price for the reset date. The treasury rate
shall be calculated on the third business day preceding the reset date.
The term "comparable treasury issue" means the United States Treasury
security selected by the quotation agent as having a maturity comparable to the
remaining life that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining life. If no United
States Treasury security has a maturity which is within a period from three
months before to three months after the reset date, the two most closely
corresponding United States Treasury securities shall be used as the comparable
treasury issue, and the rate being calculated shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
The term "comparable treasury price" means (A) the arithmetic mean of five
reference treasury dealer quotations for the reset date, after excluding the
highest and lowest such reference treasury dealer quotations, or (B) if the
quotation agent obtains fewer than five reference treasury dealer quotations,
the arithmetic mean of all the reference treasury dealer quotations.
The term "quotation agent" means Credit Suisse First Boston Corporation and
its successor provided, however, that if the foregoing shall cease to be a
primary United States Government securities dealer in The City of New York we
shall substitute therefor another primary treasury dealer.
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The term "reference treasury dealer" means (A) the quotation agent and
(B) any other primary treasury dealer selected by the debenture trustee after
consultation with us.
The term "reference treasury dealer quotations" means, with respect to each
reference treasury dealer and the reset date, the arithmetic mean, as determined
by the debenture trustee, of the bid and asked prices for the comparable
treasury issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the debenture trustee by such reference treasury dealer at
5:00 p.m., New York City time, on the third business day preceding the reset
date.
The term "remaining life" means the period beginning on the reset date and
ending at February 15, 2030.
SETTLEMENT
Settlement of transactions in connection with the remarketing will take
place on the reset date, or such date as the remarketing agent may, in its sole
discretion, determine, or as otherwise required by applicable law. Payments in
respect of the tendered HIGH TIDES in an amount equal to the proceeds of the
remarketing will be made by the tender agent (but only to the extent in fact
received by the tender agent) on the date in the manner described under
"Description of HIGH TIDES--Depositary Procedures," but, in the case of a holder
(other than DTC) which has taken physical delivery of a certificate representing
its HIGH TIDES, the payment shall be made only upon surrender to the tender
agent by 2:30 p.m. New York City time on the reset date (or any succeeding date)
of the certificate representing the HIGH TIDES, properly endorsed for transfer.
Neither we, the trust, the declaration trustees, the tender agent and
(except to the extent provided above) the remarketing agent will be obligated to
provide or advance funds to make payment to the holders of HIGH TIDES tendered
in the remarketing.
PURCHASES BY US AND OUR AFFILIATES
While we, or an affiliate, may from time to time purchase, hold, or sell
HIGH TIDES, neither we nor any of our affiliates may purchase any HIGH TIDES on
the reset date or submit orders in the remarketing, and the remarketing agent
has agreed that it will not knowingly remarket any HIGH TIDES to us or any of
our affiliates.
TENDER AGENT
Tenders of HIGH TIDES in the remarketing will be made to the tender agent,
and the tender agent will pay to the prior holders thereof the proceeds of the
remarketing, provided the tender agent receives the amount from the remarketing
agent. The tender agent will be the property trustee or, in the event of the
distribution of debentures to the holders of HIGH TIDES prior to the reset date,
the debenture trustee.
TERMINATION OF THE TRUST
If the trust is for any reason dissolved and liquidated prior to the reset
date and the debentures are distributed to the holders of HIGH TIDES and common
securities, the remarketing will proceed as described in this offering circular
except that the debentures rather than the HIGH TIDES will be remarketed by the
remarketing agent, the debenture trustee rather than the property trustee will
be the tender agent and the descriptions of the remarketing of the HIGH TIDES in
this offering circular will apply with such changes as are necessary to the
remarketing of debentures. Accordingly, in such an event, without limiting the
generality of the foregoing statements:
- the debentures instead of the HIGH TIDES will be deemed to have been
tendered for remarketing absent timely notice to the contrary, provided
that any notice duly and timely given
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in respect of the tender for remarketing of any HIGH TIDES will apply to
the debentures distributed in respect thereof;
- the debentures instead of the HIGH TIDES will be remarketed by the
remarketing agent;
- the remarketing agent will use its best efforts to establish the term
provisions most favorable to us consistent with the successful remarketing
of all debentures tendered at a price equal to 101% of the principal
amount of the debentures; and
- subject to the proviso in the first bullet point above, a holder of
debentures which has not duly given notice by the tender notification date
that it will retain its debentures will cease to have any further rights
with respect to the debentures upon the successful remarketing of the
debentures, except the right of the holder to receive an amount equal to
(1) from the proceeds of the remarketing, 101% of the principal amount of
the debentures, plus (2) from us, any accrued but unpaid interest on the
debentures to, but excluding, the reset date (upon surrender of the
certificate representing the debentures to the tender agent properly
endorsed for transfer, in the case of a holder other than DTC, which has
taken physical delivery of a debenture certificate) but without any
additional interest thereon (and any such certificate will cease to
represent outstanding debentures).
If the debentures are accelerated, redeemed or otherwise prepaid on or prior
to the reset date, the remarketing will not take place.
THE REMARKETING AGENT
We will use our best efforts to assure that, at all times prior to and
including the reset date, an investment bank, broker, dealer or other
organization which, in our judgment, is qualified to remarket HIGH TIDES and to
establish the term provisions is acting as remarketing agent, provided that if
we fail to appoint a successor upon the resignation or removal of the
remarketing agent reasonably promptly or if a successor fails to accept such
appointment, a successor having such qualifications may be appointed by the
holders of at least 25% in aggregate liquidation amount of the outstanding HIGH
TIDES. Credit Suisse First Boston Corporation has agreed to act as the initial
remarketing agent but may resign or be replaced by us, in accordance with the
terms of the remarketing agreement. The remarketing agent may authorize any
broker-dealer to assist in the remarketing.
The remarketing agreement among us, the trust, the tender agent and the
remarketing agent provides that the remarketing agent will receive fees from us
for the remarketing equal to 1% of the aggregate liquidation amount of
outstanding HIGH TIDES on the reset date upon settlement of the transactions
contemplated by the remarketing. In addition to these fees we will reimburse the
remarketing agent for all out-of-pocket expenses reasonably incurred in
connection with the performance of its duties. In the event that both the
initial remarketing and the final remarketing fail, we shall not be required to
pay any fees to, or reimburse any out-of-pocket expense of, the remarketing
agent. The remarketing will be done without charge to the holders of the HIGH
TIDES.
We have agreed in the remarketing agreement to indemnify the remarketing
agent against some liabilities arising out of or in connection with its duties,
or to contribute to payments which the remarketing agent may be required to make
in respect thereof.
The remarketing agent may resign and be relieved from its duties under the
remarketing agreement on a date specified in a notice in writing delivered to us
and to the trust. The remarketing agent's resignation will not become effective
until at least 30 days after delivery of the notice. The successor remarketing
agent must be an investment bank, broker, dealer or other organization which, in
our judgment, is qualified to remarket the HIGH TIDES and establish the term
provisions and which accepts its appointment by executing a written instrument
of acceptance to us and the tender agent. The holders of a majority in aggregate
liquidation amount of the outstanding HIGH TIDES may
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remove the remarketing agent for cause. The tender agent will send notice to you
of the resignation or removal of the remarketing agent and the appointment of a
successor remarketing agent. If there is no remarketing agent on the first day
of the initial remarketing period, the remarketing will fail and the HIGH TIDES
will remain outstanding on the terms described in this offering circular under
"--Effect of a Failed Remarketing."
The remarketing agreement provides that the remarketing agent will not be
obligated to remarket HIGH TIDES if:
- in the remarketing agent's judgment there is a material misstatement or
omission in any (a) disclosure document provided by us or the trust in
connection with the remarketing or (b) document publicly disclosed
(including in a filing pursuant to the Securities Exchange Act of 1934) by
or on behalf of us or the trust, unless in each case the remarketing agent
is satisfied that such misstatement or omission has been properly
corrected;
- we have failed to have a registration statement for the HIGH TIDES
declared effective on or prior to the tender notification date or such
registration statement does not remain effective through and including the
reset date, unless we have provided to the remarketing agent an opinion of
counsel, experienced in matters relating to securities law, (a) that
registration of the HIGH TIDES under the Securities Act is not necessary
for their sale or (b) that such registration statement need not become
effective until the date the initial remarketing period is required to
commence under the remarketing agreement and the remarketing agent
consents to such delay; or
- either we or the trust fails to satisfy conditions customary in an
offering.
Broker-dealers, if any, which obtain purchasers for the HIGH TIDES will be
paid a commission or fee by the remarketing agent based upon the remarketing fee
described above and the number of HIGH TIDES sold. Broker-dealers will enter
into broker-dealer agreements with the remarketing agent, which will provide for
their participation in the remarketing and will require them to follow certain
private placement procedures. The identity of the broker-dealers, if any, which
will participate in the remarketing has not yet been determined. The remarketing
agent will have the right to select broker-dealers at any time prior to the
reset date. No broker-dealer will be obligated to purchase the HIGH TIDES.
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DESCRIPTION OF HIGH TIDES
Under the terms of the declaration of trust, the administrative trustees on
behalf of the trust will issue the HIGH TIDES and the common securities in fully
registered form without interest coupons. The HIGH TIDES will represent
preferred undivided beneficial ownership interests in the assets of the trust,
and the holders of the HIGH TIDES will be entitled to a preference over us, as
the holder of the trust's common securities, in limited circumstances with
respect to distributions and amounts payable on redemption of the HIGH TIDES and
the trust's common securities or dissolution and liquidation of the trust, as
well as other benefits as described in the declaration of trust. See
"--Subordination of Common Securities." The declaration of trust will not
initially be qualified under the Trust Indenture Act. However, by its terms the
declaration of trust will incorporate selected provisions of the Trust Indenture
Act. Upon effectiveness of the shelf registration statement, the declaration of
trust will be subject to and governed by the Trust Indenture Act. This summary
of the provisions of the HIGH TIDES, the trust's common securities and the
declaration of trust is subject to, and is qualified in its entirety by
reference to, all the provisions of the declaration of trust, including the
definitions of certain terms. Unless the context requires otherwise, "Titan,"
"we," "us," "our" or similar terms in this section refer solely to Titan
Corporation and not the trust or any of our other consolidated subsidiaries.
GENERAL
The trust will make payments on the HIGH TIDES on a pro rata basis with its
common securities except as described under "--Subordination of Common
Securities." The guarantee executed by us for your benefit will provide for a
guarantee on a subordinated basis with respect to the HIGH TIDES but will not
guarantee payment of distributions or amounts payable on redemption of the HIGH
TIDES or on dissolution and liquidation of the trust when the trust does not
have funds on hand available to make those payments. See "Description of the
Guarantee."
Credit Suisse First Boston Corporation has agreed to act as initial
remarketing agent with respect to the HIGH TIDES and is referred to herein as
the remarketing agent. The remarketing agent will be paid fees for its services
and may resign or be replaced by us under certain circumstances. The remarketing
agent may also be removed at any time for cause by the holders of a majority of
the aggregate liquidation amount of HIGH TIDES outstanding. See "The
Remarketing--The Remarketing Agent."
DISTRIBUTIONS
Distributions will accrue on the HIGH TIDES from the date of their original
issuance at the applicable rate of the stated liquidation amount of $50 per HIGH
TIDES. Subject to the deferral rights described below, the trust will pay the
distributions quarterly in arrears on each February 15, May 15, August 15 and
November 15, each referred to as a distribution date, commencing May 15, 2000,
to the person in whose name each HIGH TIDES is registered at the close of
business on the first day of the month of the applicable distribution date. The
first day of the month of any distribution date shall be the record date for
such distribution date.
The reset date is any date (1) not later than February 15, 2005, or, if the
day is not a business day, the next succeeding business day, and (2) not earlier
than 70 business days prior to February 15, 2005, as may be determined by the
remarketing agent, in its sole discretion. If the reset date is prior to the
record date for the immediately following distribution date, then distributions
and additional amounts, if any, accrued from and after the reset date to but
excluding the immediately following distribution date shall be paid on such
distribution date to the person in whose name each HIGH TIDES is registered on
the relevant record date, subject to our right to initiate a deferral period. If
the reset date is on or after the record date for the immediately following
distribution date, then (1) distributions and additional amounts, if any,
accrued from and after the record date to but excluding the reset date shall
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be paid on the immediately following distribution date to the person in whose
name each HIGH TIDES is registered on the relevant record date and
(2) distributions and additional amounts, if any, accrued from and after the
reset date to but excluding the immediately following distribution date shall be
paid on the second distribution date immediately following the reset date to the
person in whose name each HIGH TIDES is registered on the relevant record date
for such second distribution date, subject in each case to our right to initiate
a deferral period. The applicable rate will be the initial rate of 5 3/4% per
annum from the date of original issuance of the HIGH TIDES to but excluding the
reset date, subject to increase in the case of a registration default. See
"Registration Rights". From the reset date, the applicable rate will be the term
rate established by the remarketing agent to be effective on the reset date. On
the reset date, the remarketing agent will notify the declaration trustees, the
trust, the debenture trustee, the paying agent, us and the holders, if any,
which elected not to tender all their HIGH TIDES for remarketing of the term
provisions, including the term rate. The notification must be made by written
notice or by telephone promptly confirmed by telecopy or other writing. See "The
Remarketing."
The amount of distributions payable for any period will be computed based on
the number of days elapsed in a 360-day year of twelve 30-day months. If any
distribution date is not a business day, the trust will pay distributions
payable on that date on the next succeeding day that is a business day, except
if such business day is in the next succeeding calendar year, such distributions
will be made on the immediately preceding business day. No additional
distributions or other payments in respect of any such delay will accrue because
of this change in the distribution date. Distributions that the trust does not
pay on the applicable distribution date will accrue additional distributions on
the amount of the accrued distributions, to the extent permitted by law, at the
applicable rate compounded quarterly from the relevant distribution date. As
used in this offering circular, the term "distribution" includes quarterly
distributions, additional distributions on quarterly distributions not paid on
the applicable distribution date and special distributions upon certain tax
events, as applicable. See "Description of Convertible Senior Subordinated
Debentures--Additional Amounts." As used in this offering circular, a "business
day" means any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed, or a day on which the corporate trust office
of the property trustee or the debenture trustee is closed for business.
So long as no event of default under the debentures has occurred and is
continuing, we have the right to defer the payment of interest on the debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarters. However, no deferral period may extend beyond (1) the maturity of the
debentures whether at the stated maturity or by declaration of acceleration,
call for redemption or otherwise and (2) in the case of a deferral period
beginning prior to the reset date, the reset date. We have agreed, among other
things, not to declare or pay any dividend on our capital stock, subject to
certain exceptions, during any deferral period. See "Description of Convertible
Senior Subordinated Debentures--Option to Extend Interest Payment Date." As a
consequence of any deferral election, the trust will defer quarterly
distributions on the HIGH TIDES during the deferral period. Deferred
distributions to which you are entitled will accumulate additional distributions
at the applicable rate, compounded quarterly from the relevant payment date for
distributions during any deferral period, to the extent permitted by applicable
law.
See "Description of Convertible Senior Subordinated Debentures--Option to
Extend Interest Payment Date" and "Certain United States Federal Income Tax
Consequences--Interest Income" for a more detailed discussion of the terms and
conditions affecting our right to defer the payment of interest on the
debentures.
We have no current intention of exercising our right to defer payments of
interest on the debentures.
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The trust's revenues available for distribution to you will be limited to
payments under the debentures. See "Description of Convertible Senior
Subordinated Debentures--General." If we do not make interest payments on the
debentures, the property trustee will not have funds available to pay
distributions on the HIGH TIDES. We have guaranteed the payment of
distributions, if and to the extent the trust has funds legally available for
the payment of those distributions on a limited basis as set forth under
"Description of the Guarantee."
CONVERSION RIGHTS
GENERAL. You may convert your HIGH TIDES at any time prior to 5:00 p.m.,
New York City time, on or prior to the tender notification date and, in the
event of a convertible remarketing or a failed final remarketing, from and after
the reset date to and including February 15, 2030 (except that you may convert
HIGH TIDES called for redemption by us at any time prior to 5:00 p.m., New York
City time, on the relevant redemption date), at your option and in the manner
described below, into shares of our common stock. On or prior to the tender
notification date, you may convert each HIGH TIDES, pursuant to the initial
conversion ratio, into 1.0076 shares of our common stock (equivalent to an
initial conversion price of $49.625 per share of common stock). On and after the
reset date, the trust has the option to make each HIGH TIDES, subject to the
results of the remarketing, become convertible into a different number of shares
of common stock or nonconvertible. See "The Remarketing." The conversion ratio
and the equivalent conversion price in effect at any given time are referred to
in this offering circular as the applicable conversion ratio and the applicable
conversion price, respectively, and will be subject to adjustment as described
under "--Conversion Price Adjustments" below. The trust will covenant in the
declaration of trust not to convert debentures held by it except pursuant to a
notice of conversion delivered to the property trustee, as conversion agent, by
you.
If you wish to exercise your conversion right, you must deliver an
irrevocable conversion notice, together, if the HIGH TIDES are in certificated
form, with the certificated security, to the conversion agent who will, on your
behalf, exchange the HIGH TIDES for a like amount of debentures and immediately
convert the debentures into shares of our common stock. You may obtain copies of
the required form of the conversion notice from the conversion agent.
If you are the record holder of HIGH TIDES at the close of business on a
distribution record date, you will be entitled to receive the distribution
payable on your HIGH TIDES on the corresponding distribution date even if you
convert your HIGH TIDES after the distribution record date but prior to the
distribution date. Except as provided in the immediately preceding sentence,
neither we nor the trust will make, or be required to make, any payment,
allowance or adjustment for accrued and unpaid distributions, whether or not in
arrears, on converted HIGH TIDES, even if you convert your HIGH TIDES during a
deferral period. We will make no payment or allowance for distributions on our
shares of common stock issued upon conversion, except to the extent that those
shares of common stock are held of record on the record date for any
distributions. We will deem each conversion to have been effected immediately
prior to the close of business on the day on which the trust received the
related conversion notice.
We will not issue any fractional shares of our common stock as a result of
conversion. Instead, we will pay fractional interest in cash based on the
closing price of our common stock at the time of conversion.
CONVERSION PRICE ADJUSTMENTS--GENERAL. The applicable conversion price of
the HIGH TIDES will be adjusted, without duplication, upon the happening of the
following events:
- the payment of dividends and other distributions payable exclusively in
our common stock on our common stock;
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- the issuance to all holders of our common stock of rights or warrants;
- subdivisions and combinations of our common stock;
- the payment of dividends and other distributions to all holders of our
common stock consisting of evidences of our indebtedness, securities or
capital stock, cash or assets, except for those rights or warrants
referred to in the second bullet clause above and dividend and
distributions paid exclusively in cash;
- the payment to holders of our common stock in respect of a tender or
exchange offer, other than an odd-lot offer, by us or any of our
subsidiaries for our common stock at a price in excess of 110% of the
current market price of our common stock as of the trading day next
succeeding the last date tenders or exchanges may be made pursuant to the
tender or exchange offer; and
- the payment of dividends and other distributions on our common stock paid
exclusively in cash, excluding:
- cash dividends that do not exceed the per share amount of the smallest
of the immediately four preceding quarterly cash dividends, as adjusted
to reflect any of the events described above; and
- cash dividends the per share amount of which, together with the
aggregate per share amount of any other cash dividends paid within the
12 months preceding the date of payment of such cash dividends, does
not exceed 12 1/2% of the current market price of our common stock as
of the trading day immediately preceding the date of declaration of the
dividend.
We may, at our option, make reductions in the applicable conversion price as
our board of directors deems advisable to avoid or diminish any income tax to
our common stockholders or rights to purchase our common stock resulting from
any dividend or distribution of stock or rights to acquire stock or from any
event treated similarly for federal income tax purposes. See "Certain United
States Federal Income Tax Consequences--Adjustment of Conversion Price."
The applicable conversion price will not be adjusted:
- upon the issuance of any shares of our common stock pursuant to any
present or future plan providing for the reinvestment of dividends or
interest payable on securities of Titan and the investment of additional
optional amounts in shares of our common stock under any plan;
- upon the issuance of any shares of our common stock or options or rights
to purchase those shares pursuant to any present or future employee,
director or consultant benefit plan or program of Titan; or
- upon the issuance of any shares of our common stock pursuant to any
option, warrant, right, or exercisable, exchangeable or convertible
security outstanding as of the date the HIGH TIDES were first issued.
No adjustment in the applicable conversion price will be required unless the
adjustment would require an increase or decrease of at least 1% of the
applicable conversion price. If the adjustment is not made because the
adjustment does not change the applicable conversion price by more than 1%, then
the adjustment that is not made will be carried forward and taken into account
in any future adjustment. Except as specifically described above, the applicable
conversion price will not be subject to adjustment in the case of the issuance
of any of our common stock, or securities convertible into or exchangeable for
our common stock.
CONVERSION PRICE ADJUSTMENTS--MERGER, CONSOLIDATION OR SALE OF ASSETS OF
TITAN. If we are a party to a transaction which results in our common shares
being converted into the right to receive, or being
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exchanged for, securities, cash or other property of a third party, the
conversion price may be adjusted as described below. The following are examples
of company transactions which may result in an adjustment to the conversion
price:
- merger;
- consolidation;
- sale of all or substantially all of our assets;
- recapitalization or reclassification of our common shares; or
- any compulsory share exchange.
If we are a party to any company transaction, in each case, as a result of
which shares of our common stock will be converted into the right to receive
other securities, cash or other property, we will ensure that lawful provision
is made as part of the terms of the company transaction so that the holder of
each HIGH TIDES then outstanding will have the right thereafter to convert the
HIGH TIDES only into:
- in the case of any company transaction other than a company transaction
involving a Common Stock Fundamental Change, the kind and amount of
securities, cash and other property receivable upon the consummation of
the company transaction by a holder of that number of shares of our common
stock into which a HIGH TIDES was convertible immediately prior to the
company transaction; or
- in the case of a company transaction involving a Common Stock Fundamental
Change, common stock of the kind received by holders of our common stock;
but in each case after giving effect to any adjustment discussed below relating
to a Fundamental Change if the company transaction constitutes a Fundamental
Change.
The holders of HIGH TIDES will have no voting rights with respect to any
company transaction.
In the case of any company transaction involving a Fundamental Change, the
applicable conversion price will be adjusted immediately before the Fundamental
Change as follows:
- in the case of a Non-Stock Fundamental Change, the applicable conversion
price of the HIGH TIDES will become the lower of:
- the applicable conversion price immediately prior to the Non-Stock
Fundamental Change, but after giving effect to any other prior
adjustments; and
- the result obtained by multiplying the greater of the relevant price or
the then applicable reference market price by the optional redemption
ratio (the product is referred to as the "adjusted relevant price" or
the "adjusted reference market price," as the case may be); and
- in the case of a Common Stock Fundamental Change, the applicable
conversion price of the HIGH TIDES immediately prior to the Common Stock
Fundamental Change, but after giving effect to any other prior
adjustments, will be adjusted by multiplying the applicable conversion
price by a fraction of which the numerator will be the Purchaser Stock
Price and the denominator will be the relevant price.
However, in the event of a Common Stock Fundamental Change in which:
- 100% of the value of the consideration received by a holder of our common
stock is common stock of the successor, acquirer or other third party (and
cash, if any, is paid only with respect to any fractional interests in the
common stock resulting from the Common Stock Fundamental Change); and
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- all our common stock will have been exchanged for, converted into, or
acquired for common stock (and cash with respect to fractional interests)
of the successor, acquirer or other third party;
the applicable conversion price of the HIGH TIDES immediately prior to the
Common Stock Fundamental Change will be adjusted by multiplying the applicable
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquirer or other third party received by a holder of one share of our common
stock as a result of the Common Stock Fundamental Change.
In the absence of the adjustments to the applicable conversion price in the
event of a company transaction involving a Fundamental Change, in the case of a
company transaction each HIGH TIDES would become convertible into the
securities, cash, or other property receivable by a holder of the number of
shares of our common stock into which each HIGH TIDES was convertible
immediately prior to the company transaction. Thus, in the absence of the
Fundamental Change provisions, a company transaction could substantially lessen
or eliminate the value of the conversion privilege associated with the HIGH
TIDES. For example, if a company were to acquire Titan in a cash merger, each
HIGH TIDES would become convertible solely into cash and would no longer be
convertible into securities whose value would vary depending on the future
prospects of Titan and other factors.
In Non-Stock Fundamental Change transactions, the foregoing conversion price
adjustments are designed to increase the amount of securities, cash or other
property into which you may convert each HIGH TIDES. In a Non-Stock Fundamental
Change transaction in which the initial value received per share of our common
stock (measured as described in the definition of relevant price) is lower than
the then applicable conversion price of a HIGH TIDES but greater than or equal
to the reference market price, the applicable conversion price will be adjusted
with the effect that you will be able to convert each HIGH TIDES into
securities, cash or other property of the same type received by the holders of
our common stock in the transaction with the applicable conversion price
adjusted as though the initial value had been the adjusted relevant price. In a
Non-Stock Fundamental Change transaction in which the initial value received per
share of our common stock (measured as described in the definition of relevant
price) is lower than both the applicable conversion price of a HIGH TIDES and
the reference market price, the applicable conversion price will be adjusted as
described above but calculated as though the initial value had been the adjusted
reference market price.
In Common Stock Fundamental Change transactions, the foregoing adjustments
are designed to provide in effect that:
- where our common stock is converted partly into common stock and partly
into other securities, cash or property, you will be able to convert each
HIGH TIDES solely into a number of shares of common stock determined so
that the initial value of those shares (measured as described in the
definition of Purchaser Stock Price) equals the value of the shares of our
common stock into which each HIGH TIDES was convertible immediately before
the transaction (measured as aforesaid); and
- where our common stock is converted solely into common stock, you will be
able to convert each HIGH TIDES into the same number of shares of common
stock receivable by a holder of the number of shares of our common stock
into which each HIGH TIDES was convertible immediately before the
transaction.
The term "closing price" of any security on any day means the last reported
sale price of the security on that day, or in case no sale takes place on that
day, the average of the closing bid and asked prices in each case on the
principal national securities exchange on which the securities are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc. or any successor
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national automated interdealer quotation system (the "NNM") or, if the
securities are not listed or admitted to trading on any national securities
exchange or quoted on the NNM, the average of the closing bid and asked prices
of the security in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected by Titan for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value, as determined in good faith by our board of
directors, of the consideration received by holders of our common stock consists
of common stock that for each of the ten consecutive trading days immediately
prior to and including the entitlement date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the NNM; provided, however, that a Fundamental Change will
not be a Common Stock Fundamental Change unless either:
- we continue to exist after the occurrence of the Fundamental Change and
the outstanding HIGH TIDES continue to exist as outstanding HIGH TIDES; or
- not later than the occurrence of the Fundamental Change, the outstanding
debentures are converted into or exchanged for debentures of a corporation
succeeding to our business, which debentures have terms substantially
similar to those of our debentures.
The term "entitlement date" means the record date for determination of the
holders of our common stock entitled to receive securities, cash or other
property in connection with a Non-Stock Fundamental Change or a Common Stock
Fundamental Change or, if there is no record date, the date upon which holders
of our common stock will have the right to receive those securities, cash or
other property.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a company transaction pursuant to which all or
substantially all of our common stock will be exchanged for, converted into,
acquired for or constitute solely the right to receive securities, cash or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise). However, in the case of a company transaction involving more than
one transaction or event, for purposes of adjustment of the applicable
conversion price, the Fundamental Change will be deemed to have occurred when
substantially all of our common stock is exchanged for, converted into, or
acquired for or constitute solely the right to receive securities, cash, or
other property, but the adjustment will be based upon the highest weighted
average per share consideration that a holder of our common stock could have
received in the transactions or events as a result of which more than 50% of all
outstanding shares of our common stock will have been exchanged for, converted
into, or acquired for or constitute solely the right to receive securities, cash
or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "optional redemption ratio" means a fraction of which the numerator
will be $50 and the denominator will be the then current optional redemption
price or, on or prior to February 20, 2003 and at any time after the reset date
at which the HIGH TIDES are not redeemable at our option, an amount per HIGH
TIDES determined by us in our sole discretion, after consultation with a
nationally recognized investment banking firm, to be the equivalent of the
hypothetical redemption price that would have been applicable if the HIGH TIDES
had been redeemable during that period.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the closing prices for the common stock
received in the Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the entitlement date, as adjusted in good faith by
us to appropriately reflect any of the events referred to in the six bullet
clauses of the first paragraph under "--Conversion Price Adjustments--General."
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The term "reference market price" will initially mean, on the date the trust
originally issues the HIGH TIDES, $26.875 (which is an amount equal to 66 2/3%
of the last reported sale price for our common stock on the New York Stock
Exchange on February 3, 2000). In the event of any adjustment to the applicable
conversion price from such date to, but excluding the reset date, other than as
a result of a Non-Stock Fundamental Change, the trust will also adjust the
reference market price so that the ratio of the reference market price to the
applicable conversion price after giving effect to any adjustment will be the
same as the ratio of $26.875 to the initial conversion price. If the HIGH TIDES
are convertible into common stock on and after the reset date, the reference
market price on the reset date will be an amount equal to 66 2/3% of the closing
price of the common stock on the reset date and, in the event of any adjustment
to the applicable conversion price from the reset date and thereafter, other
than as a result of a Non-Stock Fundamental Change, the reference market price
shall also be adjusted so that the ratio of the reference market price to the
applicable conversion price after giving effect to any such adjustment shall
always be the same as the ratio of the closing price of the common stock on the
reset date to the term conversion price.
The term "relevant price" means:
- in the case of a Non-Stock Fundamental Change in which the holder of our
common stock receives only cash, the amount of cash received by the holder
of one share of our common stock; and
- in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the daily closing prices for our common
stock during the ten consecutive trading days prior to and including the
entitlement date, in each case as adjusted in good faith by us to
appropriately reflect any of the events referred to in the six bullet
clauses of the first paragraph under "--Conversion Price
Adjustments--General."
REDEMPTION
Upon the repayment in full of the debentures at their stated maturity or a
redemption in whole or in part of the debentures (other than following any
distribution of the debentures to you and the holders of the trust's common
securities), the property trustee will apply the proceeds from the repayment or
redemption to redeem, on a pro rata basis, a like amount of HIGH TIDES and the
trust's common securities, on the redemption date, in an amount per HIGH TIDES
or common security, as applicable, equal to the applicable redemption price. The
redemption price will be equal to:
- the liquidation amount of each HIGH TIDES plus any accrued and unpaid
distributions in the case of (A) the repayment of the debentures at their
stated maturity or (B) the redemption of the debentures in certain limited
circumstances upon the occurrence of a tax event;
- in the case of an optional redemption on or after February 20, 2003, but
prior to, and excluding, the tender notification date, the initial
redemption price as set forth under "Description of Convertible Senior
Subordinated Debentures-- Redemption--Optional Redemption";
- in the case of an optional redemption after the reset date, in accordance
with the term call protections, if any, established in the remarketing;
and
- in the case of an optional redemption after a failed final remarketing,
100% of the liquidation amount of the HIGH TIDES being redeemed, plus
accrued and unpaid distributions.
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REDEMPTION PROCEDURES
The trust will redeem its HIGH TIDES and common securities at the applicable
redemption price with the proceeds from the contemporaneous repayment or
redemption of the debentures. The trust will redeem its HIGH TIDES and common
securities and will pay the applicable redemption price on each redemption date
only to the extent that it has funds on hand available for the payment of the
redemption price. See also "--Subordination of Common Securities."
If the trust gives a notice of redemption in respect of the HIGH TIDES,
then, by 10:00 a.m., New York City time, on the redemption date, to the extent
funds are available, with respect to the HIGH TIDES held in global form, the
property trustee will deposit irrevocably with DTC funds sufficient to pay the
applicable redemption price and will give DTC irrevocable instructions and
authority to pay the applicable redemption price to you. See "--Depositary
Procedures."
If the HIGH TIDES are no longer in book-entry form, the property trustee, to
the extent funds are available, will irrevocably deposit with the paying agent
for the HIGH TIDES funds sufficient to pay the applicable redemption price and
will give the paying agent irrevocable instructions and authority to pay the
redemption price to the holders of the HIGH TIDES upon surrender of their
certificates evidencing the HIGH TIDES. See "--Payment and Paying Agency."
Distributions payable on or prior to the redemption date for any HIGH TIDES
called for redemption will be paid to holders of HIGH TIDES as of the relevant
record dates for the related distribution. If the trust has given notice of
redemption and deposited funds as required, then upon the date of the deposit,
all of your rights will cease, except your right to receive the applicable
redemption price, but without interest on the redemption price, and the HIGH
TIDES will cease to be outstanding.
If any redemption date is not a business day, then payment of the applicable
redemption price payable on that date will be made on the next succeeding day
which is a business day, and without any interest or other payment in respect of
any delay. However, if that business day falls in the next calendar year, the
payment will be made on the immediately preceding business day. In the event
that the trust or, pursuant to the guarantee described in "Description of the
Guarantee," we improperly withhold or refuse to make payment of the applicable
redemption price, then distributions on HIGH TIDES will continue to accrue at
the then applicable rate, from the redemption date originally established by the
trust to the date the redemption price is actually paid. Under these
circumstances, the actual payment date will be the date fixed for redemption for
purposes of calculating the redemption price.
Subject to applicable law, we or our subsidiaries may at any time and from
time to time purchase outstanding HIGH TIDES by tender, in the open market or by
private agreement except as provided under "The Remarketing--Purchases by Us and
Our Affiliates."
If we desire to consummate an optional redemption, we must send a notice to
each holder of HIGH TIDES and the trust's common securities at its registered
address in accordance with the notice procedures set forth under "Description of
Convertible Senior Subordinated Debentures--Redemption--Optional Redemption." We
must mail any notice of a tax event redemption at least 30 days but not more
than 60 days before the redemption date to you. We need not provide notice of
repayment at the stated maturity of the debentures.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION OR DISTRIBUTION
If a tax event occurs and is continuing, we will cause the trustees to
dissolve and liquidate the trust and, after satisfaction of liabilities of
creditors of the trust, cause debentures to be distributed to you and us, as
holder of the common securities, on a pro rata basis, in liquidation of the
trust within 90
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days following the occurrence of the tax event. However, the liquidation and
distribution will be conditioned on:
- the trustees' receipt of an opinion of a nationally recognized independent
tax counsel, reasonably acceptable to the trustees, experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that you
will not recognize any income, gain or loss for United States federal
income tax purposes as a result of such liquidation and distribution of
debentures; and
- Titan being unable to avoid such tax event within such 90-day period by
taking some ministerial action or pursuing some other reasonable measure
that, in our sole judgment, will have no adverse effect on us, the trust
or you and will involve no material cost.
Furthermore, if (1) a nationally recognized independent tax counsel,
reasonably acceptable to the trustees, experienced in such matters provides an
opinion (the "Redemption Tax Opinion") to us that, as a result of a tax event,
there is more than an insubstantial risk that we would be precluded from
deducting the interest on the debentures for U.S. federal income tax purposes,
even after the debentures were distributed to you upon liquidation of the trust
as described above, or (2) such tax counsel informs the trustees that it cannot
deliver a No Recognition Opinion, we will have the right, upon not less than 30
nor more than 60 days' notice and within 90 days following the occurrence and
continuation of the tax event, to redeem the debentures, in whole, but not in
part, for cash, for the principal amount plus accrued and unpaid interest and,
following such redemption, the trust will redeem all the HIGH TIDES at the
aggregate liquidation amount of the HIGH TIDES plus accrued and unpaid
distributions. However, if at the time there is available to us or the trust the
opportunity to eliminate, within such 90-day period, the tax event by taking
some ministerial action or pursuing some other reasonable measure that, in our
sole judgment, will have no adverse effect on us, the trust or you and will
involve no material cost, we or the trust will pursue that measure in lieu of
redemption. See "--Mandatory Redemption." In addition to the foregoing options,
we will also have the option of causing the HIGH TIDES to remain outstanding and
pay additional amounts on the debentures. See "Description of Convertible Senior
Subordinated Debentures--Additional Amounts."
The term "tax event" means the receipt by the property trustee of an opinion
of a nationally recognized independent tax counsel to us, reasonably acceptable
to the trustees, experienced in such matters (a "Dissolution Tax Opinion") to
the effect that as a result of:
- any amendment to or change (including any announced prospective change
(which will not include a proposed change), provided that a tax event will
not occur more than 90 days before the effective date of any prospective
change) in the laws (or any regulations thereunder) of the United States
or any political subdivision or taxing authority of the United States or
any political subdivision;
- any judicial decision or official administrative pronouncement, ruling,
regulatory procedure, notice or announcement, including any notice or
announcement of intent to adopt such procedures or regulations (an
"Administrative Action"); or
- any amendment to or change in the administrative position or
interpretation of any Administrative Action or judicial decision that
differs from the theretofore generally accepted position, in each case, by
any legislative body, court, governmental agency or regulatory body,
irrespective of the manner in which such amendment or change is made
known, which amendment or change is effective or such Administrative
Action or decision is announced, in each case, on or after the date of
original issuance of the debentures or the issue date of the
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HIGH TIDES in which there is more than an insubstantial risk that one of
the following will occur:
- if the debentures are held by the property trustee, (1) the trust is, or
will be within 90 days of the date of such opinion, subject to U.S.
federal income tax with respect to interest accrued or received on the
debentures or subject to more than a de minimis amount of other taxes,
duties or other governmental charges as determined by counsel, or (2) any
portion of interest payable by us to the trust (or original issue discount
accruing) on the debentures is not, or within 90 days of the date of such
opinion will not be, deductible by us in whole or in part for U.S. federal
income tax purposes; or
- with respect to debentures which are no longer held by the property
trustee, any portion of interest payable by us (or original issue discount
accruing) on the debentures is not, or within 90 days of the date of such
opinion will not be, deductible by us in whole or in part for U.S. federal
income tax purposes.
If an investment company event occurs and is continuing, we will cause the
trustees to dissolve and liquidate the trust and, after satisfaction of
liabilities of creditors of the trust, cause a like amount of the debentures to
be distributed to you in liquidation of the trust within 90 days following the
occurrence of the investment company event.
An investment company event occurs if there is a change in law or regulation
or a written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority to the
effect that the trust is or will be considered an "investment company" required
to be registered under the Investment Company Act of 1940, as amended. In order
to be an investment company event, the change in law must be effective on or
after the date of this offering circular.
The distribution by us of the debentures will effectively result in the
cancellation of the HIGH TIDES.
OFFER TO REPURCHASE THE HIGH TIDES
If the acquisition of Advanced Communication Systems is not consummated by
March 31, 2000, the property trustee on behalf of the trust will offer to
purchase up to 50% of the aggregate liquidation amount of each of the HIGH TIDES
and the trust's common securities, each at a purchase price equal to 102.5% of
the liquidation amount of the HIGH TIDES and common securities, plus any accrued
and unpaid distributions, if any, to the date of the repurchase.
The offer to repurchase will be made in compliance with all applicable laws,
including all applicable federal and state securities laws.
Within 30 days following March 31, 2000, the property trustee on behalf of
the trust will commence the offer to repurchase the HIGH TIDES and the common
securities by mailing to each holder of HIGH TIDES and common securities a
notice, which will govern the terms of the offer to repurchase. The notice will
include the following information:
- up to 50% of the aggregate liquidation amount of each of the HIGH TIDES
and the trust's common securities will be accepted for payment, each at a
purchase price equal to 102.5% of the liquidation amount of the HIGH TIDES
and common securities,
- the purchase date,
- any HIGH TIDES and common securities not tendered will continue to be
outstanding and accrue distributions,
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- all HIGH TIDES and common securities tendered and accepted for payment
will cease to be outstanding after the date on which the HIGH TIDES and
common securities are purchased,
- if more than 50% of the aggregate liquidation amount of either the HIGH
TIDES or the trust's common securities are tendered, the trust will
repurchase the HIGH TIDES or common securities, as the case may be, on a
pro rata basis from each tendering holder and
- instructions for tendering the HIGH TIDES and the trust's common
securities.
On the date that the tendered HIGH TIDES and the trust's common securities
are repurchased, the trust will
- accept tendered and not withdrawn HIGH TIDES and the trust's common
securities for payment,
- deposit with the paying agent an amount equal to the aggregate payment
amount for all of the HIGH TIDES and the trust's common securities so
tendered and not withdrawn and
- deliver or cause to be delivered to the property trustee the HIGH TIDES
and the trust's common securities accepted by the trust, together with a
certificate stating that the HIGH TIDES and the trust's common securities
tendered to the trust are accepted for payment. The paying agent will
promptly mail to each holder of accepted HIGH TIDES and the trust's common
securities payment equal to the purchase price for the HIGH TIDES and the
trust's common securities, and the property trustee on behalf of the trust
will authenticate and mail, or cause to be transferred by book entry, to
each holder a new security equal in liquidation amount to any unpurchased
portion of the HIGH TIDES and the trust's common securities surrendered,
if any, PROVIDED, that each new security will be in the liquidation amount
of $50 or an integral multiple thereof.
The property trustee on behalf of the trust will make a public announcement
of the results of the offer to repurchase the HIGH TIDES and the trust's common
securities on or as soon as practicable after the date the securities are
repurchased. For the purposes of this offer to repurchase, the trustee will act
as the paying agent.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES
We, as the holder of the trust's outstanding common securities, will have
the right at any time including, without limitation, upon the occurrence of a
tax event or an investment company event, to dissolve the trust and, after
satisfaction of liabilities of creditors of the trust as provided by applicable
law, cause a like amount of the debentures to be distributed to you and the
holders of the trust's common securities upon liquidation of the trust. However,
we may not dissolve the trust during the period beginning on the business day
following a tender notification date and ending on the reset date (other than
upon the occurrence of a tax event or an investment company event). In addition,
the declaration trustees shall have received a No Recognition Opinion prior to
the dissolution of the trust.
The trust will automatically dissolve upon the first to occur of:
(A) our bankruptcy, dissolution or liquidation;
(B) the distribution of a like amount of the debentures to the holders of
the HIGH TIDES and the trust's common securities if we, as depositor,
have given our written direction to the property trustee to dissolve the
trust (which direction is optional and, except as described above, wholly
within our discretion, as depositor);
(C) redemption of all the HIGH TIDES and the trust's common securities as
described under
"--Mandatory Redemption" above;
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(D) conversion of all outstanding HIGH TIDES and the trust's common
securities as described under "--Conversion Rights" above;
(E) expiration of the term of the trust; or
(F) entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If an early dissolution occurs as described in clause (A), (B), (E) or (F)
above, the declaration trustees will liquidate the trust as expeditiously as
they determine to be possible by distributing, after satisfaction of liabilities
to the creditors of the trust as provided by applicable law, to you and the
holders of the trust's common securities a like amount of the debentures, unless
the distribution would not be practical. In that event, you and the holders of
the trust's common securities will be entitled to receive out of the trust's
assets available for distribution to holders, after satisfaction of liabilities
to the trust's creditors as provided by applicable law, an amount equal to, in
the case of holders of HIGH TIDES, the aggregate liquidation amount of the HIGH
TIDES plus accrued and unpaid distributions, to the date of payment (that amount
being the "liquidation distribution"). If the liquidation distribution can be
paid only in part because the trust has insufficient assets available to pay in
full the aggregate liquidation distribution, then the trust will pay the amounts
directly payable by it on the HIGH TIDES on a pro rata basis. We, as the holder
of the trust's common securities, will be entitled to receive distributions upon
any liquidation on a pro rata basis with you, except that if an event of default
under the debentures has occurred and is continuing, the HIGH TIDES will have a
priority over the trust's common securities with respect to any of those
distributions. See "--Subordination of Common Securities."
If we do not redeem the debentures prior to maturity, the trust is not
dissolved and liquidated and the debentures are not distributed to you and the
holders of the trust's common securities, the HIGH TIDES will remain outstanding
until the repayment of the debentures at their final stated maturity and the
distribution of the liquidation distribution to you.
On and after the liquidation date fixed for any distribution of debentures
to you and the holders of the trust's common securities:
- the trust will no longer deem the HIGH TIDES to be outstanding;
- DTC or its nominee, as the record holder of the HIGH TIDES, will receive a
registered global certificate or certificates representing the debentures
to be delivered upon the distribution with respect to HIGH TIDES held by
DTC or its nominee; and
- the trust will deem any certificates representing HIGH TIDES not held by
DTC or its nominee to represent debentures having a principal amount equal
to the liquidation amount of the HIGH TIDES and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid distributions on the
HIGH TIDES until those certificates are presented to us or our agent for
cancellation, whereupon we will issue to the holder, and the debenture
trustee will authenticate, a certificate representing the debentures.
We cannot assure you as to the market prices for the HIGH TIDES or the
debentures that you may receive in exchange for the HIGH TIDES and/or the
trust's common securities if a dissolution and liquidation of the trust were to
occur. Accordingly, the HIGH TIDES that you may purchase, or the debentures that
you may receive on dissolution and liquidation of the trust, may trade at a
discount to the price that you originally paid to purchase the HIGH TIDES.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, the HIGH TIDES and
the trust's common securities generally shall be made on a pro rata basis to the
holders of HIGH TIDES and the trust's common securities. The trust will base
those payments on the liquidation amount of the HIGH
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TIDES and the trust's common securities. If on any distribution date or
redemption date any event of default under the indenture has occurred and is
continuing or an event of default under the declaration of trust has occurred
and is continuing, then the trust will not pay any distribution on, or
applicable redemption price of, any of the trust's common securities, and the
trust will not make any other payment on account of the redemption, liquidation
or other acquisition of the trust's common securities, unless:
- all accrued and unpaid distributions on all of the outstanding HIGH TIDES
are paid in cash for all distribution periods ending on or prior to any
payment on the common securities, or
- in the case of payment of the applicable redemption price, the full amount
of the redemption price on all of the outstanding HIGH TIDES then called
for redemption shall have been paid or provided for, and all funds
available to the property trustee will first be applied to the payment in
full in cash of all distributions on, or the applicable redemption price
of, the HIGH TIDES then due and payable.
If an event of default occurs under the declaration of trust resulting from
an event of default under the indenture, the trust will deem us, as holder of
the trust's common securities, to have waived any right to act with respect to
any event of default under the declaration of trust until the effect of all
events of default with respect to the HIGH TIDES have been cured, waived or
otherwise eliminated. Until all events of default under the declaration of trust
with respect to the HIGH TIDES have been so cured, waived or otherwise
eliminated, the property trustee will act solely on your behalf and not on our
behalf as holder of the trust's common securities, and only you will have the
right to direct the property trustee to act on your behalf.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "event of default" under the
declaration of trust (whatever the reason for the event of default and whether
it is voluntary or involuntary or is effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
- the occurrence of an event of default under the indenture (see
"Description of Convertible Senior Subordinated Debentures--Debenture
Events of Default");
- the trust's default in the payment of any distribution when it becomes due
and payable, and continuation of the default for a period of 30 days
(subject to the deferral of any due date in the case of a deferral
period);
- the trust's default in the payment of any redemption price of any HIGH
TIDES or common security of the trust when it becomes due and payable;
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the declaration trustees in the declaration of
trust (other than a covenant or warranty, a default in the performance of
which or the breach of which is addressed in the second or third bullet
points above), and continuation of the default or breach for a period of
60 days after the holders of at least 25% in aggregate liquidation amount
of the outstanding HIGH TIDES have given, by registered or certified mail,
to the defaulting trustee or trustees a written notice specifying the
default or breach and requiring it to be remedied and stating that the
notice is a "Notice of Default" under the declaration of trust; or
- the occurrence of a bankruptcy or insolvency with respect to the property
trustee and the failure by us to appoint a successor property trustee
within 60 days of those events.
Within ten business days after the occurrence of any payment event of
default actually known to the property trustee, the property trustee will
transmit notice of the payment event of default to you,
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the administrative trustees and us, as depositor, unless the event of default
has been cured or waived. Titan, as depositor, and the administrative trustees
are required to file annually with the property trustee a certificate as to
whether or not we and they are in compliance with all the conditions and
covenants applicable to us and them under the declaration of trust.
If an event of default under the indenture or an event of default under the
declaration of trust has occurred and is continuing, the HIGH TIDES will have a
preference over the trust's common securities. See "--Liquidation of the Trust
and Distribution of Convertible Senior Subordinated Debentures" and
"--Subordination of Common Securities."
REMOVAL OF TRUSTEES
Unless an event of default under the indenture has occurred and is
continuing, we, as the holder of the trust's common securities, may remove any
declaration trustee, other than a special trustee, at any time. If an event of
default under the indenture has occurred and is continuing, the holders of a
majority in liquidation amount of the outstanding HIGH TIDES may remove the
property trustee and the Delaware statutory trustee. In no event will you have
the right to vote to appoint, remove or replace the administrative trustees,
which voting rights are vested exclusively in us as the holder of the trust's
common securities. No resignation or removal of the Delaware statutory trustee
or the property trustee and no appointment of a successor trustee will be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the declaration of trust.
MERGER OR CONSOLIDATION OF TRUSTEES
Any successor to the property trustee or the Delaware trustee by merger,
conversion or consolidation or which otherwise succeeds to that trustee's
corporate trust business will take the place of that trustee under the
declaration of trust if the successor otherwise is qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, consolidate, amalgamate or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other person, except as described below or as
otherwise set forth in the declaration of trust. The trust may, with the consent
of the administrative trustees but without your consent and the consent of the
property trustee or the Delaware statutory trustee, merge with or into,
consolidate, amalgamate or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, a trust organized as such
under the laws of any state if:
- the successor entity either (1) expressly assumes all of the trust's
obligations with respect to the HIGH TIDES or (2) substitutes for the HIGH
TIDES other successor securities having substantially the same terms as
the HIGH TIDES so long as the successor securities rank the same as the
HIGH TIDES rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise;
- we expressly appoint a trustee of the successor entity possessing the same
powers and duties as the property trustee as the holder of the debentures;
- the successor securities are listed or traded, or any successor securities
will be listed or traded upon notification of issuance, on any national
securities exchange, national automated quotation system or other
organization on which the HIGH TIDES are then listed or traded, if any;
- the transaction does not cause the HIGH TIDES, including any successor
securities, to be downgraded by any nationally recognized statistical
rating organization;
- the transaction does not adversely affect the rights, preferences and
privileges of the holders of the HIGH TIDES, including any successor
securities, in any material respect;
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- the successor entity has a purpose substantially identical and limited to
the purpose of the trust;
- prior to the transaction, we receive an opinion from independent counsel
to the trust experienced in such matters to the effect that:
- the transaction does not adversely affect the limited liability of the
holders of the HIGH TIDES and common securities, including any
successor securities;
- following the transaction neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act; and
- following the transaction, the trust or the successor entity will
continue to be treated as a grantor trust for U.S. federal income tax
purposes.
- we or any permitted successor or assignee owns all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the guarantee relating to the HIGH TIDES; and
- the transaction is not a taxable event for you.
Notwithstanding the general provisions described above, the trust will not,
except with the consent of holders of 100% in aggregate liquidation amount of
the HIGH TIDES and the trust's common securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it, if the
transaction would cause the trust or the successor entity to be classified as
other than a grantor trust for U.S. federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
The holders of HIGH TIDES have only the voting rights described below and
under "Description of the Guarantee--Amendments and Assignment" plus any voting
rights required by law and the declaration of trust.
In addition to your rights with respect to the enforcement of payments by us
to the trust of principal of or interest on the debentures as described under
"Description of Convertible Senior Subordinated Debentures--Debenture Events of
Default," if either of the following events occurs:
- an event of default under the indenture occurs and is continuing; or
- we default under the guarantee with respect to the HIGH TIDES;
then the holders of the HIGH TIDES, acting as a single class, will be
entitled by a vote of a majority in aggregate stated liquidation amount of the
outstanding HIGH TIDES to appoint a special trustee which shall be called an
appointment event. Any holder of HIGH TIDES, other than Titan or any of our
affiliates, will be entitled to nominate any person to be appointed as special
trustee. Not later than 30 days after the right to appoint a special trustee
arises, the declaration trustees will convene a meeting of the holders of HIGH
TIDES for the purpose of appointing a special trustee. If the declaration
trustees fail to convene that meeting within the 30-day period, the holders of
not less than 10% of the aggregate stated liquidation amount of the outstanding
HIGH TIDES will be entitled to convene the meeting. The provisions of the
declaration of trust relating to the convening and conduct of the meetings of
the holders will apply with respect to the meeting. Any special trustee so
appointed will cease to be a special trustee if the appointment event pursuant
to which the special trustee was appointed and all other appointment events
cease to be continuing. Notwithstanding the appointment of any special trustee,
we will retain all rights under the indenture, including the right to defer
payments of interest by extending the interest payment period as described under
"Description of Convertible Senior Subordinated Debentures --Option to Extend
Interest Payment Date." If such an extension occurs, there will be no event of
default under the indenture and, consequently, no event of
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default for failure to make any scheduled interest payment during the deferral
period on the date originally scheduled.
We, along with the property trustee and the administrative trustees, may
amend the declaration of trust from time to time without your consent:
- to cure any ambiguity;
- to correct or supplement any provision in the declaration of trust that
may be inconsistent with any other provision;
- to make any other provisions with respect to ministerial matters or
questions arising under the declaration of trust, which will not be
inconsistent with the other provisions of the declaration of trust; or
- to modify, eliminate or add to any provisions of the declaration of trust
if necessary to ensure that the trust will not be taxable as a corporation
or will be classified for U.S. federal income tax purposes as a grantor
trust at all times that any HIGH TIDES or the trust's common securities
are outstanding or to ensure that the trust will not be required to
register as an investment company under the Investment Company Act.
However, no such action may be taken in connection with the first three
bullet clauses above unless the action will not adversely affect in any material
respect the interests of any holder of HIGH TIDES or the trust's common
securities. Any amendments of the declaration of trust will become effective
when notice of the amendment is given to you and the holders of the trust's
common securities.
We, along with the property trustee and the administrative trustees, may
amend the declaration of trust with:
- the consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding HIGH TIDES; and
- receipt by the declaration trustees of an opinion of counsel to the effect
that the amendment or the exercise of any power granted to the trustees in
accordance with the amendment will not affect the trust's status as a
grantor trust for U.S. federal income tax purposes or the trust's
exemption from status as an investment company under the Investment
Company Act.
In addition, without the consent of each holder of HIGH TIDES and the
trust's common securities, no amendment may:
- change the amount or timing of any distribution on the HIGH TIDES or the
trust's common securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the HIGH TIDES or the
trust's common securities as of a specified date; or
- restrict the right of a holder of HIGH TIDES or the trust's common
securities to institute suit for the enforcement of any payment on or
after such date.
So long as any debentures are held by the trust, the declaration trustees
will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the indenture, or execute any trust
or power conferred on the property trustee with respect to the debentures;
- waive any past default that is waivable under the indenture governing the
debentures;
- exercise any right to rescind or annul a declaration that the principal of
all the debentures is due and payable; or
- give a required consent to any amendment, modification or termination of
the indenture or the debentures;
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unless, in each case, they first obtain the approval of the holders of a
majority in aggregate liquidation amount of all outstanding HIGH TIDES. When the
indenture requires the consent of each holder of debentures, the property
trustee cannot give its consent without the prior consent of each holder of the
HIGH TIDES.
The declaration trustees will not revoke any action previously authorized or
approved by a vote of the holders of the HIGH TIDES except by subsequent vote of
those holders. The property trustee will notify each holder of HIGH TIDES of any
notice of default with respect to the debentures. In addition to obtaining the
foregoing approvals of the holders of the HIGH TIDES, prior to taking any of the
foregoing actions, the property trustee will obtain an opinion of counsel
experienced in those matters to the effect that the action will not affect the
trust's status as a grantor trust for U.S. federal income tax purposes on
account of the action.
Any required approval of holders of HIGH TIDES may be given either at a
properly convened meeting of those holders or by a written consent without prior
notice. The administrative trustees must notify holders of HIGH TIDES of any
meeting.
Neither your vote nor your consent is required for the trust to redeem and
cancel or remarket the HIGH TIDES in accordance with the declaration of trust or
to distribute the debentures in accordance with the declaration of trust and the
terms of the HIGH TIDES and the trust's common securities.
Notwithstanding that you are entitled to vote or consent under any of the
circumstances described above, any of the HIGH TIDES that are owned by us, the
declaration trustees or any affiliate of Titan or any declaration trustees,
will, for purposes of such vote or consent, be treated as if they were not
outstanding.
EXPENSES AND TAXES
We will pay all of the costs, expenses or liabilities of the trust, other
than obligations of the trust to pay to the holders of any HIGH TIDES or common
securities the amounts due to the holders under the terms of those securities.
FORM, BOOK-ENTRY PROCEDURES AND TRANSFER
The HIGH TIDES sold to "qualified institutional buyers" as defined in
Rule 144A under the Securities Act will be issued in the form of one or more
fully registered global HIGH TIDES certificates except as described below. The
global HIGH TIDES certificate will be deposited upon issuance with the property
trustee as custodian for DTC, in New York, New York, and registered in the name
of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the global HIGH TIDES certificate may be
transferred, in whole but not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the global HIGH TIDES
certificate may not be exchanged for HIGH TIDES in certificated form except in
the limited circumstances described below. See "--Certificated HIGH TIDES." In
addition, a transfer of beneficial interests in the global HIGH TIDES
certificate will be subject to the applicable rules and procedures of DTC and
its direct or indirect participants which may change from time to time.
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DEPOSITARY PROCEDURES
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participating organizations and to facilitate the clearance and settlement of
transactions in those securities between its participants through electronic
book-entry changes to accounts of its participants, thereby eliminating the need
for physical movement of certificates. DTC's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to DTC's system is also available to other
indirect participants such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. Persons who are not participants may beneficially own
securities held by or on behalf of DTC only through the participants or the
indirect participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the participants and indirect participants.
DTC has also advised us and the trust that, pursuant to procedures
established by it:
- upon deposit of the global HIGH TIDES certificate, DTC will credit the
accounts of participants designated by Credit Suisse First Boston with
portions of the principal amount of the global HIGH TIDES certificate; and
- ownership of such interests in the global HIGH TIDES certificate will be
shown on, and the transfer of such ownership interests will be effected
only through, records maintained by DTC, with respect to the participants,
or by the participants and the indirect participants, with respect to
other owners of beneficial interests in the global HIGH TIDES certificate.
Investors in the global HIGH TIDES certificate may hold their interests in
the global HIGH TIDES certificate directly through DTC, if they are participants
in DTC, or indirectly through organizations which are participants in DTC's
system. All interests in the global HIGH TIDES certificate will be subject to
the procedures and requirements of DTC. The laws of some states require that
certain persons take physical delivery in certificated form of certain
securities, such as the HIGH TIDES, that they own.
Consequently, the ability to transfer beneficial interests in the global
HIGH TIDES certificate to those persons will be limited to that extent. Because
DTC can act only on behalf of participants, which in turn act on behalf of
indirect participants and certain banks, the ability of a person having
beneficial interests in a global HIGH TIDES certificate to pledge those
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of those interests, may be affected by the
lack of a physical certificate evidencing those interests. For certain other
restrictions on the transferability of the HIGH TIDES, see "--Certificated HIGH
TIDES."
Except as described below, owners of beneficial interests in the global HIGH
TIDES certificate will not be entitled to have HIGH TIDES registered in their
names, and they will not receive or be entitled to receive physical delivery of
HIGH TIDES in certificated form and will not be considered the registered owners
or holders thereof under the declaration of trust for any purpose.
Payments in respect of the global HIGH TIDES certificate registered in the
name of DTC or its nominee will be payable by the property trustee to DTC or its
nominee as the registered holder under the declaration of trust by wire transfer
in immediately available funds on each distribution date. Under the terms of the
declaration of trust, the property trustee will treat the persons in whose names
the HIGH TIDES, including the global HIGH TIDES certificate, are registered as
the owners of the global HIGH TIDES certificate for the purpose of receiving
payments and for any and all other purposes.
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Consequently, neither the property trustee nor any agent of the property trustee
has or will have any responsibility or liability for:
- any aspect of DTC's records or any participant's or indirect participant's
records relating to, or payments made on account of, beneficial ownership
interests in the global HIGH TIDES certificate, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial ownership
interests in the global HIGH TIDES certificate; or
- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC has advised us and the trust that its current practice, upon receipt of
any payment in respect of securities such as the HIGH TIDES, is to credit the
accounts of the relevant participants with the payment on the payment date, in
amounts proportionate to their respective holdings in liquidation amount of
beneficial interests in the global HIGH TIDES certificate, as shown on the
records of DTC, unless DTC has reason to believe it will not receive payment on
the payment date. Payments by the participants and the indirect participants to
the beneficial owners of HIGH TIDES represented by global HIGH TIDES certificate
held through the participants will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the property
trustee or the trust. Neither the trust nor the property trustee will be liable
for any delay by DTC or any of its participants in identifying the beneficial
owners of the HIGH TIDES, and the trust and the property trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Interests in the global HIGH TIDES certificate will trade and settle
according to the rules and procedures of DTC and its participants. Transfers and
settlements between participants in DTC will be effected in accordance with
DTC's procedures.
DTC has advised us and the trust that it will take any action permitted to
be taken by you, including the presentation of HIGH TIDES for exchange as
described below, only at the direction of one or more participants to whose
account with DTC interests in the global HIGH TIDES certificate are credited and
only in respect of the portion of the aggregate liquidation amount of the HIGH
TIDES represented by the global HIGH TIDES certificate as to which the
participant or participants has or have given such direction. However, if there
is an event of default under the declaration of trust, DTC reserves the right to
exchange the global HIGH TIDES certificate for HIGH TIDES in certificated form
and to distribute those HIGH TIDES to its participants.
So long as DTC or its nominee is the registered owner of the global HIGH
TIDES certificate, DTC or the nominee, as the case may be, will be considered
the sole owner or holder of the HIGH TIDES represented by the global HIGH TIDES
certificate for all purposes under the declaration of trust.
Neither DTC nor its nominee will consent or vote with respect to the HIGH
TIDES. Under its usual procedures, DTC would mail an omnibus proxy to the trust
as soon as possible after the record date. The omnibus proxy assigns the
consenting or voting rights of DTC or its nominee to those participants to whose
accounts the HIGH TIDES are credited on the record date (identified in a listing
attached to the omnibus proxy).
The information in this section concerning DTC and its book-entry system has
been obtained from sources that we and the trust believe to be reliable, but
neither we nor the trust takes responsibility for the accuracy of the
information.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the global HIGH TIDES certificate among participants in DTC, it
is under no obligation to perform or to
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continue to perform those procedures, and those procedures may be discontinued
at any time. Neither the trust nor the property trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED HIGH TIDES
The HIGH TIDES represented by the global HIGH TIDES certificate will be
exchangeable for certificated HIGH TIDES in definitive form of like tenor as the
HIGH TIDES in denominations of U.S. $50 and integral multiples of $50 if:
- DTC notifies us or the trust that it is unwilling or unable to continue as
depositary for the global HIGH TIDES certificate, or if at any time DTC
ceases to be a clearing agency registered under the Securities Exchange
Act of 1934;
- we or the administrative trustees in our or their sole discretion at any
time determine that the global HIGH TIDES certificate shall be so
exchangeable; or
- an event of default under the declaration of trust has occurred and is
continuing.
Any of the HIGH TIDES that are exchangeable pursuant to the preceding
sentence are exchangeable for certificated HIGH TIDES issuable in authorized
denominations and registered in the names as DTC directs. Subject to the
foregoing, the global HIGH TIDES certificate is not exchangeable, except for a
global HIGH TIDES certificate of the same aggregate denomination to be
registered in the name of DTC or its nominee.
PAYMENT AND PAYING AGENCY
Payments in respect of the HIGH TIDES held in global form will be made to
DTC. DTC will make payments on the HIGH TIDES by crediting the relevant account
at DTC on the applicable distribution dates. If any HIGH TIDES are not held by
DTC, then the paying agent will mail checks to the registered holders at their
addresses as shown on its register. The paying agent will initially be the
property trustee. The paying agent may resign as paying agent upon 30 days'
written notice to the property trustee, the administrative trustees and us. If
the property trustee resigns as paying agent, the administrative trustees will
appoint another entity to act as paying agent.
The property trustee has informed the trust that so long as it serves as
paying agent for the HIGH TIDES, it anticipates that information regarding
distributions on the HIGH TIDES, including payment date, record date and
redemption information, will be made available through Wilmington Trust Company,
care of Corporate Trust Administration, 1100 North Market Street,
Wilmington, DE 19890.
REGISTRAR AND CONVERSION AGENT
The property trustee will act as the initial paying agent, registrar and
conversion agent for the HIGH TIDES.
The administrative trustees may designate additional or substitute paying
agents and registrars at any time. Registration of transfers of certificated
HIGH TIDES will be effected without charge by or on behalf of the trust, but
upon payment (with the giving of such indemnity as the administrative trustees
may require) in respect of any tax or other government charges that may be
imposed in connection with any transfer or exchange. The trust will not be
required to register the transfer or exchange of certificated HIGH TIDES during
the period beginning at the opening of business 15 days before any selection of
certificated HIGH TIDES to be redeemed and ending at the close of business on
the day of that selection or register the transfer or exchange of any
certificated HIGH TIDES, or portion thereof, called for redemption.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than during the occurrence and continuance of an
event of default, is required to perform only the duties that are specifically
set forth in the declaration of trust. During the existence of an event of
default, the property trustee is required to exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or her
own affairs. Subject to this provision, the property trustee has no obligation
to exercise any of its powers under the declaration of trust at the request of
any holder of HIGH TIDES or the trust's common securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that it might
incur by doing so.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that:
- the trust will not be deemed to be an investment company required to be
registered under the Investment Company Act or classified as an
association taxable as a corporation or partnership for U.S. federal
income tax purposes;
- would cause the trust to be classified for U.S. federal income tax
purposes as a grantor trust; and
- the debentures will be treated as Titan's indebtedness for United States
federal income tax purposes.
The administrative trustees are authorized to take any lawful action
consistent with the trust's certificate of trust and the declaration of trust,
that the administrative trustees determine in their discretion to be necessary
or desirable for those purposes, as long as their actions do not materially
adversely affect the interests of the holders of the HIGH TIDES or the trust's
common securities.
You and the holders of the trust's common securities have no preemptive or
similar rights.
The trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
GOVERNING LAW
The declaration of trust and the HIGH TIDES will be governed by and
construed in accordance with the laws of the State of Delaware.
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DESCRIPTION OF CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES
We will issue the convertible senior subordinated debentures under an
indenture between us and Wilmington Trust Company, as debenture trustee. The
indenture will not initially be qualified under the Trust Indenture Act.
However, by its terms, the indenture will incorporate selected provisions of the
Trust Indenture Act. Upon effectiveness of the shelf registration statement, the
indenture will be subject to and governed by the Trust Indenture Act. This
summary of certain terms and provisions of the debentures and the indenture is
not complete. For a complete description of the debentures, we encourage you to
read the indenture. Unless the context requires otherwise, "Titan," "we," "us,"
"our" or similar terms in this section refer solely to Titan Corporation and not
the trust or any of our other consolidated subsidiaries.
GENERAL
Concurrently with the issuance of the HIGH TIDES and the trust's common
securities, the trust will invest the proceeds from issuing those securities in
our 5 3/4% Convertible Senior Subordinated Debentures due February 15, 2030.
Interest will accrue on the debentures from the date of their original issuance,
at the applicable rate of the principal amount thereof. Subject to the deferral
rights described below and our right to set special record dates for payment of
defaulted interest, the trust will make those payments quarterly in arrears on
each February 15, May 15, August 15 and November 15, commencing May 15, 2000 to
the person in whose name each debenture is registered, at the close of business
on the first day of the month of the applicable interest payment date. The first
day of the month of any interest payment date shall be the record date for such
interest payment date.
If the reset date is prior to the record date for the immediately following
interest payment date, then interest and additional amounts, if any, accrued
from and after the reset date to but excluding the immediately following
interest payment date shall be paid on such interest payment date to the person
in whose name each debenture is registered on the relevant record date, subject
to our right to initiate a deferral period. If the reset date is on or after the
record date for the immediately following interest payment date, then (1)
interest and additional amounts, if any, accrued from and after the record date
to but excluding the reset date shall be paid on the immediately following
interest payment date to the person in whose name each debenture is registered
on the relevant record date and (2) interest and additional amounts, if any,
accrued from and after the reset date to but excluding the immediately following
interest payment date shall be paid on the second interest payment date
immediately following the reset date to the person in whose name each debenture
is registered on the relevant record date for such second interest payment date,
subject in each case to our right to initiate a deferral period. The applicable
rate will be 5 3/4% per annum from the date of original issuance of the HIGH
TIDES to, but excluding, the reset date. From the reset date, the applicable
rate will be the term rate established by the remarketing agent to be effective
on the reset date.
We anticipate that, until the dissolution and liquidation of the trust, each
debenture will be registered in the name of the property trustee and held by the
property trustee for the benefit of the holders of the HIGH TIDES and the
trust's common securities. The amount of interest payable for any period will be
computed on the basis of the number of days elapsed in a 360-day year of twelve
30-day months.
If any interest payment date is not a business day, then payment will be
made on the next succeeding business day, except if such business day is in the
next succeeding calendar year, such payment will be made on the immediately
preceding business day. No additional interest or other payment will accrue
because of this change in the payment date. Accrued interest that is not paid on
the applicable interest payment date will bear additional interest on the amount
of interest that is not paid (to the extent permitted by law), compounded
quarterly from the relevant interest payment date.
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The term "interest" as used herein will include quarterly payments, interest on
quarterly interest payments not paid on the applicable interest payment date and
additional amounts described in "--Additional Amounts."
If the trust distributes the debentures to you, the description of the
remarketing of the HIGH TIDES and your conversion rights in this offering
circular will apply, with such changes as are necessary, to the remarketing or
conversion of the debentures. See "The Remarketing" and "Description of HIGH
TIDES--Conversion Rights."
Unless we previously redeem or repurchase the debentures in accordance with
the indenture, they will mature on February 15, 2030. See
"--Redemption--Repayment at Maturity; Redemption of Convertible Senior
Subordinated Debentures."
The debentures will be unsecured and will rank junior and subordinate in
right of payment to all of our Secured Debt. Our right to participate in any
distribution of assets of any of our subsidiaries upon the subsidiary's
liquidation or reorganization or otherwise (and thus the ability of holders of
the HIGH TIDES to benefit indirectly from the distribution) is subject to the
prior claims of creditors of the subsidiary, except to the extent that we may
ourselves be recognized as a creditor of the subsidiary. Accordingly, the
debentures will be subordinated to all of our Secured Debt and effectively
subordinated to all existing and future liabilities of our subsidiaries. Our
subsidiaries are separate legal entities and have no obligations to pay, or make
funds available for the payment of, any amounts due on the debentures, the HIGH
TIDES or the guarantee of the HIGH TIDES. Therefore, holders of debentures
should look only to our assets for payments on the debentures. The indenture
governing the debentures does not limit the incurrence or issuance of other
secured or unsecured debt of Titan, whether under the indenture, our existing
credit agreement, or any other existing agreement or other indenture or any
other debt instrument or agreement that we may enter into in the future or
otherwise. See "Risk Factors--Risks Relating to the HIGH TIDES" and
"--Subordination."
OPTION TO EXTEND INTEREST PAYMENT DATE
If we are not in default under the indenture governing the debentures, we
have the right to defer the payment of interest on the debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period. We may not, however, defer the payment of
interest beyond (1) the maturity of the debentures whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise and
(2) in the case of a deferral period beginning prior to the reset date, the
reset date. At the end of a deferral period, we must pay all interest then
accrued and unpaid on the debentures (together with interest thereon accrued at
an annual rate equal to the applicable rate compounded quarterly from the
relevant interest payment date, to the extent permitted by applicable law).
During a deferral period and for so long as the debentures remain outstanding,
interest will continue to accrue and holders of debentures, and holders of the
HIGH TIDES while HIGH TIDES are outstanding, will be required to accrue interest
income in the form of original issue discount for U.S. federal income tax
purposes. See "Certain United States Federal Income Tax Consequences--Interest
Income."
During any deferral period, we may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (which includes common and preferred stock) other than stock
dividends paid by us which consist of stock of the same class as that on
which the dividend is being paid;
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of our debt securities that rank pari passu with
or junior in interest to the debentures; or
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- make any guarantee payments with respect to any guarantee by us of the
debt securities of any of our subsidiaries if such guarantee expressly
ranks pari passu with or junior in interest to the debentures, other than,
in each case as applicable:
- dividends or distributions in our capital stock;
- any declaration of a dividend in connection with the implementation of
a stockholders' rights plan, or the issuance of stock under a
stockholders' right plan in the future, or the redemption or repurchase
of any rights pursuant thereto;
- payments under the guarantee of the HIGH TIDES or the trust's common
securities;
- purchases or acquisitions of shares of our common stock in connection
with the satisfaction by us of our obligations under any employee
benefit plan or the exercise of any repurchase rights under any
employee benefit plan or any other contractual obligation, other than a
contractual obligation ranking expressly by its terms pari passu with
or junior to the debentures;
- the purchase of fractional shares resulting from a reclassification of
our capital stock or the exchange or conversion of one class or series
of our capital stock for another class or series of our capital stock;
or
- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged.
A deferral period will terminate upon the payment by us of all interest then
accrued and unpaid on the debentures, together with interest accrued thereon at
an annual rate equal to the applicable rate, compounded quarterly, to the extent
permitted by applicable law. Prior to the termination of any deferral period, we
may further extend the deferral period. However, the further deferral cannot
cause the deferral period to exceed 20 consecutive quarters or to extend beyond
(1) the maturity of the debentures whether at the stated maturity or by
declaration of acceleration, call for redemption or otherwise and (2) in the
case of a deferral period beginning prior to the reset date, the reset date.
Upon the termination of any deferral period, and subject to the foregoing
limitations, we may elect to begin a new deferral period. We need not pay any
interest during a deferral period, except at the end of the deferral period. We
must give the property trustee and the debenture trustee notice of our election
of any deferral period at least ten days prior to the record date for the
distributions on the HIGH TIDES that would have been payable except for the
election to begin or extend the deferral period. The debenture trustee will give
notice of our election to begin or extend a new deferral period to the holders
of the debentures. There is no limitation on the number of times that we may
elect to begin a deferral period.
We have no current intention of exercising our right to defer payments of
interest on the debentures.
REDEMPTION
REPAYMENT AT MATURITY; REDEMPTION OF CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES.
We must repay the debentures at their stated maturity on February 15, 2030
unless earlier redeemed. The circumstances in which we may, or we are required
to, redeem the debentures prior to their stated maturity are described below.
Upon the repayment in full at maturity or redemption, in whole or in part, of
the debentures, other than following the distribution of the debentures to the
holders of the HIGH TIDES and the trust's common securities, the trust will
concurrently apply the proceeds from the repayment or redemption to redeem, at
the applicable redemption price, a like amount of HIGH TIDES and its common
securities. See "Description of HIGH TIDES--Mandatory Redemption."
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OPTIONAL REDEMPTION
We will have the right to redeem the debentures (1) in whole or in part, at
any time on or after February 20, 2003 until, but excluding, the tender
notification date, upon not less than 20 nor more than 60 days' notice, at a
redemption price as set forth below, equal to the following prices per $50
principal amount of debentures plus any accrued but unpaid interest on the
portion being redeemed, if redeemed during the 12 month period up to but
excluding February 20:
<TABLE>
<CAPTION>
PRICE PER $50
PERIOD PRINCIPAL AMOUNT
- ------------------------------------------------ -----------------
<S> <C>
2004............................................ $ 50.72
2005............................................ $ 50.00
</TABLE>
(2) after the reset date (except in the event of a failed final remarketing), in
accordance with the term call protections, if any, established in the
remarketing; and (3) in whole or in part, at any time on or after the third
anniversary of the reset date following a failed final remarketing at a
redemption price equal to 100% of the then outstanding aggregate principal
amount of the debentures to be redeemed, plus any accrued and unpaid interest on
the portion being redeemed. The term "term redemption price" means any
redemption price established in the remarketing. The initial redemption price
and the term redemption price are each referred to as an optional redemption
price. The remarketing agent will establish term call protections, if any, in
the remarketing that when taken together with the term rate and the term
conversion ratio and price, if any, result in a price per HIGH TIDES equal to
101% of the liquidation amount thereof. However, we may not, at any time, redeem
the debentures for a price less than the aggregate principal amount thereof plus
any accrued and unpaid interest thereon.
In the event of any redemption in part, we will not be required to:
- issue, register the transfer of or exchange any debenture during a period
beginning at the opening of business 15 days before the date of mailing of
a notice of redemption of debentures selected for redemption and ending at
the close of business on the day of such mailing; and
- register the transfer of or exchange any debentures so selected for
redemption, in whole or in part, except the unredeemed portion of any
debenture being redeemed in part.
In no event will we optionally redeem the debentures during a deferral
period. Accordingly, prior to optionally redeeming the debentures, all interest
accrued and unpaid (together, in the case of a deferral period, with interest
thereon, to the extent permitted by law) to the interest payment date
immediately preceding the optional redemption date will be paid in full.
TAX EVENT REDEMPTION
We may also, under limited circumstances within 90 days of the occurrence
and continuation of a tax event, redeem the debentures in whole, but not in
part, at the aggregate principal amount of the debentures, plus any accrued and
unpaid interest. See "Description of HIGH TIDES--Tax Event or Investment Company
Event Redemption or Distribution."
If we are permitted to consummate a tax event redemption and we desire to do
so, we must cause a notice to be mailed to each holder of HIGH TIDES and each
holder of debentures at least 30 days but not more than 60 days before the
redemption date. In the event of a tax event redemption, you may convert your
HIGH TIDES, or debentures, if applicable, called for redemption into our common
stock at the applicable conversion ratio prior to 5:00 p.m., New York City time,
on the applicable redemption date.
OFFER TO REPURCHASE THE DEBENTURES
If the acquisition of Advanced Communication Systems is not consummated by
March 31, 2000, we will offer to purchase and the trust will accept such offer
and agree to sell debentures held by the trust
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in an amount equal to the total price to be paid by the trust for the HIGH TIDES
and the trust's common securities tendered to the trust pursuant to the
repurchase offer in an aggregate purchase price not to exceed 50% of the
aggregate liquidation amount of each of the HIGH TIDES and the trust's common
securities. See the section "Description of HIGH TIDES--Offer to Repurchase the
HIGH TIDES." We will purchase the debentures at a purchase price equal to 102.5%
of the principal amount of the debentures, plus any accrued and unpaid interest,
if any, to the date of the repurchase.
On the date that the tendered HIGH TIDES and the trust's common securities
are purchased by the trust, we will pay the trust an amount equal to the total
price paid by the trust for the tendered HIGH TIDES and the trust's common
securities in an aggregate amount not to exceed 50% of the aggregate liquidation
amount of each of the HIGH TIDES and the trust's common securities. This will be
in exchange for the debentures and such debentures will cease to be outstanding
on that date.
ADDITIONAL AMOUNTS
If (A) the property trustee is the sole holder of all the debentures and
(B) the trust is required to pay additional sums equal to any additional taxes,
duties, assessments or other governmental charges as a result of a tax event, we
will pay as additional amounts on the debentures those amounts as required so
that the distributions payable by the trust in respect of the HIGH TIDES and its
common securities will not be reduced as a result of any of those additional
sums.
RESTRICTIONS ON PAYMENTS
If (A) there has occurred and is continuing an event of default under the
indenture, (B) we are in default with respect to our payment of any obligations
under the guarantee of the HIGH TIDES or (C) we have given notice of our
election of a deferral period as provided in the indenture and have not
rescinded that notice, or the deferral period is continuing, we will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock (which includes common and preferred stock) other than stock
dividends paid by us which consist of stock of the same class as that on
which the dividend is being paid;
- make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any of our debt securities that rank pari passu with
or junior in interest to the debentures; or
- make any guarantee payments with respect to any guarantee by us of the
debt of any of our subsidiaries if such guarantee expressly ranks pari
passu with or junior in interest to the debentures in each case, other
than, in each case as applicable:
- dividends or distributions in our common stock;
- any declaration of a dividend in connection with the implementation of
a stockholders' rights plan, or the issuance of stock under a
stockholders' rights plan in the future, or the redemption or
repurchase of any rights pursuant thereto;
- payments under the guarantee of the HIGH TIDES;
- purchases or acquisitions of shares of our common stock in connection
with the satisfaction by us of our obligations under any employee
benefit plan or any other contractual obligation, other than a
contractual obligation ranking expressly by its terms pari passu with
or junior in interest to the debentures;
- the purchase of fractional shares resulting from a reclassification of
our capital stock or the exchange or conversion of one class or series
of our capital stock for another class or series of our capital stock;
or
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- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of the capital stock
or the security being converted or exchanged.
MODIFICATION OF INDENTURE
We and the debenture trustee may amend the indenture from time to time
without the consent of the holders of debentures for several reasons, including
(1) to cure ambiguities, defects or inconsistencies, if such action does not
materially adversely affect the interest of the holders of debentures or the
holders of the HIGH TIDES so long as they remain outstanding; or (2) to qualify
or maintain the qualification of, the indenture under the Trust Indenture Act.
We and the debenture trustee may amend the indenture in other respects with
the consent of the holders representing not less than a majority in principal
amount of debentures. However, without the consent of each holder of the
outstanding debentures as affected, no amendment may:
- change the reset date or any date specified in the indenture on which
interest on, or the principal, together with any accrued and unpaid
interest, of the debentures is due and payable or the stated maturity of
the debentures;
- reduce the principal amount of the debentures;
- reduce the rate or extend the time of payment of interest on the
debentures;
- reduce the percentage of principal amount of outstanding debentures the
consent of whose holders is required to amend, waive or supplement the
indenture; or
- have certain other effects as set forth in the indenture.
DEBENTURE EVENTS OF DEFAULT
Each of the following is an event of default with respect to the debentures:
- failure for 30 days to pay any interest on the debentures when due, except
in the case of permitted deferrals during a deferral period;
- failure to pay any principal or premium, if any, on the debentures when
due, whether at maturity, upon redemption, by declaration of acceleration
or otherwise;
- our continued failure for 60 days to observe or perform, in any material
respect, certain other covenants contained in the indenture after written
notice to us from the debenture trustee or the holders of at least 25% in
aggregate outstanding principal amount of the debentures;
- failure to issue and deliver shares of our common stock upon an election
by a holder of debentures to convert its debentures;
- certain events of bankruptcy, insolvency or reorganization of Titan or any
of its significant subsidiaries; or
- the voluntary or involuntary dissolution, winding-up or termination of the
trust, except in connection with the distribution of the debentures to the
holders of HIGH TIDES and the trust's common securities in liquidation of
the trust, the redemption of all of the HIGH TIDES and the trust's common
securities or certain mergers, consolidations or amalgamations, each as
permitted by the declaration of trust.
The holders of a majority in aggregate outstanding principal amount of the
debentures have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the debenture trustee. The debenture
trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the debentures may declare the principal due and payable immediately
upon an event of default described above. If the debenture trustee or the
holders of debentures fail to
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make the declaration, the holders of at least 25% in aggregate liquidation
amount of the HIGH TIDES will have the right to make the declaration. The
holders of a majority in aggregate outstanding principal amount of the
debentures may annul the declaration and waive the default if the default (other
than the non-payment of the principal of the debentures which has become due
solely by the acceleration) has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the debenture trustee. If the holders of
debentures fail to annul the declaration and waive the default, the holders of a
majority in aggregate liquidation amount of the HIGH TIDES will have the right
to make a declaration and waive the default.
The holders of a majority in aggregate outstanding principal amount of the
debentures affected may, on behalf of the holders of all the debentures, waive
any past default, except:
- a default in the payment of principal of or premium, if any, or interest
on the debentures unless we have cured the default and deposited with the
debenture trustee an amount sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration; or
- a default under a provision under the indenture that cannot be modified or
amended without the consent of the holder of each outstanding debenture.
We are required to file annually with the debenture trustee a certificate as
to whether or not we are in compliance with all the conditions and covenants
applicable to us under the indenture.
If an event of default under the indenture exists and the property trustee
holds the debentures, then the property trustee has the right to declare the
principal of and the interest on the debentures, and any other amounts payable
under the indenture, to be immediately due and payable and to enforce its other
rights as a creditor with respect to the debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF HIGH TIDES
If an event of default under the indenture exists and the event is
attributable to our failure to pay interest or principal on the debentures on
the date the interest or principal is due, you may institute a direct action
against us for payment. We may not amend the indenture to remove the foregoing
right to bring a direct action against us unless we have received the prior
written consent of the holders of all of the HIGH TIDES. If the right to bring a
direct action against us is removed, the trust may become subject to the
reporting obligations under the Securities Exchange Act of 1934. Our payment to
a holder of HIGH TIDES in connection with a direct action will not affect our
obligation to pay the principal of and interest on the debentures. We will be
subrogated to the rights of the holder of the HIGH TIDES with respect to
payments on the HIGH TIDES to the extent of any payments made by us to the
holder in any direct action.
You will not be able to exercise directly any remedies, other than those set
forth in the preceding paragraph, available to the holders of the debentures
unless there was an event of default under the declaration of trust. See
"Description of HIGH TIDES--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not merge, consolidate, transfer or lease our properties and assets
substantially as an entirety to any person other than a wholly owned subsidiary,
and no person may merge, consolidate, or transfer or lease its properties and
assets substantially as an entirety to us, unless:
- in case we consolidate with or merge with or into another person or
convey, transfer or lease our properties and assets substantially as an
entirety to any person other than a wholly owned subsidiary, the successor
person is organized and validly existing under the laws of the United
States or any state of the United States or the District of Columbia, and
the successor person
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expressly assumes our obligations on the debentures issued under the
indenture and provides for conversion rights in accordance with the
indenture;
- immediately after giving effect to the transaction, no event of default
under the debentures and no event which, after notice or lapse of time or
both, would become an event of default under the debentures, exists;
- if at the time any HIGH TIDES are outstanding, the transaction is
permitted under the declaration of trust and the guarantee relating to the
HIGH TIDES, and does not give rise to any breach or violation of the
declaration of trust or the guarantee; and
- certain other conditions as prescribed in the indenture are met.
The general provisions of the indenture do not afford holders of the
debentures protection in the event of a highly leveraged or other transaction
involving us that may adversely affect holders of the debentures.
SUBORDINATION
All debentures issued under the indenture will be subordinate and junior in
right of payment only to all of our Secured Debt. Upon any payment or
distribution of our assets to creditors upon any liquidation, dissolution,
winding-up, assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency or similar proceedings relating to Titan, the holders of
any of our Secured Debt will first be entitled to receive payment of that debt
in full before the holders of debentures, or the property trustee (or any other
person or entity) on behalf of the holders, will be entitled to receive or
retain any payment or distribution in respect of the debentures.
If the maturity of the debentures is accelerated, the holders of any of our
Secured Debt outstanding at the time of the acceleration will first be entitled
to receive payment of that debt in full (including any amounts due upon
acceleration) before the holders of the debentures will be entitled to receive
or retain any payment or distribution in respect of the debentures.
In the event that:
- we default in the payment of any principal of, premium, if any, interest
on, or any other amount with respect to, any of our Secured Debt when the
same becomes due and payable (a "payment default"), whether at maturity or
at a date fixed for prepayment or by declaration of acceleration or
otherwise; and
- such payment default continues beyond the period of grace, if any,
specified in the instrument evidencing such debt;
then, unless and until the default is cured or waived or ceases to exist or
any of our Secured Debt is paid in full, no direct or indirect payment or
distribution (in cash, property, securities, by set-off or otherwise) will be
made or agreed to be made for or in respect of the debentures, or in respect of
any redemption, repayment, retirement, purchase or other acquisition of any of
the debentures. We will also not be permitted to make or agree to make any such
payment or distribution if the maturity of any such debt has been accelerated
because of a default.
The term "Credit Agreement" means the Amended and Restated Credit Agreement
dated as of June 9, 1999, among us, as the borrower, the various financial
institutions from time to time that are parties thereto, as lenders, The Bank of
Nova Scotia, as lead manager and administrative agent, and Imperial Bank, as the
document agent, as amended, any credit agreement evidencing the credit
facilities that are substantially described in the commitment letter dated
January 27, 2000 from Credit Suisse First Boston, New York branch, and First
Union National Bank to us, as any such agreement may be amended from time to
time, and any other secured debt facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, working capital loans
or letters of
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credit, in each case, including any related notes, guarantees, collateral
documents, swap arrangements, instruments and agreements entered into in
connection therewith, and as such credit agreements and related documents may be
amended, restated, supplemented, renewed, replaced, refinanced or otherwise
modified from time to time whether or not with the same agent, lender or group
of lenders and whether with the same borrowers or guarantors.
The term "Secured Debt" means (1) Debt under the Credit Agreement and
(2) any other Debt that by its terms is secured by any lien, pledge, charge,
encumbrance, mortgage, deed of trust, hypothecation, assignment or security
interest with respect to assets having or intended to have a fair market value
at the time of the grant thereof (in the judgment of the board of directors, our
chief financial officer or other responsible agent or officer of Titan) equal to
not less than the amount of such Debt.
The term "Debt" means:
- the principal of, and premium and interest, if any, on indebtedness for
money borrowed;
- purchase money and similar obligations;
- obligations under capital leases;
- guarantees, assumptions or purchase commitments relating to, or other
transactions as a result of which we are responsible for the payment of
the indebtedness of others;
- renewals, extensions and refunding of any indebtedness;
- interest or obligations in respect of any indebtedness accruing after the
commencement of any insolvency or bankruptcy proceedings; and
- obligations associated with derivative products such as interest rate and
currency exchange contracts, foreign exchange contracts, commodity
contracts and similar arrangements.
The indenture places no limitation on the amount of debt, including Secured
Debt, that may be incurred by us. We expect from time to time to incur
additional indebtedness constituting Secured Debt. At January 21, 2000, we had
$141 million of indebtedness under our Credit Agreement. The indenture also
places no limitation on the debt of our subsidiaries, which effectively ranks
senior in right of payment to the debentures.
REGISTRATION AND TRANSFER
The debentures will be represented by one or more global certificates
registered in the name of Cede & Co. as the nominee of DTC if, and only if,
distributed to the holders of the HIGH TIDES and the trust's common securities.
Until that time, the debentures will remain registered in the name of and held
by the property trustee. If the debentures are distributed to holders of the
HIGH TIDES and the trust's common securities, beneficial interests in the
debentures will be shown on, and transfers of debentures will be effected only
through, records maintained by participants in DTC. Except as described below,
debentures in certificated form will not be issued in exchange for the global
certificates.
A global security will be exchangeable for debentures in certificated form
registered in the names of persons other than Cede & Co. only if:
- DTC notifies us that it is unwilling or unable to continue as a depositary
for the global security and no successor depositary has been appointed, or
if at any time DTC ceases to be a "clearing agency" registered under the
Securities Exchange Act of 1934, at a time when DTC is required to be so
registered to act as the depositary;
- we, in our sole discretion, determine that the global security will be so
exchangeable; or
- there has occurred and is continuing an event of default under the
indenture.
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In the case of debentures issued in certificated form, the transfer of the
debentures will be registrable, and debentures will be exchangeable for
debentures of other denominations of a like aggregate principal amount, at the
corporate office of the debenture trustee in New York, New York, or at the
offices of any paying agent or transfer agent appointed by us, provided that
payment of interest may be made at our option by check mailed to the address of
the persons entitled thereto or by wire transfer.
For a description of DTC and the terms of the depositary arrangements
relating to payments, transfers, voting rights, redemptions and other notices
and other matters, see "Description of HIGH TIDES--Depositary Procedures." If
the debentures are distributed to the holders of the HIGH TIDES and the trust's
common securities upon the trust's termination, the form, book-entry and
transfer procedures with respect to the HIGH TIDES as described under
"Description of HIGH TIDES--Depositary Procedures," will apply to the debentures
with such changes to the details of the procedures as are necessary.
PAYMENT AND PAYING AGENTS
Payments on debentures held in global form will be made to DTC as the
depositary for the debentures. In the case of debentures issued in certificated
form, principal and interest payments on the debentures will be made at the
office or agency we maintain for that purpose in New York, New York, in the coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. However, at our option, payment
of interest may be made, except in the case of debentures that are held in
global form, by check mailed to each registered holder or by wire transfer.
Subject to our right to defer interest payments on the debentures, payment of
any interest on the debentures will be made to the person in whose name the
debentures are registered at the close of business on the record date for that
interest payment date, except in the case of defaulted interest.
GOVERNING LAW
The indenture and the debentures will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee will be subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to those provisions, the debenture trustee is under no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of debentures, unless offered reasonable indemnity by the holder against
the costs, expenses and liabilities that it might incur by doing so. The
debenture trustee is not required to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties if the debenture
trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
DESCRIPTION OF THE GUARANTEE
When the HIGH TIDES are issued, we will execute and deliver a guarantee for
the benefit of the holders of the HIGH TIDES. Wilmington Trust Company will act
as guarantee trustee under the guarantee. The guarantee will be qualified under
the Trust Indenture Act upon the effectiveness of the shelf registration
statement. This summary of certain provisions of the guarantee is not complete.
For a complete description of the guarantee, we encourage you to read the
guarantee. The guarantee trustee will hold the guarantee for the benefit of the
holders of the HIGH TIDES. Unless the context requires otherwise, "Titan," "we,"
"us," "our" or similar terms in this section refer solely to Titan Corporation
and not the trust or any of our other consolidated subsidiaries.
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GENERAL
Pursuant to the guarantee, we will irrevocably agree to make guarantee
payments to you, as and when due, regardless of any defense, right of set-off or
counterclaim that the trust may have or assert other than the defense of
payment. The guarantee covers the following payments with respect to the HIGH
TIDES, to the extent not paid by or on behalf of the trust:
- any accrued and unpaid distributions required to be paid on the HIGH
TIDES, to the extent that the trust has funds on hand available at that
time;
- the applicable redemption price of any HIGH TIDES called for redemption,
to the extent that the trust has funds on hand available at that time; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust unless the debentures are distributed to you or all the HIGH
TIDES are redeemed, the lesser of:
- the liquidation distribution, to the extent the trust has funds
available at that time; or
- the amount of assets of the trust remaining available for distribution
to you upon liquidation of the trust after satisfaction of liabilities
to the trust's creditors as required by applicable law.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to you or by causing the trust to pay
those amounts to you.
The guarantee will be an irrevocable guarantee on a subordinated basis of
the trust's obligations under the HIGH TIDES, but applies only to the extent
that the trust has funds sufficient to make the required payments. If we do not
make interest payments on the debentures held by the trust, the trust will not
be able to pay distributions on the HIGH TIDES and will not have funds legally
available for the distributions.
The guarantee will rank subordinate and junior only in right of payment to
all of our Secured Debt. In addition, our obligations under the guarantee will
be effectively subordinated to all existing and future liabilities of our
subsidiaries. The guarantee does not limit the incurrence or issuance of other
secured or unsecured debt by us or by our subsidiaries.
STATUS OF THE GUARANTEE
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior only in right of payment to all of our Secured Debt in
the same manner as the debentures.
The guarantee will constitute a guarantee of payment and not of collection
(i.e., you may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
any other person or entity). The guarantee will be held for your benefit. The
guarantee will not be discharged except in the circumstances described under
"--Termination of the Guarantee." The guarantee places no limitation on the
amount of debt, including Secured Debt, that may be incurred by us. We expect
from time to time to incur additional indebtedness constituting Secured Debt.
AMENDMENTS AND ASSIGNMENT
The guarantee may not be amended without the prior approval of the holders
of not less than a majority of the aggregate liquidation amount of the
outstanding HIGH TIDES, except that no approval is required for changes that do
not materially adversely affect your rights. The manner of obtaining such
approval will be as set forth under "Description of HIGH TIDES--Voting Rights;
Amendment of the Declaration." All guarantees and agreements contained in the
guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the HIGH TIDES
then outstanding.
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EVENTS OF DEFAULT
We will be in default under the guarantee if we do not make required
payments when due or if we fail to perform other obligations and we do not cure
our failure to perform within 60 days after we receive notice of our failure.
The holders of not less than a majority in aggregate liquidation amount of the
HIGH TIDES have the right:
- to direct the time, method and place of conducting any proceeding for any
remedy available to the guarantee trustee in respect of the guarantee; or
- to direct the exercise of any trust or power conferred upon the guarantee
trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the trust, the guarantee trustee or any other person or entity.
As guarantor, we are required to file annually with the guarantee trustee a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee undertakes to perform only those duties as are
specifically set forth in the guarantee, unless we are in default in performing
the guarantee. When we are in default under the guarantee, the guarantee trustee
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the guarantee trustee is under no obligation to exercise any of the
powers vested in it by the guarantee at the request of any holder of the HIGH
TIDES unless it is offered reasonable indemnity against the costs, expenses and
liabilities that it might incur by doing so.
TERMINATION OF THE GUARANTEE
The guarantee will terminate as to you upon:
- full payment of the redemption price of the HIGH TIDES held by you and any
accrued and unpaid distributions;
- distribution of the debentures held by the trust to you;
- full payment of amounts payable under the declaration of trust upon the
trust's liquidation; or
- distribution of our common stock to you in respect of the conversion of
your HIGH TIDES into common stock.
The guarantee will terminate completely upon full payment of the amounts
payable in accordance with the declaration of trust. The guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of the HIGH TIDES must restore payment of any sums paid under the HIGH
TIDES or the guarantee.
GOVERNING LAW
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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RELATIONSHIP AMONG THE HIGH TIDES, THE CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
We will irrevocably guarantee payments of distributions and other amounts
due on the HIGH TIDES (to the extent the trust has funds available for the
payment of those distributions) as and to the extent set forth under
"Description of the Guarantee." Taken together, our obligations under the
debentures, the indenture, the declaration of trust and the guarantee, including
our obligation to pay the trust's costs, expenses and other liabilities (other
than the trust's obligations to the holders of the HIGH TIDES and its common
securities pursuant to the terms of those securities) provide in the aggregate,
a full, irrevocable and unconditional guarantee of all of the trust's
obligations under the HIGH TIDES. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes the full
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the HIGH TIDES and its common securities.
If and to the extent that we do not make payments on the debentures, the
trust will not pay distributions or other amounts due on the HIGH TIDES. The
guarantee does not cover payment of distributions when the trust does not have
sufficient funds to pay those distributions. In that event, your remedy is to
institute a direct action against us. Our obligations under the guarantee are
subordinate and junior only in right of payment to all of our Secured Debt.
Unless the context requires otherwise, "Titan," "we," "us," "our" or similar
terms in this section refer solely to Titan Corporation and not the trust or any
of our other consolidated subsidiaries.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
debentures, the payments will be sufficient to cover distributions and other
payments due on the HIGH TIDES. This is primarily because:
- the aggregate principal amount or applicable redemption price of the
debentures will be equal to the sum of the aggregate liquidation amount or
applicable redemption price, as applicable, of the HIGH TIDES and the
trust's common securities;
- the applicable rate and interest and other payment dates on the debentures
will match the distribution rate and distributions and other payment dates
for the HIGH TIDES;
- we will pay for all of the trust's costs, expenses and liabilities except
the trust's obligations to holders of HIGH TIDES and its common securities
pursuant to the terms of those securities; and
- the declaration of trust provides that the trust will not engage in any
activity that is not consistent with the limited purposes of the
declaration of trust.
We have the right to set off any payment we are otherwise required to make
under the indenture with and to the extent we have already made, or are
concurrently on the date of that payment making, any payment under the guarantee
used to satisfy the related payment of indebtedness under the indenture.
ENFORCEMENT RIGHTS OF HOLDERS OF HIGH TIDES
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the guarantee trustee, the trust or any other person or entity.
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A default or event of default under any Secured Debt would not constitute a
default or event of default under the declaration of trust. However, in the
event of payment and certain other defaults under, or acceleration of, Secured
Debt, the subordination provisions of the indenture provide that no payments may
be made in respect of the debentures until the Secured Debt has been paid in
full or the payment or other default under any Secured Debt has been cured or
waived. Failure to make required payments on debentures would constitute an
event of default under the declaration of trust.
LIMITED PURPOSE OF THE TRUST
The HIGH TIDES evidence an undivided beneficial ownership interest in the
assets of the trust, and the trust exists for the sole purpose of issuing the
HIGH TIDES and the trust's common securities and investing the proceeds of the
HIGH TIDES and the trust's common securities in the debentures and engaging in
only those other activities necessary, convenient or incidental to those
purposes.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the trust involving the liquidation of the debentures, after satisfaction of the
liabilities of the creditors of the trust as required by applicable law, you and
the holders of the trust's common securities will be entitled to receive, out of
the trust's assets held, the liquidation distribution in cash. See "Description
of HIGH TIDES -- Liquidation of the Trust and Distribution of Convertible Senior
Subordinated Debentures." If we become subject to any voluntary or involuntary
liquidation or bankruptcy, the property trustee, as holder of the debentures,
would be one of our subordinated creditors. The property trustee would be
subordinated in right of payment to all of our Secured Debt as set forth in the
indenture, but entitled to receive payment in full of principal and interest,
before any of our stockholders receive payments or distributions. We are the
guarantor under the guarantee and have agreed to pay for all of the trust's
costs, expenses and liabilities other than the trust's obligations to the
holders of its HIGH TIDES and common securities. Accordingly, in the event of
our liquidation or bankruptcy, the positions of a holder of HIGH TIDES and a
holder of debentures are expected to be substantially the same relative to our
other creditors and to our stockholders.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock as of January 14, 2000 consisted of:
- 100,000,000 shares of common stock, par value $.01 per share, of which
45,407,090 shares are issued and outstanding; and
- 2,500,000 shares of preferred stock, par value $1.00 per share, of which
1,068,102 shares have been designated as $1.00 cumulative convertible
preferred stock, of which 694,872 are issued and outstanding, and
250,000 shares have been designated as series A junior participating
preferred stock, none of which is issued and outstanding.
We have reserved for issuance under our 1990, 1994 and 1997 Stock Option
Plans and our 1996 Directors' Stock Option and Equity Participation Plan a total
of 7,125,000 shares of common stock of which 2,862,518 shares were covered by
outstanding options as of January 20, 2000. We also have 500,000 shares of
common stock reserved for issuance under our Employee Stock Purchase Plan of
which 241,625 shares were issued and outstanding as of January 20, 2000 and
1,000,000 shares of common stock reserved for issuance under our Employee Stock
Ownership Plan of which 364,637 shares were issued and outstanding as of
January 24, 2000.
On December 9, 1999, we entered into an agreement to acquire Advanced
Communication Systems, Inc. The aggregate number of shares of our common stock
that we will issue in exchange for shares of Advanced Communication Systems
common stock will be determined at the time of the
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acquisition according to a formula contained in the acquisition agreement. Based
on the number of outstanding shares of our common stock and Advanced
Communication Systems common stock as of January 20, 2000, we would issue
5,478,600 shares in the acquisition if our average stock price used to calculate
the exchange ratio is greater than $32.50 but less than or equal to $35.75 and
6,982,232 shares in the acquisition if our stock price used to calculate the
exchange ratio is at least $22.95 but less than $25.50.
The following summary describes the material terms of our capital stock and
stockholder rights plan. The description of capital stock and stockholder rights
plan is qualified by reference to our certificate of incorporation, as amended,
bylaws and stockholder rights plan.
COMMON STOCK
DIVIDENDS. Subject to the right of the holders of any class of preferred
stock, holders of shares of our common stock are entitled to receive dividends
that may be declared by our board of directors out of legally available funds.
No dividend may be declared or paid in cash or property on any share of any
class of common stock unless simultaneously the same dividend is declared or
paid on each share of that and every other class of common stock; provided,
that, in the event of stock dividends, holders of a specific class of common
stock shall be entitled to receive only additional shares of that class.
VOTING RIGHTS. Holders of our common stock are entitled to one vote for
each share held. Holders do not have cumulative voting rights.
LIQUIDATION RIGHTS. Upon our liquidation, dissolution or winding-up, the
holders of our common stock are entitled to share ratably in all assets
available for distribution after payment in full to creditors and holders of our
preferred stock, if any.
OTHER PROVISIONS. The holders of our common stock are not entitled to
preemptive or similar rights.
PREFERRED STOCK
We are authorized to issue 2,500,000 shares of preferred stock, par value
$1.00 per share. Our board of directors, in its sole discretion, may designate
and issue one or more series of preferred stock from our authorized and unissued
shares of preferred stock. Subject to limitations imposed by law or our amended
and restated articles of incorporation, the board of directors is empowered to
determine:
- the designation of and the number of shares constituting a series of
preferred stock;
- the dividend rate, if any, for the series;
- the terms and conditions of any voting and conversion rights for the
series, if any;
- the number of directors, if any, which the series shall be entitled to
elect;
- the amounts payable on the series upon our liquidation, dissolution or
winding-up;
- the redemption prices and terms applicable to the series, if any; and
- the preferences and relative rights among the series of preferred stock.
Theses rights, preferences, privileges and limitations of preferred stock could
adversely affect the rights of holders of our common stock.
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CUMULATIVE CONVERTIBLE PREFERRED STOCK
DIVIDENDS. Each share of cumulative convertible preferred stock accrues
dividends at the rate of $1.00 per share per annum.
VOTING RIGHTS. Holders of our cumulative convertible preferred stock are
entitled to one-third of one vote for each share held. Holders do not have
cumulative voting rights.
LIQUIDATION RIGHTS. Upon our liquidation, dissolution or winding-up, the
holders of our cumulative convertible preferred stock are entitled to a
liquidation preference of $20 per share plus any unpaid cumulative dividends
before any distribution to holders of our common stock.
CONVERSION RIGHTS. Each outstanding share of cumulative convertible
preferred stock is convertible into our common stock, at the option of the
holder, at a rate of two-thirds shares of common stock for each share of
cumulative convertible preferred stock.
REDEMPTION. Each share of cumulative convertible preferred stock is
redeemable, but only at our option, at a redemption price of $20 per share plus
any accrued and unpaid dividends.
OTHER PROVISIONS. The holders of our cumulative convertible preferred stock
are not entitled to preemptive or similar rights.
PREFERRED SHARE PURCHASE RIGHTS
Each outstanding share of our common stock has or will have attached to it
one preferred share purchase right, which we refer to as a right. Each right
entitles the registered holder of common stock to purchase from us, upon the
occurrence of specified events, one one-hundredth of a share of our series A
junior participating preferred stock, which we refer to as the participating
preferred shares, at a price of $42 per one one-hundredth of a participating
preferred share, subject to adjustment. The terms of the rights are set forth in
a rights agreement dated as of August 21, 1995 between us and American Stock
Transfer and Trust Company, as rights agent.
Until the distribution date described below, we will not issue separate
certificates evidencing the rights. Until that date, the rights will be
evidenced, with respect to any common stock certificate, by that common stock
certificate. The rights will detach from the common stock and a distribution
date will occur upon the earlier of the following dates:
- subject to the exceptions described below, the tenth day following a
public announcement that an "acquiring person," which, subject to the
exceptions listed in the following sentence, includes a person or "group"
of affiliated or associated persons, has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of our outstanding common
stock, or
- the tenth day following the commencement, or the first public announcement
by any person or group of an intention to commence, a tender offer or
exchange offer that would result in beneficial ownership by a person or
group of 15% or more of our outstanding common stock.
Our board of directors, with the concurrence of a majority of the continuing
directors, may postpone the distribution date by determining a later
distribution date before the time any person or group becomes an acquiring
person. Any board member who is not an acquiring person or an affiliate or
associate of an acquiring person, or an employee, director, representative,
nominee or designee of an acquiring person, or its affiliate or associate, but
who:
- was a member of our board of directors before any person becomes an
acquiring person or
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- became a member of our board of directors after any person becomes an
acquiring person if the member was nominated for election or elected to
our board of directors upon the recommendation or approval of a majority
of the continuing directors,
is considered to be a continuing director of Titan.
The term "acquiring person" does not include us, any of our subsidiaries,
any employee benefit plan of ours or of any of our subsidiaries, any entity
holding our common stock for or under an employee benefit plan of ours or any of
our subsidiaries. In addition, a person who would otherwise be an acquiring
person will not be considered an acquiring person if our board of directors
determines in good faith that such person inadvertently became the beneficial
owner of 15% or more of our common stock and such person divests itself, as
promptly as practicable, of beneficial ownership of a sufficient number of
shares of our common stock so that it would no longer otherwise qualify as an
acquiring person.
The rights agreement provides that, until the distribution date, or earlier
redemption or expiration of the rights, the rights will be transferred only with
our common stock. The rights will be evidenced, with respect to any common stock
certificate outstanding as of September 7, 1995, by that common stock
certificate with a summary of the rights attached to it. Until the distribution
date, or earlier redemption or expiration of the rights, new common stock
certificates issued after September 7, 1995 upon transfer or new issuances of
common stock will contain a notation incorporating the rights agreement by
reference. Until the distribution date, the surrender for transfer of any
certificates for common stock, even without a summary of the rights attached to
it, also will constitute the transfer of the rights associated with the common
stock represented by that certificate. As soon as practicable after the
distribution date, separate certificates evidencing the rights will be mailed to
holders of record of our common stock as of the close of business on the
distribution date, and the separate right certificates alone will evidence the
rights. Only our common stock issued before the distribution date will be issued
with rights.
The rights are not exercisable until the distribution date. The rights will
expire on August 17, 2005, unless the expiration date is extended or unless the
rights are earlier redeemed or exchanged by us, in each case as described below.
The purchase price payable for the participating preferred shares, and the
number of participating preferred shares or other securities or property
issuable, upon exercise of the rights, as well as the number of rights
outstanding, are subject to adjustment from time to time to prevent dilution in
the following circumstances:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of the participating preferred shares,
- upon the grant to holders of the participating preferred shares of rights
or warrants to subscribe for or purchase participating preferred shares at
a price, or securities convertible into participating preferred shares
with a conversion price, less than the current market price of the
participating preferred shares, or
- upon the distribution to holders of the participating preferred shares of
evidences of indebtedness, securities or assets, excluding regular
periodic cash dividends at a rate not in excess of 125% of the last cash
dividend paid or, in the case that regular cash dividends have not been
paid, at a rate not in excess of 50% of the average net income per share
of the four quarters ended immediately before the payment of the dividend,
or dividends payable in participating preferred shares or of subscription
rights or warrants, other than those referred to above.
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The number of outstanding rights and the number of one one-hundredths of a
participating preferred share issuable upon exercise of each right are also
subject to adjustment in the event of a dividend or other distribution on the
common stock payable in common stock or subdivisions, consolidations or
combinations of our common stock occurring, in any of those cases, before the
distribution date.
Participating preferred shares purchasable upon exercise of the rights will
not be redeemable. Each participating preferred share will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share, but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of our common stock. If there is a liquidation, the holders of the participating
preferred shares will be entitled to a minimum preferential liquidation payment
of $100 per share, but will be entitled to an aggregate payment of 100 times the
payment made per share of our common stock. Each participating preferred share
will have 100 votes, voting together with our common stock. If there is a
merger, consolidation or other transaction in which our common stock is
exchanged, each participating preferred share will be entitled to receive 100
times the amount received per share of our common stock. These rights are
protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
participating preferred shares, the value of the one one-hundredth interest in a
participating preferred share purchasable upon exercise of each right should
approximate the value of one share of our common stock.
If any person or group becomes an acquiring person, except pursuant to
specified cash offers for all outstanding shares of our common stock approved by
our board of directors, or if we are the surviving corporation in a merger with
an acquiring person or any affiliate or associate of an acquiring person and our
common stock is not changed or exchanged, proper provision will be made so that
each holder of a right, other than rights beneficially owned by the acquiring
person, which will become null and void, will have the right to receive upon
exercise of the right at the then-current market price, instead of participating
preferred shares, that number of shares of our common stock having a market
value of two times the exercise price of the right. If we do not have sufficient
common stock issued but not outstanding, or authorized but unissued, to permit
the exercise in full of the rights, we will be required to take all action
necessary to authorize additional common stock for issuance upon exercise of the
rights. If, after a good-faith effort, we are unable to take all necessary
action, we will substitute, for each share of common stock that would otherwise
be issuable upon exercise of a right, a number of participating preferred
shares, or fractional participating preferred shares, with the same market value
as that share of common stock.
If, after a person or group has become an acquiring person, we are acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision will be made so
that each holder of a right, other than rights beneficially owned by the
acquiring person, which will become null and void, will have the right to
receive, upon the exercise of the right at its then-current exercise price and
instead of participating preferred shares, that number of shares of common stock
of the acquiring company, or its parent, which at the time of the transaction
will have a market value of two times the exercise price of the right.
The exercise price of a right at any date will be equal to the purchase
price at that date multiplied by the number of one one-hundredths of a
participating preferred share for which a right is exercisable at that date.
At any time after any person or group becomes an acquiring person and before
the acquisition by that person or group of 50% or more of our outstanding common
stock, our board of directors may exchange the rights, in whole or in part, for
a number of shares of our common stock, per right, having an aggregate value
equal to the excess of the value of the shares of our common stock issuable upon
exercise of a right after a person or group becomes an acquiring person over the
purchase price, subject to adjustment. Our board of directors will not exchange
the rights owned by the acquiring person or group, which will have become null
and void.
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With specified exceptions, no adjustments in the purchase price for the
preferred shares will be required until cumulative adjustments require an
adjustment of at least 1% of that purchase price. No fractional participating
preferred shares will be issued, other than fractions which are integral
multiples of one one-hundredth of a participating preferred share, which may, at
our election, be evidenced by depositary receipts. Instead of issuing fractional
participating preferred shares, we will make an adjustment in cash based on the
market price of the participating preferred shares on the last trading day
before the date of exercise.
Upon approval by our board of directors, we may redeem the rights, in whole,
but not in part, at a price of $.01 per right at any time until ten days
following the public announcement that a person or group has become an acquiring
person. Our board of directors, with the concurrence of a majority of the
continuing directors, may extend the period during which the rights are
redeemable beyond the ten days following the public announcement that a person
or group has become an acquiring person. Under circumstances described in the
rights agreement, the decision to redeem will require the concurrence of a
majority of the continuing directors. Immediately upon the determination of our
board of directors to redeem the rights, we will make an announcement of the
redemption. Upon the redemption, the right to exercise the rights will terminate
and the only right of right holders will be to receive the redemption price.
Until a right is exercised, the holder of the right, in the capacity of a
holder, will have no rights as a stockholder of ours, including, without
limitation, the right to vote or to receive dividends. Although the distribution
of the rights will not be taxable to stockholders or to us, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
rights become exercisable for our common stock or other consideration, or for
common stock of the acquiring company or its parent as set forth above.
Any of the provisions of the rights agreement may be amended or supplemented
by our board of directors before the distribution date. From and after the
distribution date, we and the rights agent may amend or supplement the rights
agreement from time to time without the approval of any holders of rights
- to cure any ambiguity, to correct or supplement any defective or
inconsistent provisions,
- to shorten or lengthen any time period under the rights agreement relating
to when the rights may be redeemed, so long as, under specified
circumstances, a majority of the continuing directors approve the
shortening or lengthening, or
- to make any other provisions with respect to the rights which we and the
rights agent may deem necessary or desirable.
Notwithstanding this right to amend or supplement, from and after the
distribution date, the rights agreement may not be amended in any manner which
would adversely affect the interest of the holders of rights.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to section 203 of the Delaware General Corporation Law,
which, with specified exceptions, prohibits a Delaware corporation from engaging
in any "business combination" with any "interested stockholder" for a period of
three years following the time that the stockholder became an interested
stockholder unless:
- before that time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
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- upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will he tendered in a tender or exchange
offer; or
- at or after that time, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Section 203 defines "business combination" to include the following:
- any merger or consolidation of the corporation with the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to specified exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- any receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by that entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following, in the opinion of Cooley Godward LLP, counsel to Titan and
the trust, is a summary of the material United States federal income tax
consequences of the purchase, ownership, disposition, and conversion of HIGH
TIDES and our common stock by persons that acquire HIGH TIDES pursuant to the
initial offering at their original offering price. Unless otherwise stated, this
summary deals only with HIGH TIDES and Titan's common stock held as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended, by United States persons which, as defined in the Internal Revenue
Code, include any beneficial owners, that are, for United States federal income
tax purposes:
- citizens or residents of the United States;
- corporations or partnerships created or organized in or under the law of
the United States, any state thereof or the District of Columbia (other
than partnerships that are not treated as a United States person under any
applicable Treasury regulations);
- estates, the income of which is subject to United States federal income
taxation regardless of its source;
- trusts if (A) a court within the United States is able to exercise primary
supervision over the administration of the trust and (B) one or more
United States persons have the authority to control all substantial
decisions of the trust; or
- otherwise subject to United States federal income taxation on a net income
basis in respect of the HIGH TIDES or common stock.
This summary does not deal with special classes of holders such as:
- banks, thrifts and other financial institutions;
- real estate investment trusts and regulated investment companies;
- insurance companies;
- dealers in securities or currencies;
- tax-exempt investors;
- foreign investors;
- persons holding HIGH TIDES as part of a straddle or as part of a hedging
or conversion transaction or other integrated investment;
- persons that have a functional currency other than the U.S. dollar; or
- persons who are subject to the United States federal alternative minimum
tax.
Nor does this summary discuss the tax consequences to shareholders, partners or
beneficiaries of a holder of HIGH TIDES or Titan's common stock. Further, this
summary does not include any description of the tax laws of any state or local
government or of any foreign government that may be applicable to the HIGH TIDES
or Titan's common stock.
This summary is based on the Internal Revenue Code, the Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as of the date hereof, and all of which are subject to change, possibly on a
retroactive basis. The authorities on which this summary is based are subject to
various interpretations, and it is therefore possible that the federal income
tax treatment of the ownership and disposition of HIGH TIDES may differ from the
treatment described
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below. Neither the trust nor Titan has sought, nor will either seek, a ruling
from the Internal Revenue Service (the "IRS") on the U.S. federal tax
consequences described in this summary, and it is possible that the IRS could
take a position contrary to the interpretations herein.
IN PART BECAUSE OF THE UNCERTAINTIES CONCERNING THE PROPER TAX TREATMENT OF
HIGH TIDES AS DISCUSSED BELOW, IT IS PARTICULARLY IMPORTANT THAT YOU CONSULT
WITH YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME,
AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, DISPOSITION AND
CONVERSION OF THE HIGH TIDES AND THE OWNERSHIP AND DISPOSITION OF TITAN'S COMMON
STOCK.
CLASSIFICATION OF THE TRUST AS A GRANTOR TRUST
In connection with the issuance of the HIGH TIDES, Cooley Godward LLP will
render its opinion that, under current law, assuming full compliance with the
terms of the declaration of trust, the indenture and certain other documents,
and based on certain facts and assumptions contained in such opinion, the trust
will be classified for United States federal income tax purposes as a grantor
trust and not as a partnership, an association or a publicly traded partnership
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of HIGH TIDES generally will be considered the owner of an
undivided interest in the debentures issued by us to the trust, and each holder
will be required to include in its gross income all income or gain with respect
to its allocable share of those debentures, including original issue discount
(if any), whether or not cash is actually distributed to the holder.
CLASSIFICATION OF THE DEBENTURES AS INDEBTEDNESS
Titan intends to take the position that the debentures will be classified
for United States federal income tax purposes as indebtedness of Titan. By
acceptance of the HIGH TIDES, each holder covenants to treat the debentures as
indebtedness and the HIGH TIDES as evidence of an indirect beneficial ownership
interest in the debentures. No assurance can be given, however, that the
classification of the debentures as indebtedness will not be challenged by the
IRS, or if challenged, that such a challenge will not be successful. The
remainder of this discussion assumes that the debentures will be classified as
indebtedness of Titan for United States federal income tax purposes.
TAX TREATMENT OF DEBENTURES AS RESET BONDS
Because no debt instrument closely comparable to the debentures has been the
subject of any Treasury regulation, revenue ruling or judicial decision, the
United States federal income tax treatment of debt obligations such as the
debentures is not certain. We intend to treat the debentures for United States
federal income tax purposes as "reset bonds" under Treasury regulations relating
to variable rate debt instruments. Assuming the debentures are reset bonds, they
will be treated, solely for purposes of the original issue discount rules of the
Internal Revenue Code, as maturing on the date immediately preceding the reset
date for the reset price and, if the remarketing agent remarkets the HIGH TIDES,
as being reissued on the reset date at the reset price.
There can be no assurance that the Internal Revenue Service will agree with,
or that a court would uphold, the treatment of the debentures as reset bonds. In
particular, the Internal Revenue Service could instead attempt to treat the
debentures as maturing at their stated maturity on February 15, 2030. If the
debentures were treated as maturing on such date, the debentures would be
treated as having contingent interest under the Treasury regulations governing
debt instruments that provide for contingent payments. In that event, we would
be required to construct a projected payment schedule for the debentures, based
on our current borrowing costs for comparable noncontingent debt instruments,
from which an estimated yield on the debentures would be calculated. A holder
would be required to include in income original issue discount in an amount
equal to the product of the
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"adjusted issue price" of the debentures at the beginning of each interest
accrual period and the estimated yield of the debentures and to make certain
adjustments to such income accruals for differences between actual payments and
projected payments. In general, the "adjusted issue price" of a debenture would
be equal to its "issue price" (the first price at which a substantial amount of
the HIGH TIDES are sold to the public, ignoring sales to bond houses, brokers
and similar persons acting as underwriters, placement agents or wholesalers),
increased by the original issue discount, if any, previously accrued on the
debenture, and reduced by any payments made on the debenture. During the period
prior to the reset date, the original issue discount would accrue at a rate that
is greater than the applicable rate, and holders would have more taxable income
than the cash payable on the HIGH TIDES.
In addition, under the Treasury regulations governing debt instruments that
provide for contingent payments, holders who sold or redeemed their HIGH TIDES
would recognize ordinary loss or reduced gain at that time to reflect any excess
of prior original issue discount accruals over actual interest payments
received. Holders who retain their HIGH TIDES following the reset date would
reduce their original issue discount accruals after that date to reflect any
such excess prior to the reset date. Furthermore, under the Treasury
regulations, any gain realized with respect to the HIGH TIDES would generally be
treated as ordinary income, any loss realized would generally be treated as
ordinary loss to the extent of the holder's prior ordinary income inclusions
with respect to the HIGH TIDES, and any additional loss would be capital loss.
The following discussion assumes the debentures are properly treated as
reset bonds rather than as contingent payment debt instruments.
INTEREST INCOME
Under the Treasury regulations, a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with original issue discount. We believe that the likelihood of
interest payments being deferred is remote. Based on the foregoing, we believe
that the debentures will not be considered to be issued with original issue
discount at the time of their original issuance and, accordingly, a holder of
HIGH TIDES should include in gross income such holder's allocable share of
interest on the debentures in accordance with such holder's method of tax
accounting. If it is determined that the possible deferral of interest payments
should not be treated as a remote contingency, interest on the debentures would
not be treated as "qualified stated interest" and, thus, the debentures would be
treated as having been issued with original issue discount. In such case,
holders of HIGH TIDES would be required to include in income their allocable
share of the original issue discount accrued by the trust with respect to the
debentures on an economic accrual basis over the period of time the HIGH TIDES
(and the underlying allocable share of the debentures) are held, regardless of
their regular methods of accounting and regardless of whether interest has been
paid on the debentures or distributions are made on the HIGH TIDES. Actual
payments of interest on the debentures and corresponding distributions on the
HIGH TIDES would not result in additional income being recognized by the holders
of the HIGH TIDES. In such event, the interest income included by the holders of
the HIGH TIDES should not differ from the actual interest paid on the
debentures.
In addition, under the Treasury regulations, if at any time the payment of
interest on the debentures is deferred, the debentures would, solely for
purposes of determining the existence and amount of original issue discount with
respect to the debentures, at that time be treated as retired and reissued with
original issue discount, and all stated interest on the debentures would
thereafter be treated as original issue discount as long as the debentures
remained outstanding. In such event, holders of HIGH TIDES would be required to
include in income their allocable share of the original issue discount accrued
by the trust with respect to the debentures on an economic accrual basis over
the period of time that the HIGH TIDES (and the underlying allocable share of
the debentures) are
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held, regardless of their regular methods of tax accounting and regardless of
whether interest has been paid on the debentures or distributions are made on
the HIGH TIDES. Assuming that the debentures are treated as reset bonds (as
discussed above), the total original issue discount that would accrue during the
period up to the day before the reset date if we were to exercise our option to
defer payments of interest would be equal to the excess of (1) the sum of
(A) the reset price, plus (B) the total stated interest payments called for
under the debentures prior to the reset date after the date we exercise our
option to defer interest payments on the debentures, over (2) the adjusted issue
price of the debentures as of the date we exercised our option to defer payments
of interest. Because the reset price exceeds the principal amount of the
debentures, during the period following the date we exercise our option to defer
interest payments on the debentures through the reset date holders will accrue
original issue discount at a rate slightly in excess of the applicable initial
rate.
The following discussion assumes that we will not defer payments of interest
on the debentures, and that the debentures will not be issued with original
issue discount.
Because the income underlying the HIGH TIDES will not be characterized as
dividends for United States federal income tax purposes, corporate holders of
the HIGH TIDES will not be entitled to a dividends received deduction for any
income recognized with respect to the HIGH TIDES.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
HIGH TIDES--Tax Event or Investment Company Event Redemption or Distribution,"
debentures may be distributed to holders in exchange for the HIGH TIDES and in
liquidation of the trust. Under current law, such a distribution to holders, for
United States federal income tax purposes, would be treated as a nontaxable
event to each holder, and each holder would receive an aggregate tax basis in
the debentures equal to such holder's aggregate tax basis in its HIGH TIDES. A
holder's holding period in the debentures so received in liquidation of the
trust would include the period during which the HIGH TIDES were held by such
holder. If, however, the exchange is caused by a tax event which results in the
trust being treated as an association taxable as a corporation, the distribution
would likely constitute a taxable event to holders of the HIGH TIDES.
Under certain circumstances described herein (see "Description of HIGH
TIDES"), the debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their HIGH TIDES. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed HIGH TIDES as to
holders, and a holder would recognize gain or loss as if it sold such redeemed
HIGH TIDES for cash. See "--Sale of HIGH TIDES."
SALE OF HIGH TIDES
A holder that sells its HIGH TIDES will recognize capital gain or loss equal
to the difference between the amount realized on the sale of the HIGH TIDES
(other than any amount attributable to accrued but unpaid interest) and the
holder's adjusted tax basis in such HIGH TIDES. Such capital gain or loss will
be long-term capital gain or loss if the HIGH TIDES have been held by the holder
for more than one year.
CONVERSION OF HIGH TIDES INTO COMMON STOCK
A holder of HIGH TIDES will not recognize income, gain or loss upon the
conversion, through the conversion agent, of debentures into common stock. The
holder will recognize gain upon the receipt of cash in lieu of a fractional
share of common stock equal to the amount of cash received less the holder's
adjusted tax basis in such fractional share. A holder's adjusted tax basis in
the common stock received upon conversion generally will be equal to the
holder's tax basis in the HIGH TIDES
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delivered to the conversion agent for exchange less the tax basis allocated to
any fractional share for which cash is received, and a holder's holding period
in the common stock received upon conversion generally will include the period
during which the HIGH TIDES were held by such holder.
DIVIDENDS
The amount of any distribution we make in respect of our common stock will
be equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of our
current or accumulated earnings and profits, as determined for federal income
tax purposes, then as a tax-free return of capital to the extent of a holder's
adjusted tax basis in the common stock and thereafter as gain from the sale or
exchange of such stock (as described below).
In general, a dividend distribution to a corporate holder will qualify for
the 70% dividends received deduction if the holder owns less than 20% of the
voting power and value of our stock (other than any non-voting, non-convertible,
non-participating preferred stock). A corporate holder that owns 20% or more of
the voting power and value of our stock (other than any non-voting,
non-convertible, non-participating preferred stock) generally will qualify for
an 80% dividends received deduction. The dividends received deduction is subject
to certain holding period, taxable income and other limitations.
SALE OF COMMON STOCK
Upon the sale or disposition of common stock, a holder generally will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale or disposition and such holder's adjusted tax basis in
the common stock. Such capital gain or loss will generally be long-term capital
gain or loss if such holder's holding period for the common stock exceeds one
year. A holder's basis and holding period in common stock received upon
conversion of HIGH TIDES are determined as discussed above under "--Conversion
of HIGH TIDES into Common Stock."
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations promulgated under Section 305 of the Internal Revenue
Code would treat holders of HIGH TIDES as having received a constructive
distribution from us in the event the applicable conversion ratio of the
debentures were adjusted if:
- as a result of such adjustment, the proportionate interest (measured by
the amount of common stock into which the debentures are convertible) of
the holders of the HIGH TIDES in the assets or earnings and profits of
Titan were increased; and
- the adjustment was not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in the applicable conversion ratio
would not be considered made pursuant to such a formula if the adjustment
was made to compensate for certain taxable distributions with respect to
the common stock.
Thus, under certain circumstances, a reduction in the conversion price for the
holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of Titan. Holders of the HIGH TIDES
would be required to include their allocable share of such deemed dividend
income in gross income but will not receive any cash related thereto.
We will take the position that the adjustment to the initial conversion
ratio in connection with the remarketing will constitute an "isolated"
recapitalization for United States federal income tax purposes and, therefore,
not be deemed a constructive dividend under Section 305. However, the Internal
Revenue Service might contend that any increase in such initial conversion ratio
on the reset date is a constructive dividend to holders of the HIGH TIDES who
hold the HIGH TIDES immediately before the reset date and that any decrease in
such initial conversion ratio on the reset date (or elimination of
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the conversion feature on the reset date) is a constructive dividend to all
holders of common stock at that time. In each case, the amount of the
constructive dividend would be the fair market value on the reset date of the
number of shares of common stock which, if actually distributed to holders of
HIGH TIDES (in the case of an increase in the initial conversion ratio) or to
holders of the common stock (in the case of a decrease in the initial conversion
ratio or elimination of convertibility of HIGH TIDES), would produce the same
increase in the proportionate interests of such holders in the assets or
earnings and profits of Titan as that produced by the adjustment. The aggregate
deemed dividend is limited to the current or accumulated earnings and profits of
Titan. Holders of HIGH TIDES would be required to include any such constructive
dividend to them in gross income but would not receive any cash related thereto.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on HIGH TIDES, payments of dividends on
common stock, payments of the proceeds from the sale of HIGH TIDES and payments
of the proceeds from the sale of common stock. Such payments may be subject to
backup withholding at the rate of 31% unless the holder complies with certain
identification requirements or otherwise qualifies for an exemption from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against such holder's United
States federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
(ERISA) should consider the fiduciary standards of ERISA in the context of the
plan's particular circumstances before authorizing an investment in the HIGH
TIDES with assets of the plan. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA, whether the investment could result in a
delegation of fiduciary authority and whether the investment would be consistent
with the documents and instruments governing the plan.
Section 406 of ERISA and Section 4975 of the Code prohibit plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code, from engaging in certain transactions involving "plan assets" with persons
who are parties in interest under ERISA or disqualified persons under the Code
with respect to such plans. A violation of these prohibited transaction rules
may result in an excise tax or other liabilities under ERISA and/or
Section 4975 of the Code for such persons, unless exemptive relief is available
under an applicable statutory or administrative exemption. Employee benefit
plans that are governmental plans (as defined in Section 3(32) of ERISA),
certain church plans (as defined in Section 3(33) of ERISA) and foreign plans
(as described in Section 4(b)(4) of ERISA) are not subject to the requirements
of ERISA or Section 4975 of the Code; however, such plans may be subject to
federal, state or local laws or regulations which affect their ability to invest
in the HIGH TIDES. Any fiduciary of such a governmental, church or foreign plan
considering an investment in the HIGH TIDES should determine the need for, and,
if necessary, the availability of, any exemption relief under such laws or
regulations.
Under a regulation issued by the United States Department of Labor (the
DOL), the assets of the trust would be deemed to be plan assets of a plan for
purposes of ERISA and Section 4975 of the Code if plan assets of the plan were
used to acquire an equity interest in the trust and no exception were applicable
under the plan assets regulation. An equity interest is defined under the plan
assets regulation as any interest in an entity other than an instrument that is
treated as indebtedness under applicable local law and that has no substantial
equity features and specifically includes a beneficial interest in a trust.
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Pursuant to an exception contained in the plan assets regulation, the assets
of the trust would not be deemed to be plan assets of investing plans if,
immediately after the most recent acquisition of any equity interest in the
trust, less than 25% of the value of each class of equity interests in the trust
were held by plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), and entities
holding assets deemed to be plan assets of any plan. No assurance can be given
that the value of the HIGH TIDES held by benefit plan investors will be less
than 25% of the total value of such HIGH TIDES at the completion of the initial
offering or otherwise.
Certain transactions involving the trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a plan if the HIGH TIDES were acquired with plan assets of
such plan and assets of the trust were deemed to be plan assets of plans
investing in the trust. For example, if we are a party in interest with respect
to an investing plan (either directly or by reason of our ownership of our
subsidiaries) or become a party in interest by reason of the operation of the
trust, extensions of credit between the trust and us (as represented by the
debentures and the guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive
relief were available under an applicable administrative exemption (see below).
Because the assets of the trust may be considered plan assets for ERISA purposes
as a result of a plan's acquisition and holding of HIGH TIDES, a plan fiduciary
should consider (a) whether powers which potentially may be exercised by any
person or entity with respect to the trust or its assets would result in such
person or entity being potentially deemed to be a fiduciary and, therefore, a
party in interest with respect to a plan acquiring or holding HIGH TIDES and
(b) if so, whether such acquisition and holding could result in a delegation of
fiduciary authority which is impermissible under the plan's governing
instruments or any investment management agreement with the plan. In making such
determination, a plan fiduciary should note that prior to a default, the
trustees will have only limited custodial and ministerial authority with respect
to the assets of the trust.
The DOL has issued five prohibited transaction class exemptions that may
provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the HIGH TIDES, assuming that assets
of the trust were deemed to be plan assets of plans investing in the trust (as
described above). Those class exemptions are PTCE 96-23 (for certain
transactions effected on behalf of a plan by an in-house asset manager), PTCE
95-60 (for certain transactions involving insurance company general accounts),
PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company separate
pooled accounts) and PTCE 84-14 (for certain transactions effected on behalf of
a plan by an independent qualified professional asset manager).
Because the HIGH TIDES may be deemed to be equity interests in the trust for
purposes of applying ERISA and Section 4975 of Code, the HIGH TIDES may not be
purchased or held by any plan, any entity whose underlying assets include plan
assets by reason of any plan's investment in an entity (a plan asset entity) or
any person investing plan assets of any plan, unless the purchaser or holder is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14. Any purchaser or holder of the HIGH TIDES or any interest therein will
be deemed to have represented by its purchase and holding that it either (a) is
not a plan or a plan asset entity and is not purchasing such securities on
behalf of or with plan assets of any plan or (b) is eligible for the exemptive
relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. See "Transfer
Restrictions." In addition, if we were considered to be a fiduciary with respect
to the trust as a result of certain powers we hold (such as the powers to remove
and replace the property trustee and the administrative trustees), certain
operations of the trust, including the optional redemption or acceleration of
the debentures, could be considered to be prohibited transactions under Section
406(b) of ERISA and Section 4975(c)(1)(E) of the Code. In order to avoid such
prohibited transactions the fiduciaries of any plan or plan asset entity which
may
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purchase or hold HIGH TIDES will be deemed as a result of such acquisition or
holding to have (a) directed the trust to invest in the debentures, (b)
authorized and directed any of the actions taken or which may be taken with
respect to the trust, the debentures and the HIGH TIDES by any of the trustees,
the debenture trustee, the guarantee trustee, or us as contemplated by the
indenture, the debentures or the guarantee and (c) appointed each of the
trustees.
Based on the reasoning of the United States Supreme Court in JOHN HANCOCK
LIFE INS. CO. V. HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of the plans investing
in the general account (e.g., through the purchase of an annuity contract), and
the insurance company might be treated as a party-in interest with respect to a
plan by virtue of such investment. Any purchaser of the HIGH TIDES that is an
insurance company using the assets of an insurance company general account
should note that the Small Business Job Protection Act of 1996 added new Section
401(c) of ERISA relating to the status of the assets of insurance company
general accounts under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the DOL issued final regulations effective January 5, 2000 (the "General
Account Regulations") with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. As a
result of these regulations, assets of an insurance company general account will
not be treated as "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code to the extent such assets
relate to contracts issued to employee benefit plans on or before December 31,
1998 and the insurer satisfies various conditions. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulations and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until the date that is 18 months after the General Account Regulations become
final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 of the Code may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the "plan assets" of any such plan. The plan asset status of
insurance company separate accounts is unaffected by new Section 401(c) of
ERISA, and separate account assets continue to be treated as the plan assets of
any such plan invested in a separate account.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in nonexempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the HIGH
TIDES on behalf of or with plan assets of any plan consult with their counsel
regarding the potential consequences if the assets of the trust were deemed to
be plan assets and the availability of exemptive relief under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14.
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REGISTRATION RIGHTS
We and the trust will enter into a registration agreement with the initial
purchasers of the HIGH TIDES for the benefit of the holders of the HIGH TIDES
wherein we and the trust will agree, at our sole expense, to
- file as soon as practicable, but in no event more than 75 days after
the original issuance of the HIGH TIDES, a shelf registration covering
resales of the HIGH TIDES, the guarantee, the debentures and the
related common stock issuable upon conversation of the HIGH TIDES;
- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act within 150 days after the
original issuance of the HIGH TIDES; and
- use our best efforts to keep effective the shelf registration statement
for two years or such other period as required under Rule 144(k) of the
Securities Act or any successor rule thereto or, if earlier, such time
as all of the applicable securities have been sold thereunder.
We will, in the event that a shelf registration statement is filed, provide
to each holder for whom the shelf registration statement was filed copies of the
prospectus that is a part of the shelf registration statement, notify each such
holder when the shelf registration statement for the securities has become
effective and take certain other actions as are required to permit unrestricted
resales of the securities. A holder that sells securities pursuant to the shelf
registration statement will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
registration agreement that are applicable to such a holder (including certain
indemnification rights and obligations).
Upon written notice to all the holders of the HIGH TIDES, we or the trust
will be permitted to suspend the use of the prospectus that is part of the shelf
registration statement during prescribed periods of time if we or the trust
possess material non-public information. The periods during which we can suspend
the use of the prospectus may not exceed 20 consecutive days or a total of
60 days, whether or not consecutively, in any twelve month period and neither we
nor the trust are permitted to suspend the use of the prospectus within ten
business days after our last suspension.
Upon recept of such notice, holders of the HIGH TIDES are required to cease
disposing of securities under the prospectus until the holders either receive
copies of a prospectus supplement or are advised in writing by us or the trust
that offers and sales of the securities and use of the prospectus may be
resumed.
We and the trust may require each holder of the HIGH TIDES to furnish
information regarding the holder and the distribution of the securities as we or
the trust may reasonably require for inclusion in the registration statement.
If either (1) within 75 days of the original issuance of the HIGH TIDES we
have not filed the shelf registration statement, (2) within 150 days of the
original issuance of the HIGH TIDES the shelf registration statement has not
been declared effective by the SEC, or (3) a shelf registration statement is
declared effective by the SEC and we or the trust fail to keep the shelf
registration statement continuously effective and usable (subject to some
exceptions) for the period required by the registration agreement, then
additional interest, referred to in this offering circular as special interest,
will accrue on the debentures, and corresponding special distributions will
accrue on the HIGH TIDES and common securities, in each case from and including
the day following the registration default to but excluding the day on which the
registration default has been cured or has been deemed to have been cured.
Special interest and special distributions will be paid in cash quarterly in
arrears on each
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interest payment date commencing with the first interest payment date following
the applicable registration default and will accrue at a rate so that the
interest rate or distribution rate, as the case may, will be increased 0.5% per
annum of the principal amount or liquidation amount, as applicable. Following
the cure of a registration default, special interest and special distributions
will cease to accrue with respect to the applicable registration default.
Each security will contain a legend to the effect that the holder of the
security, by its acceptance of the security, will be deemed to have agreed to be
bound by the provisions of the registration agreement.
The registration agreement will be governed by, and construed in accordance
with, the laws of the State of New York. This summary of the registration
agreement is not complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the registration agreement. A form of the
registration agreement is available upon request.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the purchase agreement
dated February 3, 2000, we and the trust have agreed that the trust will sell to
Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation, who will be the initial purchasers, the following number
of HIGH TIDES:
<TABLE>
<CAPTION>
NUMBER OF
INITIAL PURCHASER HIGH TIDES
----------------- ----------
<S> <C>
Credit Suisse First Boston Corporation...................... 3,200,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 800,000
---------
Total............................................... 4,000,000
=========
</TABLE>
The purchase agreement provides that the initial purchasers of the HIGH
TIDES are obligated to purchase all of the HIGH TIDES, if any are purchased,
other than those HIGH TIDES covered by the over-allotment option described
below. The purchase agreement also provides that if an initial purchaser
defaults the purchase commitments of non-defaulting initial purchasers may be
increased or the offering may be terminated.
The initial purchasers propose to offer the HIGH TIDES initially at the
offering price on the cover page of this offering circular. After the initial
offering, the price to investors may be changed.
In view of the fact that the proceeds of the sale of the HIGH TIDES will be
used by the trust to purchase the debentures, the purchase agreement provides
that we will pay as compensation to the initial purchasers a commission of
$1.50 per each of the HIGH TIDES.
We and the trust have granted to the initial purchasers a 30-day option to
purchase, on a pro rata basis, up to 1,000,000 additional HIGH TIDES at the
initial offering price. The option may be exercised for any reason.
The HIGH TIDES have not been registered under the Securities Act and may not
be offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except to qualified institutional buyers in reliance on Rule
144A under the Securities Act. Resales of the HIGH TIDES are restricted as
described in the Transfer Restrictions section of this offering circular.
We along with the trust, our directors and officers have agreed that we will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to:
- any trust certificates or other securities of the trust;
- any preferred stock or any of our other securities that are
substantially similar to the HIGH TIDES or the debentures;
- any of our shares of common stock or any of our other capital stock; or
- any other securities that are convertible into, or exercisable for,
trust certificates or other securities of the trust, or preferred stock
or substantially similar securities of ours, or our common stock or
other capital stock of ours,
or publicly disclose the intention to make any offer, sale, pledge, disposition
or filing, for a period of 90 days after the date of this offering circular
without the prior written consent of Credit Suisse First Boston Corporation.
However, this lock-up agreement will not apply to shares of our common stock
issued to holders of Advanced Communication Systems common stock (certain of
whom are subject to affiliate agreements relating to the resale of our
securities) in connection with our acquisition of that
161
<PAGE>
company and will not prevent (1) the issuance or delivery of securities upon
conversion, exchange or exercise of any of our other securities outstanding on
the date of this offering circular, (2) our capital stock issued under benefit
or incentive plans maintained for our officers, directors or employees or
(3) our common stock or other securities issued by us in connection with
acquisitions (provided that the recipients of such common stock or other
securities are bound by the foregoing restrictions) and (4) the registration of
securities pursuant to a demand made under registration rights agreements
existing on the date of this offering circular or upon the inclusion of such
securities on the registration statement for the HIGH TIDES pursuant to rights
granted under such registration rights agreements.
Both we and the trust have agreed to indemnify the initial purchasers
against liabilities or contribute to payments which the initial purchasers may
be required to make in that respect.
The HIGH TIDES are new securities for which there currently is no market.
The HIGH TIDES are expected to be made eligible for trading in PORTAL. The
initial purchasers have advised us and the trust that they presently intend to
make a market in the HIGH TIDES as permitted by applicable law. However, the
initial purchasers are not obligated to make a market in the HIGH TIDES and any
market-making may be discontinued at any time in their sole discretion. In
addition, any market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the pendency
of the shelf registration statement. Accordingly, no assurance can be given as
to the development or liquidity of any market for the HIGH TIDES.
The initial purchasers may engage in over-allotment, stabilizing
transactions, covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
- Over-allotment involves sales in excess of the offering size, which
creates a short position for the initial purchasers.
- Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
- Covering transactions involve purchases of HIGH TIDES in the open
market after the distribution has been completed in order to cover
short positions.
- Penalty bids permit the initial purchasers to reclaim a selling
concession from a broker-dealer when the HIGH TIDES originally sold by
the broker-dealer are purchased in a stabilizing or covering
transaction to cover short positions.
These stabilizing transactions, covering transactions and penalty bids may cause
the price of the HIGH TIDES to be higher than it would otherwise be in the
absence of the transactions. These transactions, if commenced, may be
discontinued at any time.
From time to time, certain of the initial purchasers and their affiliates
have provided advisory and investment banking services to us, for which
customary compensation has been received. It is expected that such initial
purchasers will continue to provide such services to us in the future.
162
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the HIGH TIDES in Canada is being made only on a private
placement basis exempt from the requirement that we and the trust prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the HIGH TIDES are effected. Accordingly, any resale of the HIGH
TIDES in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the HIGH TIDES.
REPRESENTATIONS OF PURCHASERS
Each purchaser of HIGH TIDES in Canada who receives a purchase confirmation
will be deemed to represent to us, the trust and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such HIGH TIDES without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent and
(3) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws. Following a decision of the U.S. Supreme
Court, it is possible that Ontario purchasers will not be able to rely upon the
remedies set out in Section 12(a)(2) of the United States Securities Act of 1933
where securities are being offered under a U.S. private placement memorandum
such as this document.
ENFORCEMENT OF LEGAL RIGHTS
All the trust's trustees and our directors and officers as well as the
experts named herein may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of process within
Canada upon us, the trust or these persons. All or a substantial portion of our
assets, the assets of the trust and the assets of these persons may be located
outside of Canada and, as a result, it may not be possible to satisfy a judgment
against us, the trust or these persons in Canada or to enforce a judgment
obtained in Canadian courts against us, the trust or these persons outside of
Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of HIGH TIDES to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any HIGH
TIDES acquired by the purchaser pursuant to this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order (BOR)
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of HIGH TIDES acquired on the same date and under the same prospectus
exemption.
163
<PAGE>
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of HIGH TIDES should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the shares of
HIGH TIDES in their particular circumstances and with respect to the eligibility
of the shares of HIGH TIDES for investment by the purchaser under relevant
Canadian legislation.
TRANSFER RESTRICTIONS
The securities offered by this offering circular have not been registered
under the Securities Act and may be offered or sold only to qualified
institutional buyers in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 144A.
Each purchaser of the HIGH TIDES will be deemed to have represented and
agreed (terms used in this paragraph that are defined in Rule 144A under the
Securities Act are used herein as defined therein) that:
(1) the purchaser (i) is a qualified institutional buyer; (ii) the purchaser
is aware that the sale to it is being made in reliance on Rule 144A and
(iii) acquiring the HIGH TIDES for its own account or for the account of
a qualified institutional buyer.
(2) the purchaser understands that the HIGH TIDES are being offered in a
transaction not involving any public offering in the United States within
the meaning of the Securities Act, that the securities have not been and,
except as described in the offering circular, will not be registered
under the Securities Act and that (A) if in the future it decides to
offer, resell, pledge or otherwise transfer any of the securities, the
securities may be offered, resold, pledged or otherwise transferred only
(i) to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of
Rule 144A, (ii) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 (if available) or (iii) pursuant to
an effective registration statement under the Securities Act, in each of
cases (i) through (iii) in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction,
and that (B) the purchaser will, and each subsequent holder is required
to, notify any subsequent purchaser, pledgee or transferee of the
securities from it of the resale restrictions referred to in (A) above.
(3) the purchaser understands that the HIGH TIDES will, until the expiration
of the holding period with respect to the HIGH TIDES set forth in clause
(k) of Rule 144 promulgated under the Securities Act, unless otherwise
agreed by us, the trust and the holder thereof, bear a legend
substantially to the following effect:
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY AND ANY CONVERTIBLE SENIOR
SUBORDINATED DEBENTURES ISSUED UPON EXCHANGE FOR THIS SECURITY AND ANY
COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER AND
TITAN THAT (A) THIS SECURITY AND ANY CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES ISSUABLE UPON EXCHANGE THEREFOR AND
164
<PAGE>
COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (i) INSIDE THE UNITED STATES TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (ii) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iii) IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."
(4) the HIGH TIDES may not be sold or transferred to, and the purchaser is
not acquiring the HIGH TIDES for or on behalf of, and will not transfer
the HIGH TIDES to, any pension or welfare plan as defined in Section 3 of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), except that such purchase for or on behalf of a pension or
welfare plan shall be permitted:
(i) to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which no
plan (together with any other plans maintained by the same employer
or employee organization) has an interest in excess of 10% of the
total assets in such collective investment fund, and the other
applicable conditions of Prohibited Transaction Class
Exemption 91-38 issued by the Department of Labor are satisfied;
(ii) to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchaser in
which, at any time while the HIGH TIDES are outstanding, no plan
(together with any other plans maintained by the same employer or
employee organization) has an interest in excess of 10% of the
total of all assets in such pooled separate account, and the other
applicable conditions of Prohibited Transaction Class
Exemption 90-1 issued by the Department of Labor are satisfied;
(iii) to the extent such purchase is made on behalf of a plan by (A) an
investment adviser registered under the Investment Advisers Act of
1940, as amended (the "1940 Act"), that had as of the last day of
its most recent fiscal year total assets under its management and
control in excess of $50.0 million and had stockholders' or
partners' equity in excess of $750,000, as shown in its most recent
balance sheet prepared in accordance with generally accepted
accounting principles, or (B) a bank as defined in
Section 202(a)(2) of the 1940 Act with equity capital in excess of
$1.0 million as of the last day of its most recent fiscal year, or
(C) an insurance company which is qualified under the laws of more
than one state to manage, acquire or dispose of any assets of a
pension or welfare plan, which insurance company has as of the last
of its most recent fiscal year, net worth in excess of
$1.0 million and which is subject to supervision and examination by
a State authority having supervision over insurance companies and,
in any case, such investment adviser, bank or insurance company is
otherwise a qualified professional asset manager, as such term is
used in Prohibited Transaction Class Exemption 84-14 issued by the
Department of Labor, and the assets of such plan when combined with
the assets of other plans established or maintained by the same
employer (or affiliate thereof) or employee organization and
managed by such investment adviser, bank or insurance company, do
not represent more than 20% of the total client assets managed by
such investment adviser,
165
<PAGE>
bank or insurance company at the time of the transaction, and the
other applicable conditions of such exemption are otherwise
satisfied;
(iv) to the extent such plan is a governmental plan (as defined in
Section 3 of ERISA) which is not subject to the provisions of
Title I of ERISA or Section 401 of the Internal Revenue Code of
1986, as amended (the "Code");
(v) to the extent such purchase is made by or on behalf of an insurance
company using the assets of its general account, the reserves and
liabilities for the general account contracts held by or on behalf
of any plan, together with any other plans maintained by the same
employer (or its affiliates) or employee organization, do not exceed
10% of the total reserves and liabilities of the insurance company
general account (exclusive of separate account liabilities), plus
surplus as set forth in the National Association of Insurance
Commissioners Annual Statement filed with the state of domicile of
the insurer, in accordance with Prohibited Transaction Class
Exemption 95-60, and the other applicable conditions of such
exemption and otherwise satisfied;
(vi) to the extent such purchase is made by an in-house asset manager
within the meaning of Part IV(a) of Prohibited Transaction Class
Exemption 96-23, such manager has made or properly authorized the
decision for such plan to purchase HIGH TIDES, under circumstances
such that Prohibited Transaction Class Exemption 96-23 is
applicable to the purchase and holding of such Notes; or
(vii) to the extent such purchase will not otherwise give rise to a
transaction described in Section 406 or Section 4975(c)(1) of the
Code for which a statutory or administrative exemption is
available.
LEGAL MATTERS
Richards, Layton & Finger, P.A., special Delaware counsel to the trust and
Titan, will pass on certain matters of Delaware law relating to the validity of
the HIGH TIDES. Cooley Godward LLP will pass upon the validity of the
debentures, the guarantee and the common stock issuable upon conversion of the
HIGH TIDES. Skadden, Arps, Slate, Meagher & Flom LLP will pass upon certain
matters on behalf of the initial purchasers.
166
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of The Titan Corporation as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998, the financial statements of Transnational Partners II, LLC,
as of December 31, 1997 and 1998 and for the period from February 9, 1997
(commencement of operations) through December 31, 1997 and for the year ended
December 31, 1998 and the financial statements of JB Systems, Inc. (d.b.a.
Mainsaver), as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998, included (or incorporated by reference) in
this offering circular, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports appearing or incorporated by
reference herein.
The consolidated financial statements of Advanced Communication
Systems, Inc. as of September 30, 1998 and 1999 and for each of the three years
in the period ended September 30, 1999, included in this offering circular have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their reports appearing herein.
The financial statements of Assist Cornerstone Technologies, Inc. as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, incorporated by reference in this offering circular have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon incorporated by reference herein, and are incorporated by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of SFG Technologies, Inc. as of
December 31, 1998 and April 30, 1998 and for the eight months ended
December 31, 1998 and for the years ended April 30, 1996, 1997 and 1998,
incorporated by reference in this offering circular have been audited by KPMG
LLP, independent auditors, as indicated in their report with respect thereto,
and are incorporated by reference herein in reliance upon the authority of such
firm as experts in accounting and auditing.
167
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
TITAN CORPORATION
Report of Independent Public Accountants........................................................... F-2
Financial Statements:
Consolidated Statements of Operations............................................................ F-3
Consolidated Balance Sheets...................................................................... F-4
Consolidated Statements of Cash Flows............................................................ F-5
Consolidated Statements of Stockholders' Equity.................................................. F-6
Notes to Consolidated Financial Statements....................................................... F-7 - F-28
ADVANCED COMMUNICATION SYSTEMS CORPORATION
Report of Independent Public Accountants........................................................... F-29
Consolidated Balance Sheets as of September 30, 1999 and 1998...................................... F-30
Consolidated Statements of Operations for the Years Ended September 30, 1999, 1998 and 1997........ F-31
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended September 30, 1999,
1998 and 1997.................................................................................... F-32
Consolidated Statements of Cash Flows for the Years Ended September 30, 1999, 1998 and 1997........ F-33
Notes to Consolidated Financial Statements......................................................... F-34 - F-50
SCHEDULE:
Schedule II -- Valuation and Qualifying Accounts................................................... F-51
</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, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Titan Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
February 15, 1999 (except with respect
to the matter discussed in Notes 1 and
5 for which the date is March 31, 1999)
F-2
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenues................................................................... $ 303,428 $ 275,923 $ 245,976
----------- ----------- ----------
Costs and expenses:
Cost of revenues......................................................... 232,041 216,553 192,657
Selling, general and administrative expense.............................. 37,553 36,731 36,226
Research and development expense......................................... 5,590 7,466 5,023
Special acquisition related charges and other............................ 9,891 6,600 --
----------- ----------- ----------
Total costs and expenses................................................. 285,075 267,350 233,906
----------- ----------- ----------
Operating profit........................................................... 18,353 8,573 12,070
Interest expense........................................................... (7,377) (6,643) (4,764)
Interest income............................................................ 392 872 639
----------- ----------- ----------
Income from continuing operations before income taxes and cumulative effect
of change in accounting principle........................................ 11,368 2,802 7,945
Income tax provision....................................................... 4,155 4,184 2,603
----------- ----------- ----------
Income (loss) from continuing operations before cumulative effect of change
in accounting principle.................................................. 7,213 (1,382) 5,342
Cumulative effect of change in accounting principle, net of taxes.......... (19,474) -- --
Loss from discontinued operations, net of taxes............................ (7,444) (17,930) (6,326)
----------- ----------- ----------
Net loss................................................................... (19,705) (19,312) (984)
Dividend requirements on preferred stock................................... (778) (875) (803)
----------- ----------- ----------
Net loss applicable to common stock........................................ $ (20,483) $ (20,187) $ (1,787)
=========== =========== ==========
Basic earnings (loss) per share:
Income (loss) from continuing operations................................. $ .18 $ (.07) $ .14
Cumulative effect of change in accounting principle...................... (.56) -- --
Loss from discontinued operations........................................ (.21) (.54) (.20)
----------- ----------- ----------
Net loss................................................................. (.59) (.61) (.06)
=========== =========== ==========
Weighted average shares.................................................. 34,895 33,094 32,068
=========== =========== ==========
Diluted earnings (loss) per share:
Income (loss) from continuing operations................................. $ .18 $ (.07) $ .14
Cumulative effect of change in accounting principle...................... (.54) -- --
Loss from discontinued operations........................................ (.21) (.54) (.20)
----------- ----------- ----------
Net loss................................................................. $ (.57) $ (.61) $ (.06)
=========== =========== ==========
Weighted average shares.................................................. 36,177 33,094 32,445
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................................. $ 11,079 $ 11,383
Investments................................................................................ -- 4,499
Accounts receivable--net................................................................... 88,068 72,653
Inventories................................................................................ 8,646 18,826
Net assets of discontinued operations...................................................... -- 3,930
Prepaid expenses and other................................................................. 2,176 2,743
Deferred income taxes...................................................................... 10,978 8,298
--------- ---------
Total current assets................................................................... 120,947 122,332
Property and equipment--net.................................................................. 25,702 27,666
Goodwill--net of accumulated amortization of $7,620 and $6,078............................... 38,694 21,274
Other assets--net............................................................................ 6,579 8,756
Net assets of discontinued operations........................................................ 645 3,675
--------- ---------
Total assets................................................................................. $ 192,567 $ 183,703
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of credit............................................................................ $ 368 $ 23,130
Accounts payable........................................................................... 21,335 16,086
Acquisition debt........................................................................... 3,000 --
Current portion of long-term debt.......................................................... 1,581 1,505
Accrued compensation and benefits.......................................................... 12,682 14,300
Other accrued liabilities.................................................................. 11,659 10,522
Net liabilities of discontinued operations................................................. 5,872 --
--------- ---------
Total current liabilities.............................................................. 56,497 65,543
Line of credit............................................................................... 39,632 --
Long-term debt............................................................................... 30,659 37,565
Other non-current liabilities................................................................ 15,068 12,148
Commitments and contingencies
Series B cumulative convertible redeemable preferred stock, $3,000 liquidation preference, 6%
cumulative annual dividend, -0- and 500,000 shares issued and outstanding.................. -- 3,000
Stockholders' Equity:
Preferred stock: $1 par value, authorized 2,500,000 shares:
Cumulative convertible, $13,897 liquidation preference:
694,872 shares issued and outstanding.................................................. 695 695
Series A junior participating, authorized 250,000 shares:
None issued............................................................................ -- --
Common stock: $.01 par value, authorized 100,000,000 shares, issued and outstanding:
36,650,460 and 34,776,764 shares......................................................... 367 348
Capital in excess of par value............................................................... 75,157 69,332
Retained earnings (deficit).................................................................. (22,929) (2,337)
Treasury stock (962,530 and 971,894 shares), at cost......................................... (2,579) (2,591)
--------- ---------
Total stockholders' equity............................................................. 50,711 65,447
--------- ---------
Total liabilities and stockholders' equity................................................... $ 192,567 $ 183,703
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations............................................ $ 7,213 $ (1,382) $ 5,342
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by (used for) continuing operations:
Depreciation and amortization................................................. 7,126 9,213 8,044
Deferred income taxes and other............................................... (498) 1,926 (1,655)
Write-off of assets, investments and environmental accrual.................... -- 9,846 --
Poolings of interests......................................................... (109) 695 --
Change in operating assets and liabilities, net of effects from businesses
sold and acquired:
Accounts receivable..................................................... (12,427) (4,102) 7,989
Inventories............................................................. (2,290) (1,047) (6,069)
Prepaid expenses and other assets....................................... 1,081 (879) 594
Accounts payable........................................................ 3,705 874 (3,467)
Income taxes payable.................................................... -- -- (653)
Accrued compensation and benefits....................................... (2,298) 1,531 (1,587)
Restructuring activities................................................ -- (815) (4,099)
Other liabilities....................................................... (1,635) (6,165) (684)
--------- --------- ---------
Net cash provided by (used for) continuing operations............................... (132) 9,695 3,755
--------- --------- ---------
Loss from discontinued operations................................................... (7,444) (17,930) (6,326)
Changes in net assets and liabilities of discontinued operations.................... 5,630 7,426 (2,639)
--------- --------- ---------
Net cash used for discontinued operations........................................... (1,814) (10,504) (8,965)
--------- --------- ---------
Net cash used for operating activities.............................................. (1,946) (809) (5,210)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................ (4,038) (6,647) (6,638)
Proceeds, net of transaction costs, from sale of businesses......................... -- 200 2,492
Payment for purchase of businesses, net of cash acquired............................ (11,679) -- (2,679)
Proceeds from sale of investments................................................... 4,499 19,199 5,000
Purchase of investments............................................................. -- (15,410) (9,888)
Other............................................................................... 146 235 (283)
--------- --------- ---------
Net cash used for investing activities.............................................. (11,072) (2,423) (11,996)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to debt................................................................... 16,870 12,671 37,762
Retirements of debt................................................................. (1,447) (3,137) (21,909)
Redemption of Series B Preferred Stock.............................................. (3,000) -- --
Deferred debt issuance costs........................................................ -- -- (2,035)
Proceeds from stock issuances....................................................... 1,214 708 433
Purchase of stock from benefit plan................................................. -- (471) --
Dividends paid...................................................................... (778) (875) (803)
Other............................................................................... (145) -- --
--------- --------- ---------
Net cash provided by financing activities........................................... 12,714 8,896 13,448
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ (304) 5,664 (3,758)
Cash and cash equivalents at beginning of year...................................... 11,383 5,719 9,477
--------- --------- ---------
Cash and cash equivalents at end of year............................................ $ 11,079 $ 11,383 $ 5,719
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE CAPITAL
CONVERTIBLE IN EXCESS RETAINED
PREFERRED OF PAR EARNINGS/ TREASURY
STOCK COMMON STOCK VALUE (DEFICIT) STOCK TOTAL
------------- ----------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995.................... $ 695 $ 317 $ 54,933 $ 19,270 $ (3,524) $ 71,691
Stock issued for acquisition................... -- 18 10,659 -- -- 10,677
Other stock issued............................. -- 1 161 -- -- 162
Exercise of stock options and other............ -- 3 349 (16) (62) 274
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....................................... -- -- -- (984) -- (984)
--------- --------- --------- ---------- --------- ---------
Balances at December 31, 1996.................... 695 339 66,999 17,206 (2,960) 82,279
Conversion of subordinated debt................ -- 5 1,597 -- -- 1,602
Exercise of stock options and other............ -- 2 726 (51) 37 714
Stock issued for acquisition................... -- 2 503 -- -- 505
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........................... -- -- -- 695 -- 695
Dividends on preferred stock--
Cumulative Convertible, $1.00 per share...... -- -- -- (695) -- (695)
Series B, 6% annual.......................... -- -- -- (180) -- (180)
Net loss....................................... -- -- -- (19,312) -- (19,312)
--------- --------- --------- ---------- --------- ---------
Balances at December 31, 1997.................... 695 348 69,332 (2,337) (2,591) 65,447
Conversion of subordinated debt................ -- 15 5,368 -- -- 5,383
Stock repurchase............................... -- (1) (752) -- -- (753)
Exercise of stock options and other............ -- 4 848 -- 12 864
Conversion of warrants......................... -- 1 349 -- -- 350
Poolings of interests.......................... -- -- -- (109) -- (109)
Shares contributed to employee benefit plans... -- -- (100) -- -- (100)
Income tax benefit from employee stock
transactions................................. -- -- 112 -- -- 112
Dividends on preferred stock--
Cumulative Convertible, $1.00 per share...... -- -- -- (695) -- (695)
Series B, 6% annual.......................... -- -- -- (83) -- (83)
Net loss....................................... -- -- -- (19,705) -- (19,705)
--------- --------- --------- ---------- --------- ---------
Balances at December 31, 1998.................... $ 695 $ 367 $ 75,157 $ (22,929) $ (2,579) $ 50,711
========= ========= ========= ========== ========= =========
</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 SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Titan Corporation (the "Company" or "Titan")
provides information technology and electronic systems and services to
government and commercial customers. The Company groups its businesses into four
core business segments--Information Technologies, Software Systems, Medical
Sterilization and Food Pasteurization, and Communications Systems--and a fifth
business segment, Emerging Technologies and Businesses. The Company 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. The Company also develops, designs, manufactures and markets
satellite communications subsystems, digital imaging products, electro-optical
systems, and pulsed power products including linear accelerators.
The Company is involved in a number of start-up ventures, most notably the
commercial satellite communications business in Titan's Communications Systems
segment. The Company believes that the primary source of revenues for this
business will be international customers in developing countries, primarily
within Asia, Africa and South America.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Titan and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. The accompanying consolidated
financial statements have been restated to reflect four acquisitions in 1998
that have been accounted for as poolings of interests (see Note 2). From time to
time, the Company makes investments in joint ventures which primarily involve
international locations and operations. Management evaluates its investment in
each joint venture on an individual basis for purposes of determining whether or
not consolidation is appropriate. Investments in such ventures are generally
consolidated in instances where the Company retains control through
decision-making ability and a greater than 50% ownership interest. In the
absence of such factors, the Company generally accounts for these investments
under the equity method.
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 the Company's revenue, both government
and commercial, is derived from products manufactured and services performed
under cost-reimbursement, time-and-materials, and fixed-price contracts wherein
revenues are generally recognized as services are performed, using the
percentage-of-completion method, which includes revenues recognized as units are
delivered. Total estimated costs are based on management's assessment of costs
to complete the project based upon evaluation of the level of work achieved and
costs expended to date. 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.
F-7
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS. The Company does not invest in securities as its primary
business and does not maintain a trading account. Occasionally, however, the
Company purchases financial instruments with maturities greater than three
months from the date of acquisition, principally investment grade commercial
paper and U.S. Treasury obligations. 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, 1998, the Company has no such investments. As of
December 31, 1997, all such investment securities owned by the Company matured
in one year or less and were carried at their current market value, which
approximated their cost, as required by SFAS 115.
UNBILLED ACCOUNTS RECEIVABLE. Unbilled accounts receivable include
work-in-process which will be billed in accordance with contract terms and
delivery schedules, as well as amounts billable upon final execution of
contracts, contract completion, milestones or completion of rate negotiations.
Generally, unbilled accounts receivable are expected to be collected within one
year. Payments to the Company for performance on certain U.S. Government
contracts are subject to audit by the Defense Contract Audit Agency. Revenues
have been recorded at amounts expected to be realized upon final settlement.
CONCENTRATION OF CREDIT RISK. As the Company expands its business into
international markets and developing countries, certain accounts receivable may
be exposed to credit risk due to political and economic instability in these
areas. To mitigate credit risk in foreign countries, the Company generally
denominates its foreign contracts in U.S. dollars and requires payment primarily
in the form of stand-by letters of credit, advance deposits, or wire transfers,
prior to shipment.
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. The Company periodically
evaluates its on-hand stock and makes appropriate disposition of any stock
deemed excess or obsolete.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with estimated useful
lives of 25 to 40 years for buildings, 2 to 40 years for leasehold improvements
and 3 to 10 years for machinery and equipment and furniture and fixtures.
Certain machinery and equipment in the Company's medical sterilization business
is depreciated based on units of production.
GOODWILL. The excess of the cost over the fair value of net assets of
purchased businesses ("goodwill") is amortized on a straight-line basis over
varying lives ranging from 5 to 30 years. The Company periodically re-evaluates
the original assumptions and rationale utilized in the establishment of the
carrying value and estimated lives of its goodwill. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate positive income from operations and positive cash flow in future
periods as well as the strategic significance of the intangible asset to the
Company's business objectives.
IMPAIRMENT OF LONG-LIVED ASSETS. Periodically, the Company reviews for
possible impairment its long-lived assets and certain identifiable intangibles
to be held and used. Whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be fully recoverable, asset values are
adjusted accordingly.
F-8
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION. The Company has elected to adopt the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, the Company
will continue to account for its stock based compensation plans under the
provisions of APB No. 25.
INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the use of the liability method of accounting for deferred
income taxes. Under this method, deferred income taxes are recorded to reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
If it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
PER SHARE INFORMATION. The Company computes earnings per share based on the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128").
F-9
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following data summarize information relating to the per share
computations for continuing operations before the cumulative effect of a change
in accounting principle:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
----------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
---------------- --------------- -----------
<S> <C> <C> <C>
Income from continuing operations.................................... $ 7,213
Less preferred stock dividends....................................... (778)
---------------- --------- ---------
Basic EPS:
Income from continuing operations available to common
stockholders..................................................... 6,435 34,895 $ 0.18
Effect of dilutive securities: Stock options......................... -- 1,282 (0.00)
---------------- --------- ---------
Diluted EPS:
Income from continuing operations available to common stockholders
plus assumed conversions......................................... $ 6,435 36,177 $ 0.18
================ ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
---------------- --------------- -----------
<S> <C> <C> <C>
Loss from continuing operations...................................... $ (1,382)
Less preferred stock dividends....................................... (875)
---------------- --------- ---------
Basic EPS:
Loss from continuing operations available to common stockholders... $ (2,257) 33,094 $ (0.07)
================ ========= =========
Diluted EPS:......................................................... Same as basic
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
---------------- --------------- -----------
<S> <C> <C> <C>
Income from continuing operations.................................... $ 5,342
Less preferred stock dividends....................................... (803)
---------------- --------- ---------
Basic EPS:
Income from continuing operations available to common
stockholders..................................................... 4,539 32,068 $ 0.14
Effect of dilutive securities: Stock options......................... -- 377 (0.00)
---------------- --------- ---------
Diluted EPS:
Income from continuing operations available to common stockholders
plus assumed conversions......................................... $ 4,539 32,445 $ 0.14
================ ========= =========
</TABLE>
F-10
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1998, options to purchase approximately 742,000 shares of common stock
were not included in the computation of diluted EPS, because the options'
exercise price was greater than the average market price of the common shares.
In 1998, 1997 and 1996, 463,268 shares of common stock that could result from
the conversion of cumulative convertible preferred stock, as well as common
shares that could result from the conversion of the Company's convertible
subordinated debentures and Series B cumulative convertible redeemable preferred
stock, were not included in the computation of diluted EPS, as the effect would
have been anti-dilutive on the results of continuing operations.
COMPREHENSIVE INCOME. Effective January 1, 1998, the Company adopted
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. The
adoption of the accounting and disclosure provisions of SFAS 130 has had no
impact on the Company's financial statements, as comprehensive income is the
same as net income for all periods presented.
BUSINESS SEGMENTS. In December 1997, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement establishes
standards for reporting and disclosure of operating segments on a basis
consistent with that of the management structure. As a result of adopting SFAS
131, in 1997, the Company restated its segments for all periods presented. On
March 31, 1999, the Company realigned certain operations among its business
segments to better position these operations for strategic transactions pursuant
to the Company's corporate strategy. As a result, the Company is reporting all
commercial satellite communications operating results in its Communications
Systems segment, and all defense information technologies and services operating
results are reported in its Information Technologies segment. This realignment
also conforms to the provisions of SFAS 131. All current and prior year segment
data presented in these financial statements have been restated to conform to
the 1999 realignement.
NEW ACCOUNTING STANDARDS. In 1998, the Company adopted Statement of
Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits" ("SFAS 132"). This statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans, but it does not change the measurement or recognition of those
plans. This statement further requires restatement of disclosure provisions for
earlier periods provided for comparative purposes. The adoption of SFAS 132 has
had no material impact on the Company's financial statements or related
disclosures thereto.
In 1998, the Company adopted the provisions of AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). This statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and
identifies characteristics of internal-use software as well as assists in
determining when computer software is for internal use. The adoption had no
material impact on the Company's financial statements or related disclosure
thereto.
F-11
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1998, the Company adopted the provisions of AICPA Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). This
Statement provides guidance on the financial reporting of start-up and
organization costs and requires that such costs of start-up activities be
expensed as incurred. The Company adopted SOP 98-5 in the third quarter ended
September 30, 1998, recording a one-time, non-cash charge of $19,474. The charge
primarily represents previously capitalized start-up costs incurred in the
Company's discontinued broadband communications business and deferred
pre-contract costs as well as non-recurring engineering costs previously carried
in inventory in accordance with SOP 81-1 in the Company's Communications Systems
segment. The adoption of SOP 98-5 by the Company was recorded effective January
1, 1998 as a cumulative effect of change in accounting principle in the
Statement of Operations for the year ended December 31, 1998.
NOTE 2. MERGERS AND ACQUISITIONS
On October 23, 1998, the Company consummated a merger with Delfin Systems
("Delfin") in a stock-for-stock transaction. Delfin provides systems engineering
and program management services, signal intelligence systems, and program
integration and high-end software. Titan issued approximately 3,628,000 shares
of Titan common stock in exchange for all the outstanding shares of Delfin
common stock and assumed Delfin stock options representing approximately 823,000
shares of Titan common stock, based on an exchange ratio of approximately .50
shares of Titan common stock for each share of Delfin common stock. The merger
constituted a tax-free reorganization and has been accounted for as a pooling of
interests.
On August 24, 1998, the Company consummated a merger with VisiCom
Laboratories, Inc., ("VisiCom") in a stock-for-stock transaction. VisiCom
specializes in information technology solutions. Titan issued approximately
4,172,000 shares of common stock in exchange for all the outstanding shares of
VisiCom and assumed VisiCom's stock options representing approximately 593,000
shares of Titan common stock, based on an exchange ratio of approximately .45
shares of Titan common stock for each share of VisiCom's common stock. The
merger constituted a tax-free reorganization and has been accounted for as a
pooling of interests.
On June 30, 1998 the Company consummated a merger with Horizons
Technology, Inc., ("Horizons") in a stock-for-stock transaction. Horizons is a
provider of systems engineering and program management services, computer
systems integration and high-end software. Titan issued approximately 3,200,000
shares of common stock in exchange for all the outstanding shares of Horizons
stock based on exchange ratios of approximately .37 and .82 shares of Titan
common stock for each share of Horizons' common stock and Horizons' preferred
stock, respectively. The merger constituted a tax-free reorganization and has
been accounted for as a pooling of interests.
On February 27, 1998, the Company 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 whose products and systems are primarily used by the
defense and intelligence communities. Titan issued approximately 6,100,000
shares of common stock in exchange for all the outstanding shares of DBA stock
and assumed options representing approximately 441,000 shares of Titan common
stock based on an exchange ratio of approximately 1.37 shares of Titan's common
stock for each share of DBA stock. The merger constituted a tax-free
reorganization and has been accounted for as a pooling of interests.
F-12
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. MERGERS AND ACQUISITIONS (CONTINUED)
Effective January 1, 1998, Delfin's September 30, VisiCom's March 31,
Horizons' January 31 and DBA's June 30 fiscal year-ends have been changed to
coincide with Titan's year-end. Accordingly, the accompanying financial
statements presented herein have been restated to include the combined results
of operations, financial positions and cash flows of Delfin, VisiCom, Horizons
and DBA as if the mergers had occurred at the beginning of the periods
presented.
The combining periods of Titan, Delfin, VisiCom, Horizons and DBA are as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS 1997 AND 1996
-----------------------------------------------------------
<S> <C>
Titan............................ Fiscal years ended December 1997 and 1996
Delfin........................... Fiscal years ended September 1997 and 1996
VisiCom.......................... Fiscal years ended March 1998 and 1997
Horizons......................... Fiscal years ended January 1998 and 1997
DBA.............................. Twelve months ended December 1997 and June 1996
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1997 QUARTERLY PERIODS
------------------------------------------------
Q1 97 Q2 97 Q3 97 Q4 97
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Titan...................................... March 97 June 97 Sept. 97 Dec. 97
Delfin..................................... Dec. 96 March 97 June 97 Sept. 97
VisiCom.................................... June 97 Sept. 97 Dec. 97 March 98
Horizons................................... April 97 July 97 Oct. 97 Jan. 98
DBA........................................ March 97 June 97 Sept. 97 Dec. 97
</TABLE>
For the six months ended December 31, 1996, revenues of $11,724 and net
income of $695 were reported by DBA. Such amounts are not reflected in the
accompanying statements of operations as DBA's fiscal year ended June 30, 1997
was conformed to Titan's fiscal year ended December 31, 1997. DBA's six-month
1996 net income of $695 is reflected as a pooling adjustment in the accompanying
Statement of Stockholders' Equity for the year ended December 31, 1996. Other
adjustments to conform Delfin's, VisiCom's and Horizons' fiscal year-ends were
not significant and resulted in a net pooling adjustment of $(109) in 1998,
which is reflected in the accompanying Statement of Stockholders' Equity for the
year ended December 31, 1998.
F-13
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. MERGERS AND ACQUISITIONS (CONTINUED)
The separate and combined results of Titan, Delfin, VisiCom, Horizons and
DBA in prior years are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
INCOME
(LOSS)FROM
CONTINUING NET INCOME
REVENUES OPERATIONS (LOSS)
---------- ----------- -----------
<S> <C> <C> <C>
Titan................................................... $ 167,050 $ 5,188 $ 5,165
Delfin.................................................. 26,534 (127) (127)
VisiCom................................................. 31,360 (1,352) (13,397)
Horizons................................................ 26,281 1,640 (4,222)
DBA..................................................... 24,698 (6,731) (6,731)
---------- ----------- ---------
$ 275,923 $ (1,382) $ (19,312)
========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
INCOME
LOSS FROM
CONTINUING NET INCOME
REVENUES OPERATIONS (LOSS)
---------- ----------- -----------
<S> <C> <C> <C>
Titan................................................... $ 133,676 $ (50) $ (3,378)
Delfin.................................................. 29,629 (92) (92)
VisiCom................................................. 32,650 1,389 381
Horizons................................................ 29,551 2,934 944
DBA..................................................... 20,470 1,161 1,161
---------- --------- ---------
$ 245,976 $ 5,342 $ (984)
========== ========= =========
</TABLE>
DBA's loss from continuing operations and net loss for the year ended
December 31, 1997 include recognition of a special charge of $9,846 for the
write-down of certain assets to net realizable value and accrual for certain
liabilities as described in Notes 8 and 14.
Net income (loss) reflects the discontinued operations of the broadband
communications business, the access control systems business and certain
operations discontinued by companies prior to their acquisition by Titan. Refer
to Note 3 for further discussion.
On March 31, 1998, the Company acquired all of the outstanding common stock
of Validity Corporation ("Validity") for $12 million in cash, and notes payable
to the shareholders of Validity totaling $3 million, subject to post-closing
adjustments, if any, due and payable March 31, 1999, and bearing interest at the
prime rate. The transaction has been accounted for as a purchase; accordingly,
Validity's results of operations have been consolidated with the Company's
results of operations beginning April 1, 1998. The excess of the purchase price
over the estimated fair value of net assets acquired is being amortized on a
straight line basis over 30 years, and amounted to approximately $18.6 million
as of December 31, 1998.
During the year ended December 31, 1998, the Company recorded special
acquisition related and other charges of $9,891, which includes approximately
$5,500 of direct transaction costs (consisting
F-14
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. MERGERS AND ACQUISITIONS (CONTINUED)
primarily of investment banking and other professional fees), $3,800 of
integration expenses and $600 of pre-operating and start-up costs of the
AfroNetwork, Benin operation. Approximately $4,600 of the direct transaction
costs were incurred in connection with the Delfin, VisiCom, Horizons and DBA
mergers. The remaining $900 in transaction fees were related to costs incurred
to file a withdrawn registration statement of Linkabit Wireless.
The integration costs included approximately $3,500 for severance,
outplacement and retention costs incurred in the Information Technologies and
Communications Systems segments. Included in these amounts were termination
benefits associated with employment agreements, as well as retention amounts
associated with employee retention agreements. The integration costs also
include $330 related to the closure and elimination of leased facilities,
primarily duplicate field offices.
Accruals for unpaid special charges of $1,090 and $250 remain in other
current and non-current liabilities, respectively, at December 31, 1998. Unpaid
amounts at year-end are primarily termination, retention and other integration
costs which will be paid by December 31, 1999.
On May 24, 1996, the Company completed the acquisition of three
privately-held affiliated businesses--Eldyne, Inc. ("Eldyne"), Unidyne
Corporation ("Unidyne") and Diversified Control Systems, LLC ("DCS"). 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 9),
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
$16.9 million at December 31, 1998 is being amortized using a straight-line
method over 30 years.
NOTE 3. DISCONTINUED OPERATIONS
In December 1998, the Company's Board of Directors adopted a plan to wind
down the Company's access control systems business. The results of this business
have been accounted for as a discontinued operation. Revenues for the access
control business were $3,122, $4,136 and $1,808 and operating profit (loss) was
$(3,026), $492 and $483 for the years ended December 31, 1998, 1997 and 1996,
respectively. The 1998 loss includes a charge of $1,500 for the estimated costs
to be incurred in future periods in connection with the winding down of this
business.
In 1997, the Company's Board of Directors adopted a plan to divest the
Company's broadband communications business. The results of the broadband
communications business have been accounted for as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, which among other
provisions, anticipates that the plan of disposal will be carried out within one
year. During
F-15
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3. DISCONTINUED OPERATIONS (CONTINUED)
1998, the Company received cash payments of $4,400 for licensing of the
broadband technology and as settlement of certain contingencies related to the
broadband patents. As a result of a periodic review by management of the
likelihood of receiving further proceeds from the sale of the broadband
technology, which would enable the Company to realize the remaining net assets
of the broadband business, a decision was reached by management in the third
quarter of 1998 to write off such remaining net assets. The write-off resulted
in a pre-tax charge to loss from discontinued operations of $4,638.
Additionally, approximately $7,200 in previously capitalized start-up costs were
written off as part of the cumulative effect of the change in accounting
principle (see Note 1). Revenues for the broadband communications business were
$-0-, $551 and $2,238 for the years ended December 31, 1998, 1997 and 1996,
respectively. Titan deferred losses from the discontinued operation of $9,271 in
1997, which primarily represented amortization and wind-down costs of the
business.
In addition to the discontinued operations of the access control systems
business and the broadband business as discussed above, the accompanying
consolidated financial statements reflect operations discontinued by certain of
the companies acquired by Titan in 1998. The decisions to dispose of or
otherwise wind down these operations were made by the separate Boards of
Directors of the respective acquired companies prior to entering into any
discussions with Titan regarding the potential acquisitions of these entities by
Titan. All periods presented reflect these specific operations as discontinued
operations. Revenue for these discontinued operations aggregated $10,899, $7,999
and $9,367 for the years ended December 31, 1998, 1997 and 1996, respectively,
and losses attributable to these discontinued operations aggregated $-0-,
$17,907 and $2,998 for the same respective periods. Aggregate charges for
estimated costs to be incurred in future periods in connection with the winding
down of these operations amounted to approximately $6,800, substantially all of
which was recorded by the acquired companies in the last quarter of 1997.
Operating losses of approximately $5.8 million were charged against this accrual
during 1998. Additionally, a pre-tax charge of $1,300 was taken in the third
quarter of 1998 based on management's most recent review of estimated future
wind-down costs.
Net liabilities of discontinued operations at December 31, 1998 consist
primarily of accrued liabilities of approximately $12,700, net of current assets
(primarily accounts receivable and inventory) of approximately $6,200. The
liabilities consist of accruals for contract losses, estimated wind-down costs
and costs related to the closure and elimination of leased facilities. Long-term
net assets of discontinued operations are primarily fixed assets.
F-16
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4. OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accounts Receivable:
U.S. Government--billed.................................................................. $ 44,021 $ 33,031
U.S. Government--unbilled................................................................ 30,710 23,648
Trade.................................................................................... 13,586 16,692
Less allowance for doubtful accounts..................................................... (249) (718)
--------- ---------
$ 88,068 $ 72,653
========= =========
Inventories:
Materials................................................................................ $ 3,871 $ 4,343
Work-in-process.......................................................................... 1,788 12,421
Finished goods........................................................................... 2,987 2,062
--------- ---------
$ 8,646 $ 18,826
========= =========
Property and Equipment:
Machinery and equipment.................................................................. $ 45,299 $ 51,238
Furniture and fixtures................................................................... 8,320 6,726
Land, buildings and leasehold improvements............................................... 13,902 14,960
Construction in progress................................................................. 358 406
--------- ---------
67,879 73,330
Less accumulated depreciation and amortization............................................. (42,177) (45,664)
--------- ---------
$ 25,702 $ 27,666
========= =========
</TABLE>
NOTE 5. SEGMENT INFORMATION
In the fourth quarter of 1997, the Company realigned certain operations
within its existing segments and added a fifth segment as a result of adopting
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). On March 31, 1999, the
Company realigned certain operations among its business segments to better
position these operations for strategic transactions pursuant to the Company's
corporate strategy. As a result, the Company is reporting all commercial
satellite communications operating results in its Communications Systems
segment, and all defense information technologies and services operating results
are reported in its Information Technologies segment. This realignment also
conforms to the provisions of SFAS 131. All current and prior year segment data
presented in these financial statements have been restated to conform to the
1999 realignment.
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, develops and produces advanced satellite communications products
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
F-17
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5. SEGMENT INFORMATION (CONTINUED)
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 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 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 Communications Systems segment develops and produces advanced satellite
communications products and systems for commercial customers.
The Emerging Technologies and Businesses segment includes several businesses
which apply the Company's proprietary knowledge and core competencies to
industrial and commercial opportunities.
Substantially all of the Company's operations are located in the United
States. Export revenues amounted to approximately $18,893, $21,365 and $10,693
in 1998, 1997 and 1996, respectively, primarily to countries in the Far East and
Western Europe. All international sales are denominated in U.S. dollars.
The following tables summarize industry segment data for 1998, 1997 and
1996.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Information Technologies................................................... $ 259,442 $ 225,686 $ 211,124
Software Systems........................................................... 21,470 17,374 18,505
Medical Sterilization and Food Pasteurization.............................. 11,184 8,254 7,930
Communications Systems..................................................... 6,717 18,405 3,430
Emerging Technologies and Businesses....................................... 4,615 6,204 4,987
---------- ---------- ----------
$ 303,428 $ 275,923 $ 245,976
========== ========== ==========
</TABLE>
F-18
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5. SEGMENT INFORMATION (CONTINUED)
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 $242,560 in 1998, $225,016 in 1997, and $199,901 in
1996. Inter-segment sales were not significant in any year.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Profit (Loss):
Information Technologies....................................................... $ 25,270 $ 8,361 $ 18,770
Software Systems............................................................... 5,137 4,580 (137)
Medical Sterilization and Food Pasteurization.................................. 1,121 (204) (390)
Communications Systems......................................................... (6,732) (1,074) (5,421)
Emerging Technologies and Businesses........................................... 34 (286) (209)
Corporate...................................................................... (6,477) (2,804) (543)
--------- --------- ---------
$ 18,353 $ 8,573 $ 12,070
========= ========= =========
</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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable Assets:
Information Technologies................................................... $ 131,371 $ 109,383 $ 123,875
Software Systems........................................................... 14,959 8,114 6,139
Medical Sterilization and Food Pasteurization.............................. 14,518 15,466 14,851
Communications Systems..................................................... 5,085 10,655 3,525
Emerging Technologies and Businesses....................................... 67 6,391 1,759
Discontinued Operations, net............................................... 645 7,605 15,031
General corporate assets................................................... 25,922 26,089 28,108
---------- ---------- ----------
$ 192,567 $ 183,703 $ 193,288
========== ========== ==========
</TABLE>
F-19
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5. SEGMENT INFORMATION (CONTINUED)
General corporate assets are principally cash, prepaid expenses, property
and equipment, deferred income taxes and other assets.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Depreciation and Amortization of Property and
Equipment, Goodwill, and Other Assets:
Information Technologies......................................................... $ 4,769 $ 6,395 $ 5,494
Software Systems................................................................. 475 617 1,152
Medical Sterilization and Food Pasteurization.................................... 876 681 781
Communications Systems........................................................... 381 453 139
Emerging Technologies and Businesss.............................................. 25 85 65
Corporate........................................................................ 600 982 413
--------- --------- ---------
$ 7,126 $ 9,213 $ 8,044
========= ========= =========
Capital Expenditures:
Information Technologies........................................................... $ 2,651 $ 4,988 $ 3,995
Software Systems................................................................... 325 453 261
Medical Sterilization and Food Pasteurization...................................... 211 643 1,378
Communications Systems............................................................. 463 358 694
Emerging Technologies and Businesses............................................... 30 86 83
Corporate.......................................................................... 358 119 227
--------- --------- ---------
$ 4,038 $ 6,647 $ 6,638
========= ========= =========
</TABLE>
NOTE 6. INCOME TAXES
The components of the income tax provision from continuing operations are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................................ $ 782 $ 2,046 $ 2,131
State.............................................................................. 278 374 377
--------- --------- ---------
1,060 2,420 2,508
Deferred............................................................................. 3,095 1,764 95
--------- --------- ---------
$ 4,155 $ 4,184 $ 2,603
========= ========= =========
</TABLE>
F-20
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6. INCOME TAXES (CONTINUED)
Following is a reconciliation of the income tax provision from continuing
operations expected (based on the United States federal income tax rate
applicable in each year) to the actual tax provision on income:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected Federal tax provision on continuing operations.............................. $ 3,865 $ 953 $ 2,701
State income taxes, net of Federal income tax benefit................................ 341 92 (18)
Research credit...................................................................... -- (324) --
Goodwill amortization................................................................ 218 351 88
Keyman life insurance................................................................ 24 24 36
Acquisition special charges and other................................................ (293) 3,088 (204)
--------- --------- ---------
Actual tax provision on continuing operations........................................ $ 4,155 $ 4,184 $ 2,603
========= ========= =========
</TABLE>
The deferred tax asset as of December 31, 1998 and 1997, results from the
following temporary differences:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Loss carryforward.......................................................................... $ 7,746 $ 7,798
Employee benefits.......................................................................... 4,275 4,923
Loss from discontinued operations.......................................................... -- (3,338)
Tax credit carryforwards................................................................... 2,096 2,546
Inventory and contract loss reserves....................................................... 10,199 8,919
Depreciation............................................................................... (1,378) (1,400)
Deferred tax on foreign profit............................................................. -- 1,123
Other...................................................................................... (306) (759)
--------- ---------
22,632 19,812
Valuation allowance........................................................................ (11,200) (11,200)
--------- ---------
Net deferred tax asset..................................................................... $ 11,432 $ 8,612
========= =========
</TABLE>
Realization of certain components of the net deferred tax asset is dependent
upon the Company generating sufficient taxable income prior to expiration of
loss and credit carryforwards. Although realization is not assured, management
believes it is more likely than not that the net deferred tax asset will be
realized. The amount of the net deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are changed. Also, under Federal tax law, certain
potential changes in ownership of the Company which may not be within the
Company's control may limit annual future utilization of these carryforwards.
Deferred income taxes of $454 and $314 are included in Other Assets at December
31, 1998 and 1997, respectively.
Cash paid for income taxes was $1,343 and $1,195 in 1998 and 1997,
respectively. Net tax refunds in 1996 were $277.
F-21
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7. DEBT
On July 29, 1998, the Company entered into a credit agreement with a bank
syndicate under which it may borrow up to $80 million, replacing its existing
line of credit agreement. The credit facility includes a five year $55 million
working capital line of credit and a $25 million component dedicated for
acquisitions which converts any outstanding balances after one year into a term
loan, to be repaid in increasing quarterly amounts over four years. The Company
has the option to borrow at the bank base rate or at LIBOR, plus applicable
margins based on the ratio of total debt to EBITDA (earnings before interest,
taxes, depreciation and amortization). The agreement contains, among other
financial covenants, provisions which set maximum debt to EBITDA limits and
which require the Company to maintain stipulated levels of EBITDA, tangible net
worth, a minimum quick ratio, and minimum coverage of fixed charges, as defined.
Initial proceeds of $36.1 million were used to pay off and replace the then
outstanding line of credit balances with the Company's, Horizons' and VisiCom's
banks and for working capital purposes. At December 31, 1998, the outstanding
balances on the working capital line and the acquisition line were $35 million
and $5 million (of which $368 is current), respectively. The borrowings were
subject to a weighted average interest rate of 7.09%, and commitments under
letters of credit reducing availability under the working capital line were
$950.
In November 1996, Titan issued $34,500 of 8.25% convertible subordinated
debentures due 2003. At December 31, 1998, $27,515 remain outstanding. The
debentures are convertible into common stock of the Company at a conversion
price of $3.50 per share, subject to adjustment upon the occurrence of certain
events. The debentures are redeemable, on or after November 2, 1999, initially
at 104.125% of principal amount and at decreasing prices thereafter to 100% of
principal amount through maturity, in each case together with accrued interest.
The debentures also may be repaid at the option of the holder upon a change in
control, as defined in the indenture governing the debentures, at 100% of
principal amount plus accrued interest. The net proceeds from the issuance of
these securities were used to repay borrowings under the Company's bank lines of
credit and for working capital and general corporate purposes.
At December 31, 1998 and 1997, Titan had $3,328 and $4,319, 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,
1998, $1,101 is due within one year. At December 31, 1998 and 1997, the Company
also had outstanding a mortgage note collateralized by real estate with a
balance of $747 and $1,196, respectively, at an interest rate of LIBOR plus
2.5%, of which $112 is due within one year. Long-term debt at entities acquired
by the Company in 1998 was $650 ($368 short-term) at December 31, 1998.
Cash paid for interest, primarily on these borrowings, was $6,491, $6,254
and $3,847 in 1998, 1997, and 1996, respectively. At December 31, 1998 the
Company was in compliance with all financial covenants under its various debt
agreements.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company leases certain buildings and equipment under non-cancelable
operating lease agreements. These leases generally require the Company to pay
all executory costs such as taxes, insurance and maintenance related to the
leased assets. Certain of the leases contain provisions for periodic rate
accelerations to reflect cost-of-living increases. Rental expense under these
leases was $10,130 in 1998, $9,457 in 1997 and $11,928 in 1996. The Company has
entered into a long-term lease
F-22
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreement for facilities which are owned by an entity in which Titan has a
minority ownership interest. Rental expense in 1998, 1997 and 1996 includes
$921, $904 and $884, respectively, paid under this agreement.
Future minimum lease payments under noncancelable operating leases at
December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 8,311
2000............................................................... 6,649
2001............................................................... 5,310
2002............................................................... 4,567
2003............................................................... 3,613
Thereafter......................................................... 9,343
---------
Total minimum lease payments................................... $ 37,793
=========
</TABLE>
In 1997, DBA recorded a $3.0 million charge in recognition of certain
environmental matters at its Kissimmee facility including, but not limited to,
soil contamination and potential asbestos and lead-based paint contamination.
These matters became known to DBA as a result of an environmental study
performed as part of Titan's due diligence process related to the merger with
DBA. The accrual has been recorded in accordance with SFAS No. 5 and SOP 96-1
and represents an initial estimate which could change significantly as further
studies are performed.
In the accompanying balance sheet, approximately $.2 million is included in
other current liabilities and the remaining $2.8 million is included in other
non-current liabilities based on the estimated timing of continued assessments
and remediation work to be performed. This property is currently on the market
and the Company has received several indications of interest (see Note 14). The
Company has commenced its pre-cleanup activities, which are being coordinated
with the sale of the property.
On April 19, 1995 Titan was served in a lawsuit entitled DONALD P. SHAW V.
TITAN CORPORATION (the "Lawsuit"). The Lawsuit was pending in the United States
District Court for the Eastern District of Virginia, Alexandria Division, and
sought compensatory damages in an aggregate amount of $3,000 and punitive
damages in the amount of $1,050 on account of alleged wrongful termination and
intentional infliction of emotional distress. The Lawsuit resulted in a verdict
for the plaintiff awarding $65 in compensatory damages and $350 in punitive
damages which was affirmed on appeal in February 1998.
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further, the
Company and its subsidiaries are subject to claims and from time to time are
named as defendants in legal proceedings. The Company may also assert claims
from time to time. In the opinion of management, the amount of ultimate
liability or recovery with respect to these actions will not materially affect
the financial position or results of operations of the Company.
F-23
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 9. SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company's Series B Preferred Stock had a par value of $1.00, accrued
dividends at a rate of 6% per annum payable quarterly in arrears cumulatively,
had a liquidation preference of $6.00 per share plus accrued and unpaid
dividends (the "Series B Liquidation Preference") and entitled 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 was redeemable at the Series B Liquidation Preference
(i) at the holder's option, after May 24, 1998 until May 24, 2001, and (ii) at
the Company's option, after May 24, 2001 until May 24, 2006. The Company
redeemed all of the outstanding shares of Series B Preferred Stock in 1998.
NOTE 10. CUMULATIVE CONVERTIBLE PREFERRED STOCK
Each share of $1.00 cumulative convertible preferred stock is entitled to
1/3 vote, annual dividends of $1 per share and is convertible at any time into
2/3 share of the Company's common stock. Common stock of 463,248 shares has been
reserved for this purpose. Upon liquidation, the $1.00 cumulative convertible
preferred stockholders are entitled to receive $20 per share, plus cumulative
dividends in arrears, before any distribution is made to the common
stockholders.
NOTE 11. COMMON STOCK
At December 31, 1998, approximately 47,974,672 common shares were reserved
for future issuance for conversion of convertible subordinated debentures,
preferred stock, and all stock incentive plans.
On August 17, 1995, the Board of Directors adopted a Shareholder Rights
Agreement and subsequently distributed one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $1.00 per
share (the "Preferred Shares") at a price of $42.00 per one one-hundredth of a
Preferred Share, subject to adjustment. The Rights become exercisable if a
person or group acquires, in a transaction not approved by the Company's Board
of Directors ("Board"), 15% or more of the Company's common stock or announces a
tender offer for 15% or more of the stock.
If a person or group acquires 15% or more of the Company's common stock,
each Right (other than Rights held by the acquiring person or group which become
void) will entitle the holder to receive upon exercise a number of shares of the
Company's common stock having a market value of twice the Right's exercise
price. If the Company is acquired in a transaction not approved by the Board,
each Right may be exercised for common shares of the acquiring company having a
market value of twice the Right's exercise price. Titan may redeem the Rights at
$.01 per Right, subject to certain conditions. The Rights expire on August 17,
2005.
NOTE 12. STOCK-BASED COMPENSATION PLANS
The Company provides stock-based compensation to officers, directors and key
employees through various fixed stock option plans and to all non-executive
employees through an employee stock purchase plan. The Company has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Accordingly, no
F-24
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12. STOCK-BASED COMPENSATION PLANS (CONTINUED)
compensation cost has been recognized for the fixed stock option or stock
purchase plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS 123, the Company's results
of operations would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss..................................................... As reported $ (19,705) $ (19,312) $ (984)
Pro forma (20,827) (21,019) (1,654)
Net loss per share, basic.................................... As reported (0.59) (0.61) (0.06)
Pro forma (0.62) (0.66) (0.08)
Net loss per share, diluted.................................. As reported (0.57) (0.61) (0.06)
Pro forma (0.60) (0.66) (0.08)
</TABLE>
The Company 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 the Company's stock on
the date of grant. Under the employee plans, an option's maximum term is ten
years. Under the directors' plans, options expire 90 days after the option
holder ceases to be a director. Employee options may be granted throughout the
year; directors' options are granted annually during the first two or three
years as a director. All options vest in 25% increments beginning one year after
the grant date. Stock options assumed by the Company as a result of the mergers
discussed in Note 2 generally retain the terms under which they were granted.
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 71% in 1998, 70% in 1997 and 87% in 1996; and a risk free
interest rate of 4.74% in 1998, 5.72% in 1997 and 6.57% in 1996.
F-25
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12. STOCK-BASED COMPENSATION PLANS (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -----------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES
(000) PRICE (000) PRICE (000)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year....................... 3,697 $ 3.66 3,155 $ 3.37 3,148
Granted................................................ 808 4.30 1,175 3.77 1,202
Exercised.............................................. (258) 2.70 (207) 2.75 (241)
Cancelled.............................................. (589) 4.31 (426) 3.10 (954)
--------- --------- --------- --------- ---------
Outstanding at end of year............................. 3,658 3.77 3,697 3.66 3,155
========= ========= ========= ========= =========
Options exercisable at year-end........................ 1,898 1,994 1,814
Weighted-average fair value of options granted during
the year............................................. $ 5.46 $ 3.42 $ 2.47
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
-----------
<S> <C>
Outstanding at beginning of year....................... $ 3.22
Granted................................................ 3.45
Exercised.............................................. 2.13
Cancelled.............................................. 2.71
---------
Outstanding at end of year............................. 3.37
=========
Options exercisable at year-end........................
Weighted-average fair value of options granted during
the year.............................................
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING -----------------------------------------------
- --------------------------------------- NUMBER
RANGE OF NUMBER WEIGHTED WEIGHTED EXERCISABLE WEIGHTED-
EXERCISE OUTSTANDING AVERAGE AVERAGE AT AVERAGE
PRICES AT 12/31/98 REMAINING EXERCISE PRICE 12/31/98 EXERCISE PRICE
- ------------- ----------- ----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.05 - 3.94 1,852,964 6.06 years $ 2.19 1,283,420 $ 2.25
4.00 - 5.88 1,418,805 8.39 years 4.79 445,636 4.60
6.06 - 9.50 386,232 7.81 years 7.57 168,732 8.34
--------- ----------- -----------
3,658,001 7.15 years 1,897,788
========= =========== ===========
</TABLE>
Under the 1995 Employee Stock Purchase Plan, the Company is authorized to
issue up to 500,000 shares of common stock to its full-time employees. Elected
officers of the Company are not eligible to participate. Under the terms of the
plan, employees may elect to have between 1 and 10 percent of their regular
earnings, as defined in the plan, withheld to purchase the Company's common
stock. The purchase price of the stock is 85 percent of the lower of its market
price at the beginning or at the end of each subscription period. A subscription
period is six months, beginning January 1 and July 1 of each year. Approximately
13%, 11% and 11% of eligible employees participated in the Plan and purchased
92,089, 110,461 and 89,865 shares of the Company's common stock in 1998, 1997
and 1996, respectively. The weighted-average fair value of the purchase rights
granted in 1998, 1997 and 1996 was $1.61, $1.06 and $1.71, respectively.
Four of the Company's wholly-owned subsidiaries have stock option plans for
the granting of subsidiary common 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, the Company's ownership in each of the subsidiaries would be diluted
by no greater than 20% to 30%.
F-26
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 13. BENEFIT PLANS
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $3,326, $2,914 and
$3,040 in 1998, 1997 and 1996, respectively. Titan's and Horizons' combined
discretionary contributions to their Employee Stock Ownership Plans were $295,
$372 and $120 in 1998, 1997 and 1996, respectively. Discretionary contributions
to a profit sharing plan covering certain employees were $150, $175 and $150 in
1998, 1997 and 1996, respectively. During 1997 and 1996, the Company utilized
treasury stock of $344 and $1,192, respectively, for benefit plan contributions.
The Company has a non-qualified executive deferred compensation plan for
certain officers and key employees. The Company's expense for this plan was
$824, $821 and $901 in 1998, 1997 and 1996, respectively. Interest expense for
the years ended December 31, 1998, 1997 and 1996 includes $650, $527 and $561,
respectively, related to the plan. Included in other non-current liabilities is
$4,311 and $3,954 related to this plan at December 31, 1998 and 1997,
respectively. The Company also has performance bonus plans for certain of its
employees. Related expense amounted to approximately $3,316, $2,125 and $1,709
in 1998, 1997 and 1996, respectively.
The Company has previously provided for postretirement benefit obligations
of operations discontinued in prior years. The Company has no postretirement
benefit obligations for any of its continuing operations nor for its recently
discontinued businesses.
NOTE 14. DBA ASSET IMPAIRMENTS
The Company has a 141,000 square foot manufacturing facility located in
Kissimmee, Florida which was acquired in the merger with DBA. The property has
been held for sale since June 1996. As a result of several factors, including
offers received by third parties, management concluded that there had been an
impairment in the carrying value of the asset. A charge of $2.0 million was
recorded in the Company's financial statements for the year ended December 31,
1997 which reflects management's estimate of the impairment, including estimated
disposal costs. Titan management has a program of ongoing maintenance (and
environmental remediation - see Note 8) and is actively marketing the property
for sale through various channels. Management regularly reviews this asset for
further impairment, and believes that the recorded book value at December 31,
1998 reflects an amount which is not less than net realizable value.
In September 1997, DBA invested $1.6 million in a start-up venture. To date,
this start-up venture has not yet generated any significant business and has
generated no significant revenue. In light of these circumstances, Titan
management believed that there was an impairment in the value of the investment
as recorded by DBA. An adjustment to write down the investment by $1.6 million
was recorded in the results of operations for the year ended December 31, 1997.
NOTE 15. SUBSEQUENT EVENT
In January 1999, the Company's wholly-owned subsidiary, Titan Software
Systems Corporation, acquired Transnational Partners II, LLP ("TNP"), a software
services company which provides infrastructure and enterprise resources planning
solutions for major corporations, for $9.8 million in a transaction that will be
accounted for as a purchase. The purchase price consisted of $7 million cash, a
$2.8 million note due January 2000 (bearing interest at 7%), subject to certain
post-closing adjustments, and a preferred stock representing a minority interest
in Titan Software Systems Corporation, which comprises the Company's Software
Systems segment.
F-27
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1998 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------------------------------------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................................... $ 64,630 $ 75,413 $ 78,635 $ 84,750 $ 303,428
Gross profit........................................... 15,163 17,071 17,628 21,525 71,387
Income from continuing operations before cumulative
effect of change in accounting principle............. 954 2,973 1,948 1,338 7,213
Net income (loss)...................................... (18,349) 3,184 (4,051) (489) (19,705)
Basic earnings per share:
Income from continuing operations.................... 0.02 0.08 0.05 0.03 0.18
Net income (loss).................................... (0.55) 0.09 (0.11) (0.02) (0.59)
Diluted earnings per share:
Income from continuing operations.................... 0.02 0.07 0.05 0.03 0.18
Net income (loss).................................... (0.53) 0.08 (0.09) (0.02) (0.57)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1997 QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------------------------------- --------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................................ $ 67,827 $ 70,255 $ 66,931 $ 70,910 $ 275,923
Gross profit............................................ 14,808 17,102 14,776 12,684 59,370
Income (loss) from continuing operations................ 2,253 2,301 (4,366) (1,570) (1,382)
Net income (loss)....................................... 1,172 1,619 (15,765) (6,338) (19,312)
Basic earnings (loss) per share:
Income (loss) from continuing operations.............. 0.06 0.06 (0.14) (0.05) (0.07)
Net income (loss)..................................... 0.03 0.04 (0.48) (0.20) (0.61)
Diluted earnings (loss) per share:
Income (loss) from continuing operations.............. 0.06 0.06 (0.14) (0.05) (0.07)
Net income (loss)..................................... 0.03 0.04 (0.48) (0.20) (0.61)
</TABLE>
The above financial information for each quarter reflects all normal and
recurring adjustments.
Previously reported amounts have been restated to reflect the acquisitions,
accounted for as poolings of interests, of Horizons, VisiCom and Delfin in the
second, third and fourth quarters of 1998, respectively, the discontinuance of
the Company's access control systems business in the fourth quarter of 1998, and
to reflect the cumulative effect of a change in accounting principle as
effective in the first quarter of 1998.
Net results for the first quarter of 1998 reflect a charge of $19,474 for
the cumulative effect of a change in accounting principle (see Note 1). Income
(loss) from continuing operations and net income (loss) include special charges
of $1,460, $3,093 and $5,338 in the first, third and fourth quarters of 1998,
respectively, and asset and investment write-downs and environmental accrual of
$5,000 and $4,846 in the third and fourth quarters of 1997, respectively (see
Notes 2 and 14).
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Advanced Communication Systems, Inc:
We have audited the accompanying consolidated balance sheets of Advanced
Communication Systems, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Communication
Systems, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1999, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Vienna, Virginia
November 12, 1999
F-29
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,615 $ 2,457
Contract receivables, net................................... 67,834 54,059
Other receivables........................................... 1,617 374
Prepaid expenses............................................ 1,279 958
Inventories................................................. 932 583
-------- --------
Total current assets.................................... 73,277 58,431
-------- --------
Property and equipment, net................................. 7,908 8,044
Other assets:
Software development costs, net............................. -- 3,186
Intangibles, net............................................ 61,603 49,726
Other non-current assets.................................... 414 348
-------- --------
Total other assets...................................... 62,017 53,260
-------- --------
Total assets........................................ $143,202 $119,735
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................... $ 87 $ 87
Obligations under capital leases............................ 877 1,100
Accounts payable............................................ 5,773 9,577
Accrued expenses and other current liabilities.............. 27,789 22,772
Billings in excess of revenue............................... 1,182 1,208
Deferred profit............................................. 5,319 --
Income taxes payable........................................ 738 1,104
Deferred income tax liability............................... 2,317 1,059
-------- --------
Total current liabilities............................... 44,082 36,907
Obligations under capital leases--long-term................. 420 523
Deferred income tax liability--long-term.................... 1,226 858
Long-term debt.............................................. 47,580 36,564
-------- --------
Total liabilities....................................... 93,308 74,852
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding.............. -- --
Common stock, $.01 par value, 40,000,000 shares authorized,
11,450,000 shares issued at September 30, 1999 and 1998 115 115
Paid-in capital............................................. 42,511 41,105
Retained earnings........................................... 7,578 3,991
Less--Treasury stock, 2,701,513 shares at September 30, 1999
and 2,854,887 shares at September 30, 1998................ (310) (328)
-------- --------
Total stockholders' equity.............................. 49,894 44,883
-------- --------
Total liabilities and stockholders' equity.......... $143,202 $119,735
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-30
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $218,252 $107,752 $52,194
Direct costs................................................ 147,667 69,847 37,687
Indirect, general and administrative expenses............... 53,863 28,834 11,128
Provision for doubtful accounts............................. 2,514 -- --
Write-off of capitalized software development costs (Note
7)........................................................ 3,893 -- --
Write-off of acquired in-process R & D costs (Note 4)....... -- -- 1,910
-------- -------- -------
Income from operations...................................... 10,315 9,071 1,469
Interest expense............................................ (4,492) (1,918) (136)
Other income, net........................................... 160 82 153
-------- -------- -------
Income before taxes......................................... 5,983 7,235 1,486
Provision (benefit) for income taxes........................ 2,402 2,861 (250)
-------- -------- -------
Net income.................................................. $ 3,581 $ 4,374 $ 1,736
======== ======== =======
Net income per share-basic.................................. $ 0.41 $ 0.61 $ 0.40
======== ======== =======
Net income per share-diluted................................ $ 0.41 $ 0.60 $ 0.40
======== ======== =======
Weighted average shares outstanding-basic................... 8,680 7,221 4,306
======== ======== =======
Weighted average shares outstanding-diluted................. 8,803 7,326 4,352
======== ======== =======
Pro forma statements of operations data:
(unaudited--Note 2)
Income before taxes as reported............................. $ 1,486
Pro forma income tax provision.............................. 571
-------
Pro forma net income........................................ $ 915
=======
Pro forma net income per share-basic........................ $ 0.20
=======
Pro forma net income per share-diluted...................... $ 0.19
=======
Pro forma weighted average shares outstanding-basic......... 4,682
=======
Pro forma weighted average shares outstanding-diluted....... 4,729
=======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-31
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENT
FOR
REDEMPTION
VALUE GREATER
COMMON STOCK THAN AMOUNTS
---------------------- PAID-IN RETAINED PAID IN BY TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS STOCK TOTAL
---------- --------- -------- ----------- ----------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996...... 6,750,000 67 16,506 4,520 (16,438) (280) 4,375
Net income......................... -- -- -- 1,736 -- -- 1,736
Sale of common stock............... 2,225,000 23 14,341 -- -- -- 14,364
Sale of treasury stock............. -- -- -- -- -- 57 57
Purchase of treasury stock......... -- -- -- -- -- (66) (66)
Stockholder distributions.......... -- -- -- (6,625) -- -- (6,625)
Translation adjustment............. -- -- -- (13) -- -- (13)
Cancellation of stock repurchase
agreements....................... -- -- (16,438) -- 16,438 -- --
---------- ---- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1997...... 8,975,000 90 14,409 (382) -- (289) 13,828
Net income......................... -- -- -- 4,374 -- -- 4,374
Sale of common stock............... 2,000,000 20 22,627 -- -- -- 22,647
Common stock issued for
acquisition...................... 475,000 5 3,295 -- -- -- 3,300
Exercise of stock options and
purchases under the Employee
Stock Purchase Plan.............. -- -- 589 -- -- (39) 550
Tax benefit attributable to the
exercise of non-qualified stock
options.......................... -- -- 185 -- -- -- 185
Translation adjustment............. -- -- -- (1) -- -- (1)
---------- ---- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1998...... 11,450,000 115 41,105 3,991 -- (328) 44,883
Net income......................... -- -- -- 3,581 -- -- 3,581
Exercise of stock options and
purchases under the Employee
Stock Purchase Plan.............. -- -- 1,262 -- -- 18 1,280
Tax benefit attributable to the
exercise of non-qualified stock
options.......................... -- -- 144 -- -- -- 144
Translation adjustment............. -- -- -- 6 -- -- 6
---------- ---- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1999...... 11,450,000 $115 $42,511 $ 7,578 $ -- $(310) $49,894
========== ==== ======== ======= ======== ===== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-32
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 3,581 $ 4,374 $ 1,736
Adjustments to reconcile net income to net cash (used in)
provided by operating activities--
Depreciation and amortization............................. 3,804 2,264 471
Provision for doubtful accounts........................... 2,514 -- --
Write-off of capitalized software development costs....... 3,893 -- --
Deferred tax liability.................................... 1,626 1,078 (238)
Reduction of deferred profit.............................. (1,024) -- --
Write-off of acquired in-process R & D costs.............. -- -- 1,910
Changes in assets and liabilities:
Contract receivables.................................... (15,062) (9,579) (9,414)
Other receivables....................................... (1,624) (157) (303)
Income taxes receivable................................. -- 529 (636)
Prepaid expenses........................................ (321) 532 (84)
Inventories............................................. (349) (39) (182)
Other assets............................................ (60) 40 (80)
Accounts payable........................................ (3,793) (1,459) 715
Accrued expenses and other current liabilities.......... 4,251 2,242 4,983
Billings in excess of revenue........................... (26) 606 (502)
Income taxes payable.................................... (372) 1,165 --
-------- -------- -------
Net cash (used in) provided by operating activities... (2,962) 1,596 (1,624)
-------- -------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired.......................... (1,974) (54,175) (4,438)
Purchases of property and equipment......................... (1,906) (2,492) (678)
Capitalized software development costs...................... (707) (2,339) (626)
Contingent purchase price payment........................... (5,000) -- --
Collection of notes receivable--stockholders................ -- -- 443
-------- -------- -------
Net cash used in investing activities................. (9,587) (59,006) (5,299)
-------- -------- -------
Cash flows from financing activities:
Net proceeds from the sale of common stock.................. -- 22,647 14,364
Net borrowings (repayments)................................. 16 (884) --
Net borrowings (repayments) under line of credit............ 10,971 35,000 (2,701)
Deferred financing costs.................................... (234) (45) --
Net repayments of obligations under capital leases.......... (326) (145) --
Exercise of stock options and purchases under the ESPP...... 1,280 550 57
Stockholder distributions................................... -- -- (3,164)
Purchase of treasury stock.................................. -- -- (66)
-------- -------- -------
Net cash provided by financing activities............. 11,707 57,123 8,490
-------- -------- -------
Net (decrease) increase in cash............................. (842) (287) 1,567
Cash and cash equivalents, beginning of period.............. 2,457 2,744 1,177
-------- -------- -------
Cash and cash equivalents, end of period.................... $ 1,615 $ 2,457 $ 2,744
======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-33
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Advanced Communication Systems, Inc. (the "Company") was incorporated in
1987 in the state of Delaware. The Company provides communications, information
systems and applied technology, predominantly to U.S. government agencies and to
a lesser extent commercial and international customers. In August 1997, the
Company acquired RF Microsystems, Inc. ("RFM"), a provider of technical and
engineering services to the Department of Defense in the areas of
communications, navigation, electronic warfare and digital signal systems. In
fiscal 1998, the Company acquired Integrated Systems Control, Inc. ("ISC"), a
satellite communication engineering company, Advanced Management Incorporated
("AMI"), a provider of a wide range of information technology services and
SEMCOR, Inc. ("SEMCOR"), a provider of technical and engineering services in the
areas of communication services, information and applied technology. In fiscal
1999, the Company acquired Program Support Associates, Inc. ("PSA"). PSA
develops, installs and supports online, real time financial management
information systems primarily to the Department of Defense.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Advanced
Communication Systems, Inc. and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement
replaces the previously reported primary and fully diluted net income per share
with basic and diluted net income per share. Unlike primary net income per
share, basic net income per share excludes any dilutive effects of stock
options. Diluted net income per share is similar to the previously reported
fully diluted net income per share. All net income per share amounts have been
restated to conform to SFAS No. 128. No reconciling items existed between the
net income used for basic and diluted net income per share. The only reconciling
item between the shares used for basic and diluted net income per share related
to outstanding stock options.
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Prior to June 25, 1997, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income taxes. The
pro forma statement of operations data reflects federal and state income taxes
at applicable rates as if the Company had not elected S corporation status for
the period indicated. Pro forma net income per share has been computed by
dividing pro forma net income by the pro forma weighted average number of common
shares outstanding during the period.
The pro forma weighted average shares outstanding is based on: (i) the
weighted average shares outstanding during the period assuming the dilutive
effect of all options outstanding for diluted pro forma net income per share and
(ii) the assumed sale of a sufficient number of shares of the Company's common
stock necessary to fund the distribution of all undistributed S corporation
earnings in excess of the preceding twelve months earnings, through the date of
the offering.
F-34
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
MANAGEMENT'S 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.
SUPPLEMENTAL STATEMENTS OF CASH FLOWS DATA
The Company paid income taxes in the amount of approximately $1,193,000,
$198,000 and $608,000 and interest expense of approximately $4,318,000,
$1,925,000 and $136,000 during the fiscal years ended September 30, 1999, 1998
and 1997, respectively. The Company acquired all of the outstanding shares of
ISC in exchange for 475,000 shares of the Company's Common Stock in fiscal 1998.
(See Note 4).
REVENUE RECOGNITION
The Company provides services, primarily to the U.S. government, on a
contractual basis. Revenue on cost plus fixed fee contracts is recognized to the
extent of costs incurred plus a proportionate amount of fees earned. Revenue on
time and materials contracts is recognized at the contractual rates as labor
hours and direct expenses are incurred. Revenue on fixed price contracts is
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated contract losses are recognized as
soon as they become known and estimable.
The Company also provides off-the-shelf hardware and software products to
the U.S. government under the GSA Schedule Contract and to commercial companies.
Related revenue is recognized when products are shipped or when customers have
accepted the products, depending on contractual terms.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and contract
receivables. The Company maintains cash and cash equivalents in a high credit
quality financial institution. The credit risk with respect to contract
receivables is mitigated because the majority of the Company's contract
receivables are due from agencies of the U.S. government, and non-government
receivables are comprised of relatively small amounts due from a diverse
customer base.
For the years ended September 30, 1999, 1998 and 1997, approximately
$198,966,000, $97,463,000, and $48,284,000, respectively, of the Company's
revenues were derived from contracts or subcontracts funded by the U.S.
government, most of which were funded by the Department of Defense. Government
contracts can be terminated at any time by the government without cause, are
subject to competitive rebidding process upon expiration, require compliance
with various contract procurement regulations and are subject to audit by the
Defense Contract Audit Agency and other government auditors.
F-35
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
INVENTORIES
Inventories consisting of computer and communications hardware, that are
used in the completion of contractual obligations, are stated at the lower of
cost or market. Cost is determined using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives, five to seven years, primarily using the straight-line
method. One of the Company's subsidiaries uses an accelerated method and will
adopt the straight-line method in fiscal 2000. Leasehold improvements are
amortized on a straight-line basis over the shorter of the useful life of the
asset or the lease terms. Buildings are depreciated over forty years on a
straight-line basis.
SOFTWARE DEVELOPMENT COSTS
In compliance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, certain software development
costs are capitalized in the accompanying balance sheets. Capitalization of
software development costs begins upon the establishment of technological
feasibility. Capitalization ceases and amortization of capitalized costs begins
when the software product is commercially available for general release to
customers. Amortization of capitalized software development costs is computed
using the straight-line method over the remaining estimated economic life of the
product, not to exceed five years (See Note 7).
RESEARCH AND DEVELOPMENT EXPENSES
The Company expenses research and development costs as they are incurred.
Research and development expenses for all periods presented were not material
except for acquired in-process research and development costs (See Note 4).
INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consists of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- AMORTIZATION
1999 1998 PERIOD
-------- -------- ------------
<S> <C> <C> <C>
Goodwill..................................... $57,586 $45,687 5 - 40 years
Customer lists............................... 3,673 3,929 16 years
Debt financing costs......................... 344 110 2 years
------- -------
$61,603 $49,726
======= =======
</TABLE>
F-36
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Debt financing costs represents fees and other costs incurred in connection
with the issuance of long term debt. These costs are amortized to interest
expense over the term of the related debt using the effective interest rate
method.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including software development
costs and property and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets. The
Company has determined that as of September 30, 1999 and 1998, there has been no
impairment in the carrying value of long-lived assets, with the exception of the
write-off related to software development costs of approximately $3,893,000
discussed in Note 7.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership interest
in an entity, or a contract that imposes an obligation to deliver cash or other
financial instruments to a second party. The carrying amounts of current assets
and current liabilities in the accompanying financial statements approximate
fair value due to the short maturity of these instruments. The carrying amount
of long-term debt approximates fair value based on borrowing rates currently
available to the Company for bank loans with similar terms and maturities.
INCOME TAXES
From October 1, 1989 through June 25, 1997, the Company elected to be
treated as an S corporation and was not subject to federal and certain state
income taxes. As a result, no provision for federal and state income taxes has
been included in the historical statements of operations prior to June 25, 1997.
On June 25, 1997, in connection with the initial public offering, the
S corporation status was terminated, thereby subjecting future income of the
Company to federal and state income taxes. Subsequent to June 25, 1997, the
Company has provided for federal and state income taxes in the statements of
operations at the effective tax rates.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the
current year's presentation.
3. OFFERINGS OF COMMON STOCK AND DISTRIBUTIONS TO STOCKHOLDERS:
In July 1997, the Company consummated the initial public offering of its
common stock (the "Initial Public Offering"), selling 2,225,000 shares of common
stock, including the underwriter's overallotment option of 375,000 shares, for
$7.50 per share. The Initial Public Offering resulted in net proceeds to the
Company of approximately $14,400,000 after deducting underwriters discounts and
offering expenses payable by the Company. In connection with the Initial Public
Offering, the Company
F-37
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. OFFERINGS OF COMMON STOCK AND DISTRIBUTIONS TO STOCKHOLDERS: (CONTINUED)
terminated its S corporation election and made distributions to the pre-Initial
Public Offering stockholders of its undistributed S corporation earnings of
approximately $6,600,000.
In May 1998, the Company consummated a public offering of 2,000,000 shares
of its common stock for $12.375 per share. The offering resulted in net proceeds
to the Company of approximately $22,600,000 after deducting underwriting
discounts and offering expenses payable by the Company. The majority of the
proceeds was used to pay the outstanding debt incurred in the acquisition of AMI
(See Note 4).
4. ACQUISITIONS:
RF MICROSYSTEMS, INC.
In August 1997, the Company acquired all of the outstanding common stock of
RFM for cash consideration of $5,000,000. The acquisition has been accounted for
as a purchase, and the financial results of RFM have been included in the
results of operations from the date of acquisition. The total purchase price has
been allocated to the acquired assets and liabilities assumed at their estimated
fair values in accordance with the provisions of Accounting Principles Board
Opinion No. 16. The excess of the purchase price over the net assets acquired is
being carried as goodwill, in the amount of $1,698,000, which is being amortized
over its estimated useful life of 15 years. The consolidated statement of
operations includes a $1,910,000 charge, based on a third-party appraisal, taken
at the time of the acquisition for acquired in-process research and development
costs related to acquired technology that has not reached technological
feasibility and that has no alternative future use.
INTEGRATED SYSTEMS CONTROL, INC.
In November 1997, the Company acquired all of the outstanding shares of ISC
in exchange for 475,000 shares of the Company's common stock. The acquisition
has been accounted for as a purchase and accordingly the total purchase price
has been allocated to acquired assets and liabilities assumed at their estimated
fair values. The excess of the purchase price over the net assets acquired is
being carried as goodwill, in the amount of approximately $1,428,000, which is
being amortized over its estimated useful life of 30 years.
ADVANCED MANAGEMENT INCORPORATED
In February 1998, the Company acquired all of the outstanding shares of AMI
for $19,500,000 in cash and additional contingent payments for each of two
consecutive twelve month periods following the closing date of the acquisition
up to a maximum of $5,250,000 for each period. AMI did not achieve the financial
goals required for the first twelve-month period and management believes it is
unlikely that AMI will achieve the financial goals for the second twelve-month
period ending January 31, 2000. The acquisition has been accounted for as a
purchase, and accordingly, the purchase price has been allocated to the acquired
assets and liabilities assumed at their estimated fair values. The excess of the
purchase price over the net assets acquired is being carried as intangible
assets, including goodwill and customer lists, in the amounts of approximately
$12,648,000 and $4,100,000, respectively, which is being amortized over their
estimated useful lives of 40 and 16 years, respectively.
F-38
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS: (CONTINUED)
SEMCOR, INC.
In June 1998, the Company acquired all of the outstanding shares of SEMCOR
for a preliminary purchase price of $38,100,000 in cash and additional
contingent payments based on the achievement of certain financial goals for the
six-month period ending December 31, 1998, up to a maximum of $5,000,000 and for
the twelve-month period ending December 31, 1999, up to a maximum of
$10,000,000. SEMCOR successfully achieved the financial goals for the six-month
period ended December 31, 1998, as outlined in the stock purchase agreement, and
accordingly the selling shareholders were paid the maximum of $5,000,000 in
February 1999. The Company believes that a substantial portion of the second
contingent payment that is due in February 2000, will be payable to the selling
shareholders. The acquisition has been accounted for as a purchase, and
accordingly the preliminary purchase price has been allocated to the acquired
assets and liabilities assumed at their estimated fair values, based on a
third-party appraisal. In connection with the final determination of the fair
value of assets acquired and pursuant to the provisions of Accounting Principles
Board Opinion No. 16, the Company has valued acquired contracts in process at
contract price, minus the estimated costs to complete and an allowance for the
normal industry profit on its effort to complete such contracts, which amounted
to $6,343,000. Effective April 1, 1999, this adjustment has been reflected in
the accompanying balance sheet as an increase to goodwill and a corresponding
increase to deferred profit. The Company recognized approximately $1,024,000 as
a reduction of costs in fiscal 1999, with the remaining $5,319,000 to be
recorded as a reduction of costs in future periods as work on certain contracts
is performed. The excess of the preliminary purchase price and the first
contingent payment over the net assets acquired is being carried as goodwill, in
the amount of $41,784,000, and is being amortized over its estimated useful life
of 40 years. The amount to be paid for the second contingent payment will be
recorded on the measurement date of December 31, 1999, as additional goodwill.
PROGRAM SUPPORT ASSOCIATES, INC.
In September 1999, the Company acquired all of the outstanding shares of PSA
for $2,300,000 in cash, of which $662,000 is included in accrued expenses at
September 30, 1999, and additional contingent payments, up to $1,000,000, upon
the achievement of certain financial goals during the period commencing January
1, 2000, and ending December 31, 2000. The acquisition has been accounted for as
a purchase, and accordingly, the total purchase price has been allocated to the
acquired assets and liabilities assumed at their estimated fair values. The
excess of the purchase price over the net assets acquired is being carried as
goodwill, in the amount of approximately $1,942,000, which will be amortized
over 20 years.
The following unaudited pro forma summary presents information as if each
acquisition had occurred at the beginning of the fiscal year preceding the
period in which the acquisition was
F-39
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS: (CONTINUED)
consummated. The pro forma information does not necessarily reflect the results
that would have occurred nor is it necessarily indicative of future results of
operations of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER PER SHARE
DATA)
<S> <C> <C> <C>
Revenues...................................... $223,065 $190,596 $181,446
Net income.................................... $ 3,783 $ 4,614 $ 3,005
Net income per share--basic................... $ 0.44 $ 0.64 $ 0.58
Net income per share--diluted................. $ 0.43 $ 0.63 $ 0.57
</TABLE>
5. CONTRACT RECEIVABLES:
Contract receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. government:
Amounts billed.......................................... $25,625 $22,088
Recoverable costs and accrued profit on progress
completed; not billed................................. 38,422 27,777
------- -------
Subtotal.............................................. 64,047 49,865
------- -------
Commercial customers:
Amounts billed.......................................... 3,513 4,469
Recoverable costs and accrued profit on progress
completed; not billed................................. 1,235 864
------- -------
Subtotal.............................................. 4,748 5,333
------- -------
Less allowance for doubtful accounts...................... 961 1,139
------- -------
Total................................................. $67,834 $54,059
======= =======
</TABLE>
In fiscal 1999, the Company incurred a charge for an uncollected receivable
from the Australian Navy in the amount of approximately $1,800,000. The
receivable was related to the development and installation of RANSALTS, a
SALTS-type product.
F-40
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $1,231 $1,231
Buildings................................................... 1,946 1,946
Furniture and equipment..................................... 10,232 9,411
Equipment under capital leases.............................. 3,470 4,366
Leasehold improvements...................................... 294 305
------ ------
17,173 17,259
Less accumulated depreciation and amortization.............. 9,265 9,215
------ ------
Total property and equipment, net........................... $7,908 $8,044
====== ======
</TABLE>
7. SOFTWARE DEVELOPMENT COSTS:
Software development costs consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cost....................................................... $ 4,357 $3,650
Less accumulated amortization.............................. (464) (464)
Less write-off............................................. (3,893) --
------- ------
Total software development costs, net...................... $ -- $3,186
======= ======
</TABLE>
Software development costs capitalized were $707,000, $2,339,000 and
$626,000 in the years ended September 30, 1999, 1998 and 1997, respectively.
Amortization expense for the years ended September 30, 1999, 1998 and 1997 was
approximately $0, $103,000 and $137,000 respectively.
In 1999, the Company discontinued development of its SALTS related software
products, and accordingly, the results of operations for the year ended
September 30, 1999, includes a one-time charge of approximately $3,893,000 in
capitalized SALTS software development costs.
F-41
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries, benefits and related taxes.............. $ 5,695 $ 7,098
Accrued vacation.......................................... 3,663 3,243
Accrued bonuses........................................... 1,320 763
Accrued subcontractor and other direct costs.............. 14,465 8,841
Accrued acquisition costs................................. 763 744
Provision for loss contracts.............................. 683 1,391
Other accrued expenses and current liabilities............ 1,200 692
------- -------
$27,789 $22,772
======= =======
</TABLE>
9. RELATED-PARTY TRANSACTIONS:
In 1993, the Company entered into a ten-year lease with a real estate
management company ("10089 Management") to lease its headquarters facility. The
owners of 10089 Management include the principal stockholders of the Company.
The lease was scheduled to expire on August 31, 2003 and required rental
payments of approximately $29,000 per month, increased annually based on the
Consumer Price Index. In July 1999, the facility was sold to a non-affiliated
third party from whom the Company currently leases the facility.
The Company also provided management services for 10089 Management at no
cost. Included in other receivables at September 30, 1998, was $88,000 due from
10089 Management for reimbursable operating expenses paid for by the Company.
F-42
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Line of credit:
$60,000,000 line of credit with a commercial bank
expiring February 28, 2002............................ $46,000 $35,000
$400,000 line of credit with a commercial bank, interest
at Prime plus 1%, due on demand....................... 50 --
Notes payable:
Note payable to bank, interest at 9.9%, due
February 2005, secured by a First Deed of Trust on an
office building....................................... 951 964
Note payable to Urban Business Development Corporation,
interest at 8.575%, due January 2015, guaranteed by the
Small Business Administration and secured by a Second
Deed of Trust on an office building..................... 666 687
------- -------
47,667 36,651
Less current maturities................................... 87 87
------- -------
$47,580 $36,564
======= =======
</TABLE>
The aggregate maturities of long-term debt in each of the next five fiscal
years is as follows (in thousands): $87 in 2000; $41 in 2001; $46,045 in 2002;
$48 in 2003; $55 in 2004 and $1,390 thereafter.
LINES OF CREDIT
In February 1998, the Company entered into a line of credit arrangement,
consisting of two credit facilities aggregating $35,000,000, with a commercial
bank, refinancing the Company's then-existing line of credit and the outstanding
commercial bank debt of ISC. The Company's subsidiary, ISC, had three notes
payable totaling approximately $1,671,000 at the date of acquisition, secured by
accounts receivable, equipment and other assets, which were repaid using the
above mentioned facility in February 1998. The credit facility was also used to
finance the acquisition of AMI and to provide for the working capital needs of
the Company. The first facility, in an amount up to $15,000,000, may be used to
finance acquisitions, working capital, and other corporate purposes, and bears
interest at either the bank's prime rate or at a London interbank offered rate
("LIBOR") for one, two or three month periods, plus a percentage, not more than
2.2%, which depends on the Company's historical performance. The second
facility, in an amount up to $20,000,000, may be used to finance acquisitions,
and bears interest at either the bank's prime rate or at a LIBOR rate plus a
percentage, not more than 2.45%, which depends on the Company's historical
financial performance. The credit agreement contains various covenants requiring
the Company and its subsidiaries, on a consolidated basis, to maintain certain
financial ratios, including, funded debt to earnings before interest,
depreciation, income taxes and amortization ("EBITDA"), EBITDA coverage ratio
and minimum net worth and prohibits the payment of dividends.
F-43
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT: (CONTINUED)
In June 1998, the line of credit arrangement was increased to $45,000,000,
from $35,000,000, to finance the acquisition of SEMCOR and to provide for the
working capital needs of the Company. This credit arrangement was subject to
similar terms and conditions as the original arrangement that was entered into
in February 1998.
In February 1999, the line of credit arrangement was increased to
$60,000,000 to finance the additional contingent payment to the selling
shareholders of SEMCOR and to provide for the working capital needs of the
Company. This credit arrangement was subject to similar terms and conditions as
the original arrangement that was entered into in February 1998.
Subsequent to year-end, the Company and the commercial bank executed an
amendment to the line of credit arrangement that restated the definition of
EBITDA to exclude $4,800,000 in calculating the funded debt to EBITDA financial
covenant with respect to any fiscal period from September 30, 1999, through and
including June 30, 2000. As of September 30, 1999, $58,400,000 was available on
this credit arrangement and the outstanding balance was $46,000,000 with an
additional $3,800,000 in standby letters of credit.
In September 1999, the Company acquired PSA, and as a result, assumed its
liabilities that, in part, consisted of $50,000 outstanding under a line of
credit. This credit arrangement with a commercial bank, in the amount of
$400,000, bears interest at the bank's prime rate plus one percent and is due on
demand.
At September 30, 1999, and 1998, the Company had $46,050,000 and
$35,000,000, respectively, outstanding under these arrangements. For the years
ended September 30, 1999, 1998 and 1997, interest expense under these credit
facilities was approximately $3,803,000, $1,410,000 and $136,000, respectively,
at weighted average interest rates of 8.16%, 8.10% and 8.75%, respectively.
11. INCOME TAXES:
Following the completion of the Offering, the Company became subject to
federal and state income taxes. The following audited information for the years
ended September 30, 1999 and 1998, and the unaudited pro forma information for
the year ended September 30, 1997, has been determined based on the provisions
of SFAS No. 109. The September 30, 1997, information reflects income tax expense
(benefit) that the Company would have incurred had it been subject to federal
and state income taxes. The income tax provision for the years ended
September 30, 1999 and 1998, are based on actual amounts as the Company was
subject to federal and state income taxes for both years.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997 (PRO FORMA)
-------- -------- ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit)
Current
Federal.................................... $ 391 $1,359 $521
State...................................... 803 440 75
Deferred..................................... 1,208 1,062 (25)
------ ------ ----
$2,402 $2,861 $571
====== ====== ====
</TABLE>
F-44
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES: (CONTINUED)
The provision for income taxes results in effective rates that differ from
the federal statutory rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1999 1998 1997 (PRO FORMA)
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Statutory federal income tax rate.............. 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit...................................... 6.4 5.8 4.9
Other.......................................... (0.3) (0.3) (0.5)
------ ---- ----
40.1% 39.5% 38.4%
====== ==== ====
</TABLE>
The Company had net operating loss carryforwards of approximately
$1,007,000, as of September 30, 1997, that were fully utilized in 1998.
The components of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Acquired in-process R & D write-off..................... $ 659 $ 711
Cash to accrual adjustment.............................. 423 846
Accrued vacation........................................ 1,258 828
Reserves................................................ 318 208
Accrued bonus........................................... 339 161
Other................................................... 216 87
------- -------
3,213 2,841
------- -------
Deferred tax liabilities
Unbilled receivables.................................... (4,309) (2,332)
Cash to accrual adjustment.............................. (456) (879)
Capitalized software development costs.................. -- (1,217)
Amortization............................................ (1,303) (250)
Acquired contracts in process........................... (379) --
Other................................................... (309) (80)
------- -------
(6,756) (4,758)
------- -------
Total deferred tax liability.............................. $(3,543) $(1,917)
======= =======
</TABLE>
12. STOCKHOLDERS' EQUITY:
RECAPITALIZATION AND STOCK SPLIT
On May 5, 1997, the Company amended and restated its Certificate of
Incorporation to increase the number of authorized shares to 40,000,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. In June 1997, the Board of Directors approved a
stock dividend having the effect of a 6,750-for-1 stock split of the Common
Stock, which
F-45
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
was paid to the stockholders effective June 25, 1997. The change in the
Company's Common Stock for the stock dividend has been given retroactive effect
for all periods presented.
STOCK REDEMPTION AGREEMENTS
All of the outstanding shares of common stock and options, upon exercise,
were subject to Stock Redemption Agreements. Under certain circumstances, the
Company was required to buy back the stock at a price equal to fair value, as
determined by the Board of Directors. Adjustment for redemption value greater
than amounts paid in by stockholders represents the change in the redemption
value per share of outstanding Common Stock in each period. The redemption value
per share, based on the fair market value, was $4.44 as of September 30, 1996.
The Stock Redemption Agreements were terminated in connection with the initial
public offering and the corresponding accretion was removed. All treasury stock
purchases were a result of the provisions of these Stock Redemption Agreements.
STOCK PLANS AND AGREEMENTS
The 1997 Stock Incentive Plan of the Company (the "1997 Plan") was adopted
by the Company's Board of Directors effective March 1997 and by the Company's
stockholders on March 25, 1997. The Company may grant options, stock
appreciation rights, "performance" awards and restricted and unrestricted stock
(collectively, the "Awards") to purchase up to 450,000 shares of common stock,
plus additional annual amounts to participants in the Plan as prescribed in the
Amendment to the 1997 Stock Incentive Plan. In 1999, the Company's stockholders
approved an amendment to the 1997 Plan, that provided for automatic increases in
the number of shares reserved for issuance thereunder effective on the first
trading day of each of January 1999 and 2000. This amendment provides that the
Plan shall increase by a number of shares equal to the lesser of (i) two percent
(2%) of the total number of shares of the Company's common stock issued and
outstanding on the last trading day of the preceding December or (ii) 400,000
shares. (Such number shall be subject to adjustment by the Company's Board of
Directors under the terms of the Plan to take into account the effect of
extraordinary corporate transactions such as reorganization, merger,
consolidation, recapitalization, restructuring or other distribution, stock
split, spin-off or sale of substantially all of the Company's assets). The
additional amount reserved for issuance effective January 1, 1999, was 172,524
shares. The 1997 Plan has a term of 10 years. Options granted under the 1997
Plan can have an exercise period of up to 10 years. The 1997 Plan provides for
the grant of stock options to directors, employees (including officers) and
consultants of the Company and its subsidiaries. Pursuant to the 1997 Plan,
options may be incentive stock options within the meaning of Section 422 of the
Code or nonstatutory stock options, although incentive stock options may be
granted only to employees. All incentive stock options are nontransferable other
than by will or the laws of descent and distribution. At September 30, 1999 and
1998, 111,266 shares and 41,900 shares, respectively, were available for grant
under this plan.
The 1996 Stock Incentive Plan of the Company (the "1996 Plan") was adopted
by the Company's Board of Directors and approved by the Company's stockholders
effective July 1996. The Company may grant options, stock appreciation rights,
"performance" awards and restricted and unrestricted stock (collectively, the
"Awards") to purchase up to 337,500 shares of common stock to participants in
the 1996 Plan. The 1996 Plan has a term of 10 years. Options granted under the
1996 Plan can have an exercise period of up to 10 years. The 1996 Plan provides
for the grant of stock options to directors,
F-46
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
employees (including officers) and consultants of the Company and its
subsidiaries. Pursuant to the 1996 Plan, options may be incentive stock options
within the meaning of Section 422 of the Code or nonstatutory stock options,
although incentive stock options may be granted only to employees. All incentive
stock options are nontransferable other than by will or the laws of descent and
distribution. At September 30, 1999 and 1998, 49,775 shares and 24,250 shares,
respectively, were available for grant under the 1996 Plan.
The Company's Employee Stock Purchase Plan (the "ESPP") was adopted by the
Board of Directors in March 1998. A total of 325,000 shares of common stock have
been reserved for issuance under the ESPP. Eligible employees may purchase a
limited number of shares of the Company's stock at 90% of the market value at
certain plan-defined dates. The ESPP automatically terminates on the earlier of
March 31, 2008 or the issuance of the maximum number of shares available under
the ESPP. At September 30, 1999 and 1998, 98,076 shares and 6,280 shares,
respectively, were issued under the ESPP. Pursuant to the terms of the Merger
Agreement with The Titan Corporation (See Note 15), the ESPP will be suspended
after December 31, 1999.
In 1993, the Board of Directors granted options to purchase 101,250 shares
of common stock to various employees. The employees were fully vested in the
options upon granting, and the options expire on the earlier of January 1, 1998
or termination of employment. As of September 30, 1999, 1998 and 1997, none of
these options was exercisable. All sales of treasury stock were a result of the
exercise of options and stock issued under the Employee Stock Purchase Plan.
The following table summarizes the activity of all the Company's stock
options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE EXERCISE PRICE
OF SHARES PER SHARE PER SHARE
--------- --------------- --------------
<S> <C> <C> <C>
Shares under option, September 30, 1996................ 229,500 $ 0.70 - 4.44 $ 3.12
Options granted...................................... 115,000 6.50 6.50
Options granted...................................... 108,800 7.50 - 9.875 8.10
Options exercised.................................... (81,000) 0.70 0.70
Options forfeited.................................... (13,500) 4.44 4.44
------- --------------- ------
Shares under option, September 30, 1997................ 358,800 0.70 - 9.875 6.21
Options granted...................................... 391,800 8.875 - 14.375 11.06
Options exercised.................................... (83,833) 4.44 - 7.50 5.79
Options forfeited.................................... (30,250) 4.44 - 12.125 4.69
------- --------------- ------
Shares under option, September 30, 1998................ 636,517 4.44 - 14.375 9.30
Options granted...................................... 165,975 8.50 - 11.75 11.41
Options exercised.................................... (61,578) 4.44 - 11.375 7.01
Options forfeited.................................... (87,342) 4.44 - 11.375 10.85
------- --------------- ------
Shares under option, September 30, 1999................ 653,572 $ 4.44 - 14.375 $ 9.85
======= =============== ======
</TABLE>
Options outstanding at September 30, 1999 had a weighted average remaining
contractual life of 6.7 years. The fair value per share of all options issued in
1999, estimated on the date of grant using the Black-Scholes option pricing
model, is $6.19.
F-47
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
The Company adopted the disclosure requirements of SFAS No. 123, Accounting
for Stock-Based Compensation, effective for the Company's September 30, 1997
financial statements. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock plans. No
compensation cost has been recognized for its stock plans based on the intrinsic
value of the stock options at date of grant (i.e., the difference between the
exercise price and the fair value of the common stock). Had compensation cost
for the Company's stock-based compensation plans been determined based on the
fair value at the grant dates under those plans consistent with the method of
FASB Statement 123, the Company's net income and net income per share would have
been reduced to the amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------------------
1999 1998 1997 (PRO FORMA)
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net income (in thousands)--
As reported................................ $3,581 $4,374 $ 915
SFAS No. 123 pro forma..................... $3,000 $3,891 $ 826
Net income per share--
As reported--basic......................... $ 0.41 $ 0.61 $0.20
SFAS No. 123 pro forma--basic.............. $ 0.35 $ 0.54 $0.18
As reported--diluted....................... $ 0.41 $ 0.60 $0.19
SFAS No. 123 pro forma--diluted............ $ 0.34 $ 0.53 $0.17
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected Dividend Yield................................. 0.0% 0.0% 0.0%
Risk-Free Interest Rate................................. 5.3% 4.5% 6.4%
Expected Volatility..................................... 44.0% 58.7% 57.6%
Expected Life (in years)................................ 7.0 8.0 7.5
</TABLE>
13. COMMITMENTS:
LEASE COMMITMENTS
The Company has entered into a master leasing agreement in which the Company
sells computer equipment at the original purchase price to a leasing company and
then leases the equipment back. There have been no gains or losses associated
with these sales/leasebacks. All leases related to this master leasing agreement
have been accounted for as capital leases. As of September 30, 1999 and 1998 the
Company recorded approximately $1,297,000 and $1,623,000, respectively, for
obligations under capital leases.
The Company leases office space and equipment under various operating and
capital lease agreements expiring through June 2004. Most leases include a
provision for annual rent adjustments
F-48
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS: (CONTINUED)
based on changes in various economic indices. Future minimum lease payments
under noncancelable operating leases as of September 30, 1999, were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED SEPTEMBER 30, LEASES LEASES
- ------------------------ --------- --------
(IN THOUSANDS)
<S> <C> <C>
2000...................................................... $ 4,560 $ 973
2001...................................................... 4,045 450
2002...................................................... 2,608 --
2003...................................................... 1,291 --
2004...................................................... 295 --
Less interest............................................. -- (126)
------- ------
Total................................................... $12,799 $1,297
======= ======
</TABLE>
During 1993, the Company entered into a lease agreement for office space
with a related party which includes the principal stockholders of the Company
(See Note 9). For the years ended September 30, 1999, 1998 and 1997, rent
expense related to this lease totaled $280,000, $336,000 and $257,000,
respectively. Amounts representing aggregate rent expense on all operating
leases, excluding the related party lease, totaled $3,257,000, $2,426,000 and
$1,066,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
PROFIT-SHARING PLAN
The Company provides a profit-sharing plan (401(k) plan) which covers
substantially all employees. Under the terms of the plan, the Company may make
discretionary profit-sharing contributions and discretionary matching
contributions, each determined annually by the Board of Directors. Contributions
charged to expense for the years ended September 30, 1999, 1998 and 1997, were
$1,843,000, $860,000 and $236,000, respectively.
LITIGATION
In August 1999, the Company filed an action against the McGraw-Hill
Companies, Inc. ("McGraw-Hill") in the United States District Court for the
District of New Jersey (the "New Jersey Action"), seeking recovery of
approximately $186,000 in fees for services performed pursuant to certain
contracts. McGraw-Hill has threatened to file a counterclaim against the Company
seeking recovery of $500,000, on allegations that the Company negligently
designed certain software for McGraw-Hill, which negligence caused significant
problems to McGraw-Hill customers. The Company files its answer to the
counterclaim in December 1999, and it believes that it has a meritorious defense
to the counterclaims and intends to conduct a vigorous defense.
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company currently is not a party to any legal
proceedings, other than the action referred to above, and, in the opinion of
management the amount of ultimate liability or recovery with respect to such
actions will not materially affect the financial position or results of
operations of the Company.
F-49
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT REPORTING
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related
Information. SFAS No. 131 requires publicly-held companies to report financial
and other information about key revenue-producing segments of the entity for
which such information is available and is utilized by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 permits operating segments to be aggregated if they
have similar products and services, customers, methods of distribution, and
belong to the same regulatory environment.
The Company's revenues are derived predominately from the U.S. Government
through long-term cost reimbursement, fixed-price or time and materials
contracts. The Company's operating margin is affected by the mix of contract
types. These contracts are administered and executed under the Federal
Acquisition Regulations. The Company makes vertical market disclosures such as,
communication services, information systems and aerospace services. The chief
operating decision-maker does not allocate resources and does not assess the
performance by the above classifications. The Company manages on a contract by
contract basis. Accordingly, the Company's government contracts are considered
to be one reportable operating segment.
15. SUBSEQUENT EVENTS
AGREEMENT AND PLAN OF MERGER
On December 9, 1999, the Company entered into a definitive agreement to
merge with The Titan Corporation ("Titan", NYSE: TTN) in a tax-free exchange of
Titan common stock for the Company's common stock at an approximate value
ranging from $18 to $22 per the Company's common share. The transaction has been
approved by the board of directors of both companies and is subject to the
Company's shareholder and regulatory approval.
EXECUTIVE RETIREMENT PLAN
On October 25, 1999, the Board of Directors approved an executive retirement
plan which is intended to be an unfunded plan for purposes of providing deferred
compensation to a select group of management or highly compensated employees. An
employee shall become a participant under this plan upon approval of the
Compensation Committee following recommendation by the Chief Executive Officer
of the Company. The Chief Executive Officer is currently the only participant in
the plan and is eligible to receive, upon his retirement, approximately one year
of salary of $350,000.
F-50
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OTHER END OF
DESCRIPTION OF PERIOD CHARGES ACCOUNTS(1) DEDUCTIONS PERIOD
- ----------- ---------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1999:
Allowance for doubtful accounts.......... $1,139 $2,514 $ -- $(2,692) $ 961
Year ended September 30, 1998:
Allowance for doubtful accounts.......... $ -- $ -- $ 1,917 $ (778) $1,139
Year ended September 30, 1997:
Allowance for doubtful accounts.......... $ -- $ -- $ -- $ -- $ --
</TABLE>
- ------------------------
(1) Represents amounts that were charged to the allowance for doubtful accounts
as a result of purchase accounting and the allocation of the purchase price
to the acquired assets and liabilities at their fair values.
F-51
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
EXHIBIT 10.36
SENIOR SECURED CREDIT AGREEMENT,
dated as of February 23, 2000,
among
THE TITAN CORPORATION,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO,
as the Lenders,
CREDIT SUISSE FIRST BOSTON,
as Lead Arranger and as Administrative Agent for the Lenders,
FIRST UNION SECURITIES, INC.,
as Co-Arranger and as Syndication Agent,
and
THE BANK OF NOVA SCOTIA,
as the Documentation Agent.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms....................................................1
Section 1.2 Use of Defined Terms............................................35
Section 1.3 Cross-References................................................35
Section 1.4 Accounting and Financial Determinations.........................35
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
Section 2.1 Revolving Loan Commitment and Swing Line Loan Commitment........36
Section 2.2 Letter of Credit Commitment.....................................36
Section 2.3 Term Loan Commitments...........................................37
Section 2.4 Lenders Not Permitted or Required to Make Loans.................38
Section 2.5 Issuer Not Permitted or Required to Issue Letters of Credit.....39
Section 2.6 Reduction of the Commitment Amounts.............................39
Section 2.7 Borrowing Procedure.............................................40
Section 2.8 Swing Line Loans................................................41
Section 2.9 Continuation and Conversion Elections...........................42
Section 2.10 Funding.........................................................42
Section 2.11 Letters of Credit...............................................42
Section 2.12 Notes...........................................................45
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
Section 3.1 Repayments and Prepayments......................................46
Section 3.2 Application.....................................................50
Section 3.3 Interest Rates..................................................51
Section 3.4 Default Rates...................................................52
Section 3.5 Payment Dates...................................................52
Section 3.6 Fees............................................................53
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
Section 4.1 LIBO Rate Lending Unlawful......................................54
Section 4.2 Deposits Unavailable............................................54
Section 4.3 Increased LIBO Rate Loan Costs, etc.............................54
i
<PAGE>
Section 4.4 Funding Losses..................................................55
Section 4.5 Increased Capital Costs.........................................55
Section 4.6 Taxes...........................................................56
Section 4.7 Payments, Computations, etc.....................................58
Section 4.8 Sharing of Payments.............................................59
Section 4.9 Setoff..........................................................59
Section 4.10 Replacement of Lender...........................................59
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
Section 5.1 Conditions Precedent to the Effectiveness of this Agreement.....60
Section 5.2 All Credit Extensions...........................................66
Section 5.3 Term C Loans....................................................68
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Organization, etc...............................................68
Section 6.2 Due Authorization, Non-Contravention, etc.......................68
Section 6.3 Government Approval, Regulation, etc............................69
Section 6.4 Validity, etc...................................................69
Section 6.5 Financial Information...........................................69
Section 6.6 No Material Adverse Effect......................................69
Section 6.7 Litigation, Labor Controversies, etc............................70
Section 6.8 Subsidiaries....................................................70
Section 6.9 Ownership of Properties.........................................70
Section 6.10 Taxes...........................................................70
Section 6.11 Pension and Welfare Plans.......................................70
Section 6.12 Environmental Warranties........................................71
Section 6.13 Accuracy of Information.........................................72
Section 6.14 Regulations T, U and X..........................................72
Section 6.15 Year 2000 Problem...............................................73
Section 6.16 Government Contracts............................................73
Section 6.17 No Debarment....................................................73
Section 6.18 Assignment of Payments..........................................73
Section 6.19 Solvency........................................................73
ARTICLE VII
AFFIRMATIVE COVENANTS
Section 7.1 Financial Information, Reports, Notices, etc....................74
Section 7.2 Maintenance of Existence; Compliance with Laws, etc.............75
Section 7.3 Maintenance of Properties.......................................75
Section 7.4 Insurance.......................................................76
ii
<PAGE>
Section 7.5 Books and Records...............................................76
Section 7.6 Environmental Law Covenant......................................77
Section 7.7 Future Subsidiaries; Collateral.................................77
Section 7.8 Use Of Proceeds.................................................79
Section 7.9 Contract Obligations............................................79
ARTICLE VIII
NEGATIVE COVENANTS
Section 8.1 Business Activities.............................................79
Section 8.2 Indebtedness....................................................80
Section 8.3 Liens...........................................................81
Section 8.4 Financial Condition and Operations..............................82
Section 8.5 Investments.....................................................84
Section 8.6 Restricted Payments, etc........................................85
Section 8.7 Subordinated Debt...............................................86
Section 8.8 Stock of Restricted Subsidiaries................................87
Section 8.9 Consolidation, Merger, etc......................................87
Section 8.10 Permitted Dispositions..........................................88
Section 8.11 Modification of Certain Agreements..............................89
Section 8.12 Transactions with Affiliates....................................89
Section 8.13 Restrictive Agreements, etc.....................................89
Section 8.14 Sale and Leaseback..............................................90
Section 8.15 Indebtedness of Foreign Subsidiaries............................90
Section 8.16 Restrictions on Titan Capital Trust.............................90
ARTICLE IX
EVENTS OF DEFAULT
Section 9.1 Events of Default...............................................90
Section 9.2 Action if Bankruptcy............................................94
Section 9.3 Action if Other Event of Default................................94
ARTICLE X
THE CREDIT AGENTS
Section 10.1 Actions.........................................................94
Section 10.2 Funding Reliance, etc...........................................95
Section 10.3 Exculpation.....................................................95
Section 10.4 Successor.......................................................96
Section 10.5 Credit Extensions by the Credit Agents..........................96
Section 10.6 Credit Decisions................................................97
Section 10.7 Copies, etc.....................................................97
ARTICLE XI
MISCELLANEOUS PROVISIONS
iii
<PAGE>
Section 11.1 Waivers, Amendments, etc........................................97
Section 11.2 Notices.........................................................99
Section 11.3 Payment of Costs and Expenses...................................99
Section 11.4 Indemnification................................................100
Section 11.5 Survival.......................................................101
Section 11.6 Severability...................................................101
Section 11.7 Headings.......................................................101
Section 11.8 Execution in Counterparts, Effectiveness, etc..................101
Section 11.9 Governing Law; Entire Agreement................................102
Section 11.10 Successors and Assigns.........................................102
Section 11.11 Sale and Transfer of Loans and Notes;
Participations in Loans and Notes..............................102
Section 11.12 Other Transactions.............................................106
Section 11.13 Confidentiality................................................107
Section 11.14 Forum Selection and Consent to Jurisdiction....................107
Section 11.15 Waiver of Jury Trial...........................................108
</TABLE>
iv
<PAGE>
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages; LIBO Office; Domestic Office
SCHEDULE III - Synergies
EXHIBIT A-1 - Form of Revolving Note
EXHIBIT A-2 - Form of Swing Line Note
EXHIBIT A-3 - Form of Term B Note
EXHIBIT A-4 - Form of Multi-Draw Term Note
EXHIBIT A-5 - Form of Term C Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Issuance Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Borrower Closing Date Certificate
EXHIBIT E - Form of Compliance Certificate
EXHIBIT F-1 - Form of Borrower Pledge Agreement
EXHIBIT F-2 - Form of Subsidiary Pledge Agreement
EXHIBIT G-1 - Form of Borrower Security Agreement
EXHIBIT G-2 - Form of Subsidiary Security Agreement
EXHIBIT H - Form of Opinion of Counsel to the Obligors
EXHIBIT I - Form of Subsidiary Guaranty
EXHIBIT J - Form of Interco Subordination Agreement
EXHIBIT K - Form of Lender Assignment Agreement
EXHIBIT L - Form of Officer's Solvency Certificate
v
<PAGE>
SENIOR SECURED CREDIT AGREEMENT
THIS SENIOR SECURED CREDIT AGREEMENT, dated as of February 23,
2000, is among THE TITAN CORPORATION, a Delaware corporation (the "BORROWER"),
the various financial institutions from time to time parties hereto (the
"LENDERS"), CREDIT SUISSE FIRST BOSTON ("CSFB"), as Lead Arranger and as
administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the
Lenders, FIRST UNION SECURITIES, INC. ("FUSI"), as Co-Arranger and syndication
agent (in such capacity, the "SYNDICATION AGENT"), and THE BANK OF NOVA SCOTIA
("SCOTIABANK"), as documentation agent (in such capacity, the "DOCUMENTATION
AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lenders to extend, and
the Lenders have agreed to extend, certain senior secured credit facilities in
an aggregate principal amount of up to $275,000,000 to the Borrower, the
proceeds of which will be used, together with up to $250,000,000 from the
issuance of HIGH TIDES-SM-, to repay certain existing indebtedness of the
Borrower and its Subsidiaries, to pay related fees and expenses and to provide
financing for working capital, capital expenditures and other general corporate
purposes of Borrower and its Subsidiaries, including permitted acquisitions; and
WHEREAS, the Lenders are willing to make such senior secured
credit facilities available upon and subject to the terms and conditions
contained herein.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"ACQUISITION INCENTIVES" means, with respect to any Person,
any earn-out or holdback arrangements made in connection with Permitted
Acquisitions by such Person or any of its Subsidiaries; PROVIDED that such
arrangements are unsecured and subordinated to the Obligations on terms and
conditions reasonably satisfactory to the Required Lenders.
"ACS" means Advanced Communication Services, Inc.
1
<PAGE>
"ACS ACQUISITION" means the acquisition of all of the issued
and outstanding Capital Stock of ACS by the Borrower pursuant to the ACS Merger
Agreement.
"ACS MERGER AGREEMENT" means the Agreement and Plan of Merger,
dated as of December 9, 1999, among the Borrower, AT Acquisition Corp., and ACS,
as amended, restated, supplemented, or otherwise modified in accordance with
SECTION 8.11.
"ACQUISITION TWO" means "Acquisition Two" as defined in the
Confidential Information Memorandum dated January 2000 with respect to
$275,000,000 Senior Secured Credit Facilities for the Borrower.
"ADDITIONAL LENDER" is defined in SECTION 2.3(c)(ii).
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE and includes
each other Person appointed as the successor Administrative Agent pursuant to
SECTION 10.4.
"AFFECTED LENDER" is defined in SECTION 4.10.
"AFFILIATE" of any Person means any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person. "Control" of a Person means the power, directly or indirectly,
(a) to vote 10% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors,
managing members or general partners (as applicable); or
(b) to direct or cause the direction of the management and
policies of such Person (whether by contract or otherwise).
"AGREEMENT" means this Senior Secured Credit Agreement, as it
may be amended, restated, supplemented, or otherwise modified from time to time.
"ALTERNATE BASE RATE" means, on any date and with respect to
all Base Rate Loans, a fluctuating rate of interest per annum (rounded upward,
if necessary, to the next highest 1/16 of 1%) equal to the higher of
(a) the Base Rate in effect on such day; and
(b) the Federal Funds Rate in effect on such day plus
1/2 of 1%.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Administrative Agent will give notice promptly to the Borrower
and the Lenders of changes in the Alternate
2
<PAGE>
Base Rate; PROVIDED, that the failure to give such notice shall not affect
the Alternate Base Rate in effect after such change.
"APPLICABLE MARGIN" means, subject to SECTION 3.3(c), at all
times during the applicable periods set forth below:
(a) (i) if, on the Closing Date, the Total Debt to EBITDA
Ratio is less than or equal to 2.0:1.0 (giving PRO FORMA effect to the
consummation of the ACS Acquisition), from the Closing Date until the
date which is six months after the Closing Date, the Applicable Margin
shall equal (x) with respect to Base Rate Loans, (A) 1.00% for
Multi-Draw Term Loans and Revolving Loans and (B) 1.75% for Term B
Loans and (y) with respect to LIBO Rate Loans, (A) 2.00% for Multi-Draw
Term Loans and Revolving Loans and (B) 2.75% for Term B Loans; and (ii)
on the date which is six months after the Closing Date, so long as no
Default or Event of Default shall have occurred and be continuing, the
Applicable Margin will be determined by reference to the Total Debt to
EBITDA Ratio as set forth in the performance pricing grid below.
(b) if, on the Closing Date, the Total Debt to EBITDA Ratio is
greater than 2.0:1.0 (giving PRO FORMA effect to the consummation of
the ACS Acquisition), so long as no Default or Event of Default shall
have occurred and be continuing, the Applicable Margin will be
determined by reference to the Total Debt to EBITDA Ratio as set forth
in the performance pricing grid below.
<TABLE>
<CAPTION>
TOTAL DEBT TO
EBITDA RATIO LIBO RATE LOANS BASE RATE LOANS
- ------------- ------------------------------------ -------------------------------------
MULTI-DRAW TERM MULTI-DRAW TERM
LOANS AND LOANS AND
REVOLVING LOANS TERM B LOANS REVOLVING LOANS TERM B LOANS
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
greater than 2.0 2.25% 3.00% 1.25% 2.00%
1.5 x 2.0 2.00% 2.75% 1.00% 1.75%
less than 1.5 1.75% 2.75% 0.75% 1.75%
</TABLE>
The Total Debt to EBITDA Ratio used to compute the
Applicable Margin shall be determined as at the last day of each Fiscal
Quarter as set forth in the Compliance Certificate most recently delivered by
the Borrower to the Administrative Agent; changes in interest rates resulting
from changes in such ratio shall become effective on the first day on which
the financial statements covering the quarter-end date as of which such ratio
is computed are filed with the SEC. If the Borrower shall fail to deliver a
Compliance Certificate within 60 days after the end of any Fiscal Quarter (or
within 105 days, in the case of the l ast Fiscal Quarter of the Fiscal
Year), the Applicable Margin from and including the 61st (or 106th, as the
case may be) day after the end of such Fiscal Quarter to but not including
the date the Borrower delivers to the
3
<PAGE>
Administrative Agent a Compliance Certificate shall conclusively equal the
highest Applicable Margin set forth above.
"APPROVED FUND" means, with respect to any Lender which is a
fund that invests in bank loans, any other fund or trust or entity that invests
in bank loans and is advised or managed by the same investment advisor as such
Lender or by an Affiliate of such investment advisor.
"ASSET SALE" means any sale, lease, sale and leaseback,
assignment, conveyance, transfer or other disposition by the Borrower or any of
its Restricted Subsidiaries of any of its property or assets, including the
Capital Stock of any Restricted Subsidiary, permitted pursuant to SECTION
8.10(e).
"ASSIGNEE LENDER" is defined in SECTION 11.11(a).
"ASSIGNMENT OF CLAIMS ACT" means Title 31, United States Code
Section 3727 and Title 41, United States Code Section 15, as revised or amended,
and any rules or regulations issued pursuant thereto, and also shall be deemed
to include any other laws, rules or regulations governing the assignment of
government contracts or claims against a Governmental Authority.
"AUTHORIZED OFFICER" means, relative to any Obligor, those of
its officers, general partners or managing members (as applicable) whose
signatures and incumbency shall have been certified to the Administrative Agent,
the Lenders and the Issuers in the certificate of incumbency most recently
delivered by such Obligor.
"BASE RATE" means, at any time, the rate of interest then most
recently established by the Administrative Agent in New York as its base rate
for U.S. dollars loaned in the United States. The Base Rate is not necessarily
intended to be the lowest rate of interest determined by the Administrative
Agent in connection with extensions of credit. The Administrative Agent or any
other Lender may make commercial loans or other loans at rates of interest at,
above or below the Base Rate.
"BASE RATE LOAN" means a Loan bearing interest at a
fluctuating rate determined by reference to the Alternate Base Rate.
"BORROWER" is defined in the PREAMBLE.
"BORROWER PLEDGE AGREEMENT" means the Pledge Agreement
executed and delivered by the Borrower pursuant to ARTICLE V substantially in
the form of EXHIBIT F-1 hereto, as amended, restated, supplemented or otherwise
modified from time to time.
"BORROWER SECURITY AGREEMENT" means the Security Agreement
executed and delivered by the Borrower pursuant to ARTICLE V substantially in
the form of EXHIBIT G-1 hereto, as amended, restated, supplemented or otherwise
modified from time to time.
4
<PAGE>
"BORROWING" means the Loans of the same type and, in the case
of LIBO Rate Loans, having the same Interest Period made by all Lenders required
to make such Loans on the same Business Day and pursuant to the same Borrowing
Request.
"BORROWING REQUEST" means a Loan request and certificate duly
executed by an Authorized Officer of the Borrower, substantially in the form of
EXHIBIT B-1 hereto.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in New
York, New York; and
(b) relative to the making, continuing, prepayment or
repayment of any LIBO Rate Loans, any day which is a Business Day
described in CLAUSE (a) above and which is also a day on which dealings
in Dollars are carried on in the interbank eurodollar market of the
Administrative Agent's LIBOR Office.
"CAPITAL EXPENDITURES" means, for any period, the aggregate
amount of all expenditures of the Borrower and its Restricted Subsidiaries for
fixed or capital assets made during such period which, in accordance with GAAP,
would be classified as capital expenditures; PROVIDED, HOWEVER, that such
expenditures shall not include up to $45,000,000 per year of amounts expended by
the Borrower and its Restricted Subsidiaries for either the Titan Wireless or
Titan Scan business units during Fiscal Year 2000 and Fiscal Year 2001 (and
Fiscal Year 2002 to the extent rolled pursuant to the last sentence of this
paragraph). Any portion of the $45,000,000 not expended in Fiscal Year 2000 (up
to a maximum of $25,000,000) may be rolled into Fiscal Year 2001. Any portion of
the amount permitted to be expended in Fiscal Year 2001 ($45,000,000 plus the
amount rolled from Fiscal Year 2000) not expended in Fiscal Year 2001 (up to a
maximum of $25,000,000) may be rolled into Fiscal Year 2002.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital, whether now outstanding
or issued after the Closing Date.
"CAPITALIZED LEASE LIABILITIES" means all monetary
obligations of the Borrower or any of its Restricted Subsidiaries under any
leasing or similar arrangement which have been (or, in accordance with GAAP,
should be) classified as capitalized leases, and for purposes of each Loan
Document the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP, and the stated maturity thereof
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without payment of a premium or a penalty.
"CASH EQUIVALENTS" means (a) marketable direct obligations
issued or unconditionally guaranteed by the United States government and backed
by the full faith and
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credit of the United States government; (b) domestic and Eurodollar
certificates of deposit and time deposits, bankers' acceptances and floating
rate certificates of deposit issued by any commercial bank organized under
the laws of the United States, any state thereof, the District of Columbia,
any foreign bank, or its branches or agencies (fully protected against
currency fluctuations), which, at the time of acquisition, are rated A-1 (or
better) by S&P or P-1 (or better) by Moody's; (c) commercial paper of United
States and foreign banks and bank holding companies and their Subsidiaries
and United States and foreign finance, commercial industrial or utility
companies which, at the time of acquisition, are rated A-1 (or better) by S&P
or P-1 (or better) by Moody's; (d) marketable direct obligations of any State
of the United States of America or any political subdivision of any such
State given on the date of such investment the highest credit rating by
Moody's and S&P; PROVIDED, that the maturities of all obligations of the type
specified in CLAUSES (a) through (d) above shall not exceed one hundred
eighty (180) days; and (e) reverse purchase agreements covering obligations
of the type specified in CLAUSE (a) above.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any direct obligation of (or unconditionally guaranteed
by) the United States of America or a State thereof (or any agency or
political subdivision thereof, to the extent such obligations are
supported by the full faith and credit of the United States of America
or a State thereof) maturing not more than one year after such time;
(b) commercial paper maturing not more than 270 days from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of any
Obligor) organized under the laws of any State of the United
States or of the District of Columbia and rated A-1 or higher
by S&P or P-1 or higher by Moody's, or
(ii) any Lender (or its holding company);
(c) any certificate of deposit, time deposit or bankers
acceptance, maturing not more than one year after its date of issuance,
which is issued by either
(i) any bank organized under the laws of the United
States (or any State thereof) and which has (x) a credit
rating of A2 or higher from Moody's or A or higher from S&P
and (y) a combined capital and surplus greater than
$500,000,000, or
(ii) any Lender; or
(d) any repurchase agreement having a term of 30 days or less
entered into with any Lender or any commercial banking institution
satisfying the criteria set forth in CLAUSE (c)(i) which
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(i) is secured by a fully perfected security interest
in any obligation of the type described in CLAUSE (a), and
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the
repurchase obligation of such commercial banking institution
thereunder.
"CAYENTA" means Cayenta, Inc., a wholly owned Subsidiary of
the Borrower.
"CAYENTA GROUP" means Cayenta and each Subsidiary directly or
indirectly owned by Cayenta but not owned directly by the Borrower or any
Subsidiary of the Borrower other than Cayenta or a Subsidiary of Cayenta.
"CAYENTA POST IPO" means the Cayenta Group, subsequent to the
issuance of shares in connection with the initial public offering of Cayenta
pursuant to the terms of the applicable underwriting agreement.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List.
"CHANGE IN CONTROL" means (i) the acquisition by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, (excluding, for this purpose, the Borrower or its
Restricted Subsidiaries, or any employee benefit plan of the Borrower or its
Restricted Subsidiaries which acquires beneficial ownership of voting
securities of the Borrower) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the
then outstanding shares of common stock of the Borrower or the combined
voting power of the Borrower's then outstanding voting securities entitled to
vote generally in the election of directors; or (ii) individuals who, as of
the Closing Date, constitute the Board of Directors (the "INCUMBENT BOARD")
cease for any reason to constitute at least a majority of the Board of
Directors, provided that any person becoming a director subsequent to the
Closing Date whose election, or nomination for election by the Borrower's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such person
were a member of the Incumbent Board; or (iii) approval by the stockholders
of the Borrower of a reorganization, merger or consolidation, in each case
with respect to which Persons who were the stockholders of the Borrower
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 66 2/3% of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated company's then outstanding voting securities or (iv)
any "Change of Control" (or substantially similar provision) under (and as
defined in) any Sub Debt Document.
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"CLOSING DATE" means the first date on which all of the
conditions precedent set forth in SECTION 5.1 have been satisfied, but in no
event shall such date be later than March 31, 2000.
"CODE" means the Internal Revenue Code of 1986, and the
regulations thereunder, in each case as amended, reformed or otherwise modified
from time to time.
"COLLATERAL DOCUMENTS" means the Borrower Pledge Agreement,
the Borrower Security Agreement, the Subsidiary Pledge Agreement, the Subsidiary
Security Agreement, each Copyright Security Agreement, each Trademark Security
Agreement and each Patent Security Agreement.
"COMMITMENT" means, as the context may require, a Lender's
respective Multi-Draw Term Loan Commitment, Term B Loan Commitment, Term C Loan
Commitment, Revolving Loan Commitment or Letter of Credit Commitment, or CSFB's
Swing Line Loan Commitment.
"COMMITMENT AMOUNT" means, as the context may require, a Term
Loan Commitment Amount, the Revolving Loan Commitment Amount, the Letter of
Credit Commitment Amount or the Swing Line Loan Commitment Amount.
"COMMITMENT TERMINATION DATE" means, as the context may
require, a Term Loan Commitment Termination Date or the Revolving Loan
Commitment Termination Date.
"COMMITMENT TERMINATION EVENT" means
(a) the occurrence of any Event of Default described in
SECTION 9.1(i); or
(b) the occurrence and continuance of any other Event of
Default and either
(i) the declaration of all or any portion of the
Loans to be due and payable pursuant to SECTION 9.3, or
(ii) the giving of notice by the Administrative
Agent, acting at the direction of the Required Lenders, to the
Borrower that the Commitments have been terminated.
"COMPLIANCE CERTIFICATE" means a certificate duly completed
and executed by an Authorized Officer of the Borrower, substantially in the form
of EXHIBIT E hereto, together with such changes thereto as the Administrative
Agent may from time to time request for the purpose of monitoring the Borrower's
compliance with the financial covenants contained herein.
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<PAGE>
"CONTINGENT LIABILITY" means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
Indebtedness or any other obligation of any other Person (other than (i) by
endorsements of instruments in the course of collection, (ii) guarantees of
obligations of Restricted Subsidiaries incurred in the ordinary course of
business and not constituting Indebtedness and (iii) subsequent to the issuance
of shares in connection with the initial public offering of Cayenta pursuant to
the terms of the applicable underwriting agreement, the guaranty of Cayenta's
obligations under its existing lease for office space), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be deemed to be the outstanding
principal amount of the debt, obligation or other liability guaranteed thereby.
"CONTINUATION/CONVERSION NOTICE" means a notice of
continuation or conversion and certificate duly executed by an Authorized
Officer of the Borrower, substantially in the form of EXHIBIT C hereto.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"COPYRIGHT SECURITY AGREEMENT" means any Copyright Security
Agreement executed and delivered by any Obligor in substantially the form of
Exhibit C to any Security Agreement, as amended, restated, supplemented or
otherwise modified from time to time.
"CREDIT AGENTS" means, collectively, the Administrative Agent,
the Syndication Agent, the Documentation Agent, and CSFB in its capacity as
Agent (as defined in each of the Collateral Documents) for each of the Secured
Parties under the Collateral Documents.
"CREDIT EXTENSION" means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, or the extension of
any Stated Expiry Date of any existing Letter of Credit, by an Issuer.
"CREDIT EXTENSION REQUEST" means, as the context may require,
any Borrowing Request or Issuance Request.
"CSFB" means Credit Suisse First Boston.
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<PAGE>
"DECLARATION OF TRUST" means the Declaration of Trust, dated
as of January 19, 2000, as amended and restated by the Amended and Restated
Declaration of Trust, dated as of February 9, 2000, by and among the Borrower,
as depositor, Wilmington Trust Company, as Delaware trustee and property
trustee, and the administrative trustees thereunder.
"DEBENTURES" means those convertible senior subordinated
debentures, due February 2030, issued by the Borrower to Titan Capital Trust
pursuant to the Indenture, dated as of February 9, 2000, between the Borrower
and Wilmington Trust Company, including as such Debentures may be remarketed
pursuant to the terms of the HIGH TIDES Documents and the Sub Debt Documents.
"DEFAULT" means any Event of Default or any condition,
occurrence or event which, after notice or lapse of time or both, would
constitute an Event of Default.
"DISBURSEMENT" is defined in SECTION 2.11(c).
"DISBURSEMENT DATE" is defined in SECTION 2.11(c).
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached
hereto as SCHEDULE I, as it may be amended, restated, supplemented or otherwise
modified from time to time by the Borrower with the written consent of the
Required Lenders.
"DISQUALIFIED STOCK" means any Capital Stock of the Borrower
or any Subsidiary of the Borrower which by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable) or upon the happening of any event (a) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (b) is
convertible or exchangeable for Indebtedness or Disqualified Stock, or (c) is
redeemable or subject to required repurchase at the option of the holder
thereof, in whole or in part, in each case in this clause (c) before the final
Stated Maturity Date; PROVIDED that notwithstanding the foregoing, the HIGH
TIDES shall not constitute Disqualified Stock.
"DOCUMENTATION AGENT" is defined in the PREAMBLE.
"DOLLAR" and the sign "$" mean lawful money of the United
States.
"DOMESTIC OFFICE" means, relative to any Lender, the office of
such Lender designated as such Lender's "Domestic Office" set forth opposite its
name on SCHEDULE II hereto or in a Lender Assignment Agreement, or such other
office of a Lender (or any successor or assign of such Lender) within the United
States as may be designated from time to time by notice from such Lender, as the
case may be, to each other Person party hereto.
"EBITDA" means, for the Borrower and its U.S. Subsidiaries,
for any applicable period, the sum (without duplication) of the following:
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(a) Net Income,
PLUS
(b) all amounts deducted by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing either non-cash
or non-recurring losses, including fees, costs, charges and other
expenses incurred by the Borrower and its U.S. Subsidiaries in
connection with any discontinued operation, acquisition,
reorganization, consolidation, restructuring or changes in accounting
treatment under GAAP,
MINUS
(c) all amounts added by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing either non-cash
or non-recurring gains, including as a result of changes in accounting
treatment under GAAP,
PLUS
(d) the amount deducted by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing amortization, as
determined in accordance with GAAP,
PLUS
(e) the amount deducted, in determining Net Income, of all
federal, state and local income taxes (whether paid in cash or
deferred) of the Borrower and its U.S. Subsidiaries,
PLUS
(f) the amount deducted, in determining Net Income, of
Interest Expense of the Borrower and its U.S. Subsidiaries,
PLUS
(g) the amount deducted, in determining Net Income,
representing depreciation of assets of the Borrower and its U.S.
Subsidiaries, as determined in accordance with GAAP,
PLUS
(h) the synergies set forth in SCHEDULE III attached hereto
for the periods described therein.
"ENVIRONMENTAL LAWS" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and
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<PAGE>
administrative orders) relating to pollution, public health and safety and
protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections thereto.
"EVENT OF DEFAULT" is defined in SECTION 9.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXEMPTION CERTIFICATE" is defined in CLAUSE (e) OF SECTION
4.6.
"EXISTING LETTERS OF CREDIT" means the Letters of Credit
issued by Scotiabank prior to the date hereof which remain outstanding as of the
Closing Date.
"EXISTING SUBORDINATED DEBT" means the Debentures.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day
is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it.
"FEE LETTER" means the confidential letter, dated January 27,
2000, from CSFB and First Union National Bank to the Borrower.
"FISCAL QUARTER" means a quarter ending on the last day of
each March, June, September or December.
"FISCAL YEAR" means any period of twelve consecutive calendar
months ending on December 31 of each year; references to a Fiscal Year with a
number corresponding to any calendar year (E.G., the "Fiscal Year 2000") refer
to the Fiscal Year ending on December 31 of such calendar year.
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<PAGE>
"FIXED CHARGE COVERAGE RATIO" means, as of the close of any
Fiscal Quarter, the ratio computed for the period consisting of such Fiscal
Quarter and each of the three immediately preceding Fiscal Quarters with respect
to the Borrower and its Restricted Subsidiaries on a consolidated basis of:
(a) EBITDA (for all such Fiscal Quarters) minus Capital
Expenditures made during such Fiscal Quarters;
TO
(b) the sum (for all such Fiscal Quarters) of
(i) Interest Expense paid in cash;
PLUS
(ii) scheduled principal payments of the Term Loans
pursuant to the provisions of CLAUSE (d) of SECTION 3.1 after
giving effect to any reductions in such scheduled principal
repayments attributable to any optional or mandatory
prepayments of the Term Loans;
PLUS
(iii) Restricted Payments;
PLUS
(iv) all federal, state and foreign income taxes
actually paid in cash by the Borrower and its Restricted
Subsidiaries (excluding any cash taxes paid in connection with
the sale of IPivot Inc.).
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a U.S.
Subsidiary.
"F.R.S. BOARD" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"GAAP" is defined in SECTION 1.4.
"GOVERNMENTAL AUTHORITY" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
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"GUARANTOR" means each direct and indirect U.S. Subsidiary of
the Borrower whether now existing or hereafter acquired or organized (other than
Titan Capital Trust and Titan Africa, Inc.), each of which shall be required to
execute and deliver the Subsidiary Guaranty, or a supplement thereto, to the
Administrative Agent; PROVIDED, HOWEVER, that each member of the Cayenta Group
shall be released from the Subsidiary Guaranty and shall no longer be a
"Guarantor" upon satisfaction of the following conditions precedent: (a) the
issuance of shares in connection with the initial public offering of Cayenta
pursuant to the terms of the applicable underwriting agreement and (b) delivery
of an officer's certificate to the Administrative Agent certifying that no
Default shall have occurred and then be continuing or would result from the
initial public offering.
"HAZARDOUS MATERIAL" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended; or
(c) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance (including any petroleum product)
within the meaning of any other applicable federal, state or local law,
regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards
of conduct under any Environmental Law, all as amended.
"HEDGING AGREEMENTS" means currency exchange agreements,
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements, and all other agreements or arrangements designed to protect
such Person against fluctuations in interest rates or currency exchange rates.
"HEDGING OBLIGATIONS" means, with respect to any Person, all
liabilities of such Person under Hedging Agreements.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms
contained in this Agreement or any other Loan Document refer to this Agreement
or such other Loan Document, as the case may be, as a whole and not to any
particular Section, paragraph or provision of this Agreement or such other Loan
Document.
"HIGH TIDES" means those Convertible Preferred Securities,
Remarketable Term Income Deferrable Equity Securities (HIGH TIDES)-SM- issued by
Titan Capital Trust in accordance with the terms and provisions of the
Declaration of Trust, including as such HIGH TIDES may be remarketed pursuant to
the HIGH TIDES Documents. For all purposes under this Agreement, the HIGH TIDES
shall be considered equity. (The terms Remarketable Term Income Deferrable
Equity Securities (HIGH TIDES)-SM- and HIGH TIDES-SM- are registered service
marks of CSFB.)
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"HIGH TIDES DOCUMENTS" means (a) the HIGH TIDES, (b) the
Declaration of Trust, (c) the Preferred Securities Guarantee, dated as of
February 9, 2000, between the Borrower and Wilmington Trust Company, as
guarantee trustee, issued by the Borrower with respect to distributions on, the
redemption of and liquidation amounts on the HIGH TIDES, (d) the Common
Securities Guarantee, dated as of February 9, 2000, issued by the Borrower, (e)
the Remarketing Agreement, dated as of February 9, 2000, among Titan Capital
Trust, Wilmington Trust Company, as Tender Agent, and Credit Suisse First Boston
Corporation, as Remarketing Agent, (f) the Registration Rights Agreement, dated
as of February 9, 2000, among the Borrower, Titan Capital Trust and Credit
Suisse First Boston Corporation, on behalf of the several purchasers, and (g)
any other documents related to the issuance of the HIGH TIDES.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion
or certification of any independent public accountant as to any financial
statement of the Borrower, any qualification or exception to such opinion or
certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of
matters relevant to such financial statement; or
(c) which relates to the treatment or classification of any
item in such financial statement and which, as a condition to its
removal, would require an adjustment to such item the effect of
which would be to cause the Borrower to be in default of any of its
obligations under SECTION 8.4.
"INCLUDING" and "INCLUDE" means including without limiting the
generality of any description preceding such term, and, for purposes of this
Agreement and each other Loan Document, the parties hereto agree that the rule
of ejusdem generis shall not be applicable to limit a general statement, which
is followed by or referable to an enumeration of specific matters, to matters
similar to the matters specifically mentioned.
"INCUMBENT BOARD" is defined in the definition of "Change in
Control."
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money or
advances and all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments;
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(c) all Capitalized Lease Liabilities of such Person;
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<PAGE>
(d) net liabilities of such Person under all Hedging
Obligations;
(e) whether or not so included as liabilities in accordance
with GAAP, all obligations of such Person to pay the deferred purchase
price of property or services excluding Acquisition Incentives which
are not overdue and trade accounts payable in the ordinary course of
business which are not overdue for a period of more than 90 days or, if
overdue for more than 90 days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been established on the
books of such Person, and indebtedness or other obligations secured by
(or for which the holder of such indebtedness or other obligations has
an existing right, contingent or otherwise, to be secured by) a Lien on
property owned or being acquired by such Person (including indebtedness
or other obligations arising under conditional sales or other title
retention agreements), whether or not such indebtedness or other
obligations shall have been assumed by such Person or is limited in
recourse;
(f) all Contingent Liabilities of such Person;
(g) the principal portion of all obligations of such Person
under any Synthetic Lease; and
(h) all Disqualified Stock of such Person.
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor. In no event shall the HIGH TIDES be considered
Indebtedness under this Agreement.
"INDEMNIFIED LIABILITIES" is defined in SECTION 11.4.
"INDEMNIFIED PARTIES" is defined in SECTION 11.4.
"INTERCO SUBORDINATION AGREEMENT" means the Subordination
Agreement, substantially in the form of EXHIBIT J hereto.
"INTEREST COVERAGE RATIO" means, as of the close of any Fiscal
Quarter, the ratio computed for the period consisting of such Fiscal Quarter and
each of the three immediately preceding Fiscal Quarters with respect to the
Borrower and its Restricted Subsidiaries on a consolidated basis of:
(a) EBITDA (for all such Fiscal Quarters)
TO
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(b) Interest Expense paid in cash.
"INTEREST EXPENSE" means, for any Fiscal Quarter, the
aggregate interest expense of the Borrower and its Restricted Subsidiaries for
such Fiscal Quarter, as determined in accordance with GAAP, including the
portion of any payments made in respect of Capitalized Lease Liabilities
allocable to interest expense; PROVIDED, HOWEVER, that distributions on the HIGH
TIDES shall not be included in Interest Expense.
"INTEREST PERIOD" means, relative to any LIBO Rate Loan, the
period beginning on (and including) the date on which such LIBO Rate Loan is
made or continued as, or converted into, a LIBO Rate Loan pursuant to SECTION
2.7 or 2.9 and shall end on (but exclude) the day which numerically corresponds
to such date 2 weeks or one, two, three or six months thereafter, or, if
generally made available by all Lenders, nine or twelve months thereafter (or,
if such month has no numerically corresponding day, on the last Business Day of
such month), as the Borrower may select in its relevant notice pursuant to
SECTION 2.7 or 2.9; PROVIDED, HOWEVER, that
(a) the Borrower shall not be permitted to select Interest
Periods to be in effect at any one time which have expiration dates
occurring on more than ten different dates;
(b) if such Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the next
following Business Day (unless such next following Business Day is the
first Business Day of a calendar month, in which case such Interest
Period shall end on the Business Day next preceding such numerically
corresponding day); and
(c) no Interest Period for any Loan may end later than the
Stated Maturity Date for such Loan.
"INVESTMENT" means, relative to any Person, (a) any direct or
indirect purchase or other acquisition by such Person of, or of a beneficial
interest in, the Capital Stock or other debt or equity securities (including
options, warrants or other rights to acquire such Capital Stock or other
securities) of any other Person, (b) any direct or indirect purchase or other
acquisition by such Person of any assets constituting a business unit of any
Person or all or substantially all of a Person's assets, (c) any direct or
indirect loan, advance (excluding commission, travel, petty cash, relocation and
similar advances to officers and employees made in the ordinary course of
business) or capital contribution by such Person to any other Person, including
all Indebtedness and accounts receivable acquired from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business, (c) Hedging Agreements and (d) any Contingent
Liability of such Person. The amount of any Investment shall be the original
principal or capital amount thereof less all returns of principal or equity
thereon and shall, if made by the transfer or exchange of property other than
cash, be deemed to have been made in an original principal or capital amount
equal to the fair market value of such property at the time of such Investment.
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"ISSUANCE REQUEST" means a Letter of Credit request and
certificate duly executed by an Authorized Officer of the Borrower,
substantially in the form of EXHIBIT B-2 hereto.
"ISSUER" means Scotiabank (solely with respect to Existing
Letters of Credit), Comerica Bank, Imperial Bank or any other Lender acceptable
to the Administrative Agent and the Borrower; PROVIDED, HOWEVER, that no Lender
other than Comerica Bank and Imperial Bank shall have any obligation to issue
Letters of Credit hereunder.
"LENDER ASSIGNMENT AGREEMENT" means an assignment agreement
substantially in the form of EXHIBIT L hereto.
"LENDERS" is defined in the PREAMBLE and, in addition, shall
include any commercial bank or other financial institution that becomes a Lender
pursuant to SECTION 11.11(a).
"LENDER'S ENVIRONMENTAL LIABILITY" means any and all
losses, liabilities, obligations, penalties, claims, litigation, demands,
defenses, costs, judgments, suits, proceedings, damages (including
consequential damages), disbursements or expenses of any kind or nature
whatsoever (including reasonable attorneys' fees at trial and appellate
levels and experts' fees and disbursements and expenses incurred in
investigating, defending against or prosecuting any litigation, claim or
proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against the Administrative Agent, any Lender or any Issuer or any of
such Person's Affiliates, shareholders, directors, officers, employees, and
agents in connection with or arising from:
(a) any Hazardous Material on, in, under or affecting all or
any portion of any property of the Borrower or any of its Subsidiaries,
the groundwater thereunder, or any surrounding areas thereof to the
extent caused by Releases from the Borrower's or any of its
Subsidiaries' or any of their respective predecessors' properties;
(b) any misrepresentation, inaccuracy or breach of any
warranty, contained or referred to in SECTION 6.12;
(c) any violation or claim of violation by the Borrower or any
of its Subsidiaries of any Environmental Laws; or
(d) the imposition of any lien for damages caused by, or the
recovery of any costs for, the cleanup, release or threatened release
of any Hazardous Material (i) by the Borrower or any of its
Subsidiaries or (ii) in connection with any property owned or formerly
owned by the Borrower or any of its Subsidiaries.
"LETTER OF CREDIT" is defined in SECTION 2.2 and shall include
each of the Existing Letters of Credit.
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"LETTER OF CREDIT COMMITMENT" means, with respect to an
Issuer, such Issuer's obligation to issue Letters of Credit pursuant to SECTION
2.2 and, with respect to each Revolving Loan Lender, the obligations of each
such Lender to participate in such Letters of Credit pursuant to SECTION
2.11(b).
"LETTER OF CREDIT COMMITMENT AMOUNT" means, on any date, a
maximum amount of $20,000,000, as such amount may be permanently reduced from
time to time pursuant to SECTION 2.6.
"LETTER OF CREDIT OUTSTANDINGS" means, on any date, an amount
equal to the sum of
(a) the then aggregate amount which is undrawn and available
under all issued and outstanding Letters of Credit,
PLUS
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"LIBO RATE" means the rate per annum determined by the
Administrative Agent at approximately 11:00 A.M. (London time) on the date which
is two (2) Business Days prior to the beginning of the relevant Interest Period
(as specified in the applicable Credit Extension Request) by reference to the
British Bankers' Association Interest Settlement Rates for deposits in Dollars
(as set forth by any service selected by the Administrative Agent which has been
nominated by the British Bankers' Association as an authorized information
vendor for the purpose of displaying such rates) for a period equal to such
Interest Period; PROVIDED, that a one month LIBO Rate shall be used for an
Interest Period of two weeks; and PROVIDED FURTHER, that, to the extent that an
interest rate is not ascertainable pursuant to the foregoing provisions of this
definition, the "LIBO Rate" shall be the interest rate per annum determined by
the Administrative Agent to be the average of the rates per annum at which
deposits in Dollars are offered for such relevant Interest Period to major banks
in the London interbank market in London, England by the Reference Lenders at
approximately 11:00 A.M. (London time) on the date which is two Business Days
prior to the beginning of such Interest Period. If any of the Reference Lenders
shall be unable or shall otherwise fail to supply such rates to the
Administrative Agent upon its request, the rate of interest shall be determined
on the basis of the quotations of the remaining Reference Lender.
"LIBO RATE LOAN" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a rate of interest
determined by reference to the LIBO Rate (Reserve Adjusted).
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"LIBO RATE (RESERVE ADJUSTED)" means, relative to any Loan to
be made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum determined pursuant to the following formula:
LIBO Rate = LIBO RATE
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans
will be determined by the Administrative Agent on the basis of the LIBOR Reserve
Percentage in effect two Business Days before the first day of such Interest
Period.
"LIBOR OFFICE" means, relative to any Lender, the office of
such Lender designated as such Lender's "LIBOR Office" set forth opposite its
name on SCHEDULE II hereto or in a Lender Assignment Agreement, or such other
office of a Lender as designated from time to time by notice from such Lender
to the Borrower and the Administrative Agent, whether or not outside the
United States, which shall be making or maintaining LIBO Rate Loans of such
Lender hereunder.
"LIBOR RESERVE PERCENTAGE" means, relative to any Interest
Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal)
equal to the maximum aggregate reserve requirements (including all basic,
emergency, supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
specified under regulations issued from time to time by the F.R.S. Board and
then applicable to assets or liabilities consisting of or including
"Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S.
Board, having a term approximately equal or comparable to such Interest Period.
"LIEN" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge against or interest in property, or other priority or
preferential arrangement of any kind or nature whatsoever, to secure payment of
a debt or performance of an obligation.
"LINCOM" means LinCom Corporation, a Delaware corporation.
"LINCOM ACQUISITION AGREEMENT" means the Stock Purchase
Agreement, dated as of January 28, 2000, among the Borrower, LinCom and the
stockholders of LinCom.
"LOAN DOCUMENTS" collectively means this Agreement, the
Letters of Credit, the Fee Letter, the Interco Subordination Agreement, the
Collateral Documents, each Subsidiary Guaranty, each agreement pursuant to which
the Administrative Agent is granted a Lien to secure the Obligations and each
other agreement, certificate, document or instrument delivered in connection
with this Agreement or such other Loan Documents, whether or not specifically
mentioned herein or therein.
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"LOANS" means, as the context may require, a Revolving Loan,
each Term Loan, or a Swing Line Loan, of any type.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the business, condition (financial or otherwise), operations, assets,
properties or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole, (ii) the rights and remedies of the Administrative Agent, any
Lender or any Issuer under any Loan Document or (iii) the ability of any Obligor
to perform its Obligations under any Loan Document.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTI-DRAW TERM LOAN" is defined in SECTION 2.3(b).
"MULTI-DRAW TERM LOAN COMMITMENT" means, relative to any
Lender, such Lender's obligation (if any) to make Multi-Draw Term Loans pursuant
to SECTION 2.3(b).
"MULTI-DRAW TERM LOAN COMMITMENT AMOUNT" means, on any date,
$75,000,000, as such amount may be reduced from time to time pursuant to SECTION
2.6.
"MULTI-DRAW TERM LOAN COMMITMENT TERMINATION DATE" means the
earliest of:
(a) March 31, 2000 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) the date which is nine months after the Closing Date;
(c) the date on which the Multi-Draw Term Loan Commitment
Amount is terminated in full or reduced to zero pursuant to SECTION
2.6; and
(d) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in CLAUSES (a), (b), (c) or (d), the
Multi-Draw Term Loan Commitments shall terminate automatically without any
further action.
"MULTI-DRAW TERM LOAN LENDER" means the Lenders listed on
SCHEDULE II with Multi-Draw Term Loan Commitments and Lenders from time to time
holding Multi-Draw Term Loans and Multi-Draw Term Loan Commitments after giving
effect to any assignments permitted by SECTION 11.11.
"MULTI-DRAW TERM NOTE" means a promissory note of the Borrower
payable to any Lender, in the form of EXHIBIT A-4 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Multi-Draw Term Loans, and also means all other promissory
notes accepted from time to time in substitution therefor or renewal thereof.
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<PAGE>
"NET INCOME" means for any period, the aggregate of all
amounts which would be included as net income on the consolidated financial
statements of the Borrower and its U.S. Subsidiaries for such period, as
determined in accordance with GAAP.
"NET PROCEEDS" means (a) with respect to the issuance of
any equity securities (other than the issuance or exercise of stock options
in connection with employee incentive programs or employee benefit programs)
of the Borrower, the EXCESS of (i) the proceeds received by the Borrower from
the sale or issuance to any Person of any stock, warrants or options or the
exercise of any such warrants or options, OVER (ii) all reasonable and
customary underwriting commissions and legal, investment banking, brokerage
and accounting and other professional fees, sales commissions and
disbursements actually incurred in connection with such sale or issuance; (b)
with respect to any Asset Sale, the EXCESS of (i) the proceeds received from
any Asset Sale OVER (ii) the reasonable cash costs of such Asset Sale, taxes
paid or payable as a result thereof, and all reasonable and customary legal,
investment banking, accounting, and other professional fees, sales
commissions or disbursements actually incurred in connection with such Asset
Sale which have not been paid to Affiliates of the Borrower in connection
therewith; (c) with respect to the incurrence or issuance of Indebtedness,
the EXCESS of (i) the proceeds received from the incurrence or issuance of
any Indebtedness (except for Indebtedness permitted by SECTION 8.2) of the
Borrower or any of its Restricted Subsidiaries OVER (ii) the reasonable costs
incurred in such transaction, and all reasonable and customary legal,
investment banking, accounting, and other professional fees, sales
commissions or disbursements actually incurred in connection with such
transaction; and (d) the cash proceeds of any repayment of the principal
portion (including capitalized interest) of Indebtedness outstanding at the
date of issuance of shares in connection with the initial public offering of
Cayenta pursuant to the terms of the applicable underwriting agreement owing
from Cayenta to the Borrower or any Restricted Subsidiary when repaid after
Cayenta's initial public offering.
The amount of the proceeds described in CLAUSES (a) and (b)
which, at the option of the Borrower and so long as no Default shall have
occurred and be continuing, the Borrower uses, or causes any Restricted
Subsidiary to use, to purchase (x) substantially similar assets useful in the
business of the Borrower or such Restricted Subsidiary, or (y) Capital Stock of
Persons which, immediately after giving effect to such purchase, become a
Restricted Subsidiary (with such assets or interests described in CLAUSES (x)
and (y), collectively, referred to as "QUALIFIED ASSETS") within 180 days (with
respect to the proceeds described in CLAUSE (a)), and 360 days (with respect to
the proceeds described in CLAUSE (b)), after the consummation (and with the
proceeds) of such sale, conveyance or disposition, and in the event the Borrower
or such Restricted Subsidiary elects to exercise its right to purchase Qualified
Assets with the Net Proceeds pursuant to this provision, the Borrower shall
deliver a certificate of an Authorized Officer to the Administrative Agent
within 120 days following the receipt of Net Proceeds (with respect to the
proceeds described in CLAUSE (a) above) or within 180 days following receipt of
Net Proceeds (with respect to the proceeds described in CLAUSE (b) above)
setting forth the amount of the Net Proceeds which the Borrower or such
Restricted Subsidiary expects to use to purchase Qualified Assets during such
180-day or 360-day period, as applicable. Any amount of such Net
22
<PAGE>
Proceeds which the Borrower does not expect to use to purchase Qualified
Assets shall be paid to the Administrative Agent in accordance with SECTION
3.1(c) on the 120th day following receipt of such Net Proceeds (with respect
to the proceeds described in CLAUSE (a) above) or the 180th day following
receipt of such Net Proceeds (with respect to the proceeds described in
CLAUSE (b) above). If the Borrower fails to deliver a certificate within such
120- or 180-day period, as applicable, specifying the amount of Net Proceeds
which the Borrower expects to use to purchase Qualified Assets, all of the
Net Proceeds received shall be paid to the Administrative Agent in accordance
with SECTION 3.1(c) on the 120th day following receipt of such Net Proceeds
(with respect to the proceeds described in CLAUSE (a) above) or the 180th day
following receipt of such Net Proceeds (with respect to the proceeds
described in CLAUSE (b) above).
If and to the extent that the Borrower or such Restricted
Subsidiary has elected to reinvest Net Proceeds referred to in CLAUSES (a) and
(b) as permitted above, then on the date which is 180 days or 360 days, as
appropriate, after the relevant sale, conveyance or disposition, the Borrower
shall deliver a certificate of an Authorized Officer to the Administrative Agent
certifying as to the amount and use of such Net Proceeds actually used to
purchase Qualified Assets. To the extent such Net Proceeds are not so used to
purchase Qualified Assets then the Loans shall be repaid as set forth in SECTION
3.1(c) and the Revolving Loan Commitment Amount or the Multi-Draw Term Loan
Commitment Amount, as appropriate pursuant to SECTION 2.6(b), shall be
automatically reduced by an amount equal to the aggregate amount of such
proceeds not so used to purchase Qualified Assets. Notwithstanding the
foregoing, Net Proceeds shall not include proceeds described in CLAUSE (b) of
the first paragraph of this definition to the extent such proceeds are utilized
to acquire Capital Stock pursuant to SECTION 8.6(f) within 180 days following
receipt thereof.
"NET WORTH" means, with respect to any Person at any date, on
a consolidated basis for such Person and its Subsidiaries:
(a) the sum of Capital Stock taken at par value, capital
surplus and retained earnings (or accumulated deficit) of such Person
at such date;
MINUS
(b) treasury stock of such Person and, to the extent included
in the preceding CLAUSE (a), minority interests in Subsidiaries of such
Person at such date.
"NON-EXCLUDED TAXES" means any Taxes other than net income and
franchise taxes imposed with respect to the Administrative Agent or any Lender
by the Governmental Authority under the laws of which the Administrative Agent
or such Lender, as applicable, is organized or in which it maintains its
applicable lending office.
"NON-U.S. LENDER" means any Lender that is not a "United
States person", as defined under section 7701(a)(30) of the Code.
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<PAGE>
"NON-UTILIZATION FEE" means a Usage-based fee equal to the
percentage specified in the grid below of (i) prior to the Multi-Draw Term Loan
Commitment Termination Date, the undrawn portion of each of the Revolving Loan
Commitment Amount and the Multi-Draw Term Loan Commitment Amount and (ii) after
the Multi-Draw Term Loan Commitment Termination Date, the undrawn portion of the
Revolving Loan Commitment Amount:
<TABLE>
<CAPTION>
USAGE NON-UTILIZATION FEE
----- -------------------
<S> <C>
less than 30% 1.00%
30% Usage 50% 0.75%
greater than 50% 0.50%
</TABLE>
"NOTE" means, as the context may require, a Revolving Note, a
Term Note, or a Swing Line Note.
"OBLIGATIONS" means all obligations (monetary or otherwise,
whether absolute or contingent, matured or unmatured) of the Borrower and each
other Obligor arising under or in connection with this Agreement, each other
Loan Document and any Hedging Agreement between the Borrower and a Lender or an
Affiliate of a Lender.
"OBLIGOR" means, as the context may require, the Borrower and
each other Person (other than a Secured Party) obligated under any Loan
Document.
"ORGANIC DOCUMENT" means, relative to any Obligor, as
applicable, its certificate of incorporation, by-laws, certificate of
partnership, partnership agreement, certificate of formation, limited liability
agreement and all shareholder agreements, voting trusts and similar arrangements
applicable to any of such Obligor's partnership interests, limited liability
company interests or authorized shares of Capital Stock.
"OTHER TAXES" means any and all stamp, documentary or similar
taxes, or any other excise or property taxes or similar levies that arise on
account of any payment being or being required to be made hereunder or under any
Note or from the execution, delivery, registration, recording or enforcement of
this Agreement or any other Loan Document.
"PARTICIPANT" is defined in SECTION 11.11(b).
"PATENT SECURITY AGREEMENT" means any Patent Security
Agreement executed and delivered by any Obligor in substantially the form of
Exhibit A to any Security Agreement, as amended, restated, supplemented, or
otherwise modified from time to time.
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"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means a "pension plan", as such term is
defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA
(other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA),
and to which the Borrower or any corporation, trade or business that is,
along with the Borrower, a member of a Controlled Group, may have liability,
including any liability by reason of having been a substantial employer
within the meaning of Section 4063 of ERISA at any time during the preceding
five years, or by reason of being deemed to be a contributing sponsor under
Section 4069 of ERISA.
"PERCENTAGE" means, relative to any Lender, the applicable
percentage relating to Revolving Loans or Revolving Loan Commitments, Multi-Draw
Term Loans or Multi-Draw Term Loan Commitments, Term B Loans or Term B Loan
Commitments, or Term C Loans or Term C Loan Commitments, as applicable, set
forth opposite its name on SCHEDULE II hereto under the applicable column
heading or set forth in a Lender Assignment Agreement under the applicable
column heading, as such percentage may be adjusted from time to time pursuant to
Lender Assignment Agreement(s) executed by such Lender and its Assignee
Lender(s) and delivered pursuant to SECTION 11.11(a). A Lender shall not have
any Commitment to make Revolving Loans, Multi-Draw Term Loans, Term B Loans or
Term C Loans if its percentage under the respective column heading is zero (0%).
"PERMITTED ACQUISITIONS" means (a) the ACS Acquisition,
PROVIDED that (i) it is consummated no later than June 1, 2000 and pursuant to
the terms of the ACS Merger Agreement and (ii) no Default has occurred and is
continuing at the time of consummation of the ACS Acquisition or would result
therefrom, (b) the acquisition of LinCom, PROVIDED that (i) it is consummated no
later than June 1, 2000 and pursuant to the terms of the LinCom Acquisition
Agreement and (ii) no Default has occurred and is continuing at the time of
consummation of such acquisition or would result therefrom, (c) the acquisition
of Acquisition Two, PROVIDED that (i) it is consummated no later than June 1,
2000 and pursuant to the terms of documentation reasonably satisfactory to the
Administrative Agent (including the amount of any liabilities assumed by the
Obligors in connection with the acquisition of Acquisition Two) and (ii) no
Default has occurred and is continuing at the time of consummation of such
acquisition or would result therefrom and (d) an acquisition (whether pursuant
to an acquisition of stock, assets or otherwise) by the Borrower or any
Guarantor of any Person or the assets of any Person which meets all of the
following conditions: (i) such Person is primarily engaged in a similar line of
business as the Borrower or such Guarantor as of the Closing Date; (ii) all or
substantially all of the assets acquired or owned by the Person being acquired
are located in the United States and such Person (in the case of an acquisition
of Capital Stock) is organized under the laws of the United States or a state
thereof or the District of Columbia and will become a Guarantor upon the
consummation of such acquisition and otherwise comply with SECTION 7.7; (iii)
all or substantially all of the Capital Stock or assets so acquired will become
subject to Liens created under the Loan Documents; (iv) with respect to any
single acquisition, or a series of related acquisitions with a single or
aggregate net purchase price of greater than $25,000,000, including
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<PAGE>
any assumed Indebtedness (with any non-cash consideration being valued in
good faith by senior management of the Borrower as set forth in an Officer's
Certificate delivered to the Administrative Agent), the Borrower has obtained
the prior consent of the Required Lenders; (v) immediately before and after
giving effect to such acquisition, no Default shall have occurred and be
continuing or would result therefrom (including under SECTION 8.1); (vi) the
Borrower shall have delivered to the Administrative Agent a Compliance
Certificate for the period of four full Fiscal Quarters immediately preceding
such acquisition (prepared in good faith and in a manner and using such
methodology which is consistent with the most recent financial statements
delivered pursuant to SECTION 7.1) giving PRO FORMA effect in accordance with
this Agreement to the consummation of such acquisition and evidencing
compliance with the covenants set forth in SECTION 8.4; and (vii) the
Administrative Agent shall have received a certificate, dated a date
reasonably acceptable to the Administrative Agent, of an Authorized Officer
of the Borrower certifying as to a true and complete copy of each purchase
agreement, and all other documents and instruments delivered in connection
with the consummation of any Permitted Acquisitions and that are required to
be delivered pursuant to the terms of the relevant purchase agreement and the
Administrative Agent shall be satisfied with all amendments, waiver or other
modifications of, or other forebearance to exercise any rights with respect
to, any of the terms or provisions of such purchase agreements and the
exhibits and schedules thereto.
"PERSON" means any natural person, corporation, limited
liability company, partnership, joint venture, association, trust or
unincorporated organization, Governmental Authority or any other legal entity,
whether acting in an individual, fiduciary or other capacity.
"PLAN" means any Pension Plan or Welfare Plan.
"PLEDGE AGREEMENT" means, as the context may require, the
Borrower Pledge Agreement or the Subsidiary Pledge Agreement.
"PLEDGED SUBSIDIARY" means, at any time, each Subsidiary in
respect of which the Administrative Agent has been granted, at such time, a
security interest in and to, or a pledge of, (i) any of the issued and
outstanding shares of Capital Stock of such Subsidiary, or (ii) any intercompany
notes of such Subsidiary owing to the Borrower or another Subsidiary of the
Borrower.
"PRO FORMA FINANCIAL STATEMENTS" is defined in SECTION 5.1(h).
"QUALIFIED ASSETS" is defined in the definition of "Net
Proceeds".
"QUARTERLY PAYMENT DATE" means the third Business Day of
January, April, July and October.
"REFERENCE LENDERS" means (i) CSFB and (ii) another Lender
determined by the Administrative Agent with the consent of the Borrower.
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<PAGE>
"REFUNDED SWING LINE LOANS" is defined in SECTION 2.8.
"REGULATION S-X" means Regulation S-X promulgated by the SEC.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 2.11(d).
"RELEASE" means a "RELEASE", as such term is defined in
CERCLA.
"REPLACEMENT LENDER" is defined in of SECTION 4.10.
"REQUIRED LENDERS" means, at any time, Lenders holding at
least 51% of the Total Exposure Amount.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as amended.
"RESTRICTED PAYMENT" means the declaration or payment of any
dividend (other than dividends payable solely in common stock of the Borrower)
on, or the making of any payment or distribution on account of, or setting apart
assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of any class of Capital Stock of the
Borrower or any Subsidiary or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, or the making of any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property, obligations of the Borrower or any Subsidiary or otherwise.
"RESTRICTED SUBSIDIARIES" means all Guarantors, Titan Africa,
Inc. and Titan Capital Trust.
"REVOLVING LOAN" is defined in SECTION 2.1.
"REVOLVING LOAN COMMITMENT" means, relative to any Lender,
such Lender's obligation (if any) to make Revolving Loans pursuant to CLAUSE (a)
of SECTION 2.1.
"REVOLVING LOAN COMMITMENT AMOUNT" means, on any date,
$100,000,000, as such amount may be reduced from time to time pursuant to
SECTION 2.6.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means the
earliest of:
(a) March 31, 2000 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) the fifth anniversary of the Closing Date;
(c) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to SECTION 2.6; and
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<PAGE>
(d) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding CLAUSES (a), (b),
(c) or (d), the Revolving Loan Commitments shall terminate automatically and
without any further action.
"REVOLVING LOAN LENDER" means the Lenders listed on SCHEDULE
II with Revolving Loan Commitments and Lenders from time to time holding
Revolving Loans and Revolving Loan Commitments after giving effect to any
assignments permitted by SECTION 11.11.
"REVOLVING NOTE" means a promissory note of the Borrower
payable to any Revolving Loan Lender, in the form of EXHIBIT A-1 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to such Revolving
Loan Lender resulting from outstanding Revolving Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.
"S&P" means Standard & Poor's Rating Services.
"SCOTIABANK" is defined in the PREAMBLE.
"SEC" means the Securities and Exchange Commission.
"SECURED PARTIES" means the Lenders, any Lender or Affiliate
of a Lender which has entered into a Hedging Agreement with the Borrower, the
Issuers, the Administrative Agent, and (in each case), each of their respective
successors, transferees and assigns.
"SECURITY AGREEMENT" means, as the context may require, the
Borrower Security Agreement and the Subsidiary Security Agreement, in each case
as amended, restated, supplemented, or otherwise modified from time to time.
"SIGNIFICANT SUBSIDIARY" has the meaning given to such term in
Rule 1-02(w) of Regulation S-X.
"SOLVENT" means, with respect to any Person, that as of the
date of determination both (i) (a) the then fair saleable value of the property
sold as a going concern of such Person is (y) greater than the total amount of
liabilities (including contingent liabilities but excluding amounts payable
under intercompany promissory notes) of such Person and (z) not less than the
amount that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to such
Person; (b) such Person's capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction; and (c) such Person does
not intend to incur, or believe that it will incur, debts beyond its ability to
pay such debts as they become due; and (ii) such Person is "solvent" within the
meaning given that term and similar
28
<PAGE>
terms under applicable laws relating to fraudulent transfers and conveyances.
For purposes of this definition, the amount of any contingent liability at
any time shall be computed as the amount that, in light of all of the facts
and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"STATED AMOUNT", means on any date and with respect to a
particular Letter of Credit, the total amount then available to be drawn under
such Letter of Credit.
"STATED EXPIRY DATE" is defined in SECTION 2.11(a).
"STATED MATURITY DATE" means with respect to
(a) the Revolving Loans, the fifth anniversary of the Closing Date;
(b) the Multi-Draw Term Loans, the sixth anniversary of the Closing
Date;
(c) the Term B Loans, the seventh anniversary of the Closing Date; and
(d) the Term C Loans, the applicable date on which all such Term C
Loans mature and are due and payable, as determined at the time of the initial
borrowing thereof.
"SUB DEBT DOCUMENTS" means, collectively, the loan agreements,
indentures, note purchase agreements, promissory notes, guarantees, and other
instruments and agreements evidencing the terms of Subordinated Debt, as
amended, supplemented, amended and restated in accordance with SECTION 8.11.
"SUBORDINATED DEBT" means (i) the Existing Subordinated Debt,
and (ii) unsecured Indebtedness of the Borrower subordinated in right of payment
to the Obligations pursuant to documentation containing maturities, amortization
schedules, covenants, defaults, remedies, subordination provisions and other
terms reasonably satisfactory to the Required Lenders.
"SUBORDINATED NOTES" means, collectively, any promissory notes
evidencing Subordinated Debt, as such notes or instruments may be amended,
supplemented or otherwise modified from time to time in accordance with SECTION
8.11.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership or other entity of which
more than 50% of the outstanding securities (or other ownership interest) having
ordinary voting power to elect the board of directors, managers or other voting
members of the governing body of such corporation, limited liability company,
partnership or other entity (irrespective of whether at the time securities (or
other ownership interest) of any other class or classes of such corporation,
limited liability company, partnership or other entity shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person. Unless
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the context otherwise specifically requir es, the term "Subsidiary" shall be
a reference to a Subsidiary of the Borrower.
"SUBSIDIARY GUARANTY" means the subsidiary guaranty executed
and delivered by each Guarantor pursuant to the terms of this Agreement,
substantially in the form of EXHIBIT I hereto, as amended, restated,
supplemented or otherwise modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means the Pledge Agreement
executed and delivered by each Restricted Subsidiary that in turn has any
Subsidiaries, substantially in the form of EXHIBIT F-2 hereto, in each case as
amended, restated, supplemented or otherwise modified from time to time.
"SUBSIDIARY SECURITY AGREEMENT" means, collectively, each
Security Agreement executed and delivered by any Restricted Subsidiary in favor
of the Administrative Agent for the benefit of the Secured Parties pursuant to
the terms of this Agreement, in substantially the form of EXHIBIT G-2, in each
case, as amended, restated, supplemented or otherwise modified from time to
time.
"SWING LINE LENDER" means, subject to the terms of this
Agreement, CSFB.
"SWING LINE LOAN" is defined in CLAUSE (b) of SECTION 2.1.
"SWING LINE LOAN COMMITMENT" is defined in CLAUSE (b) of
SECTION 2.1.
"SWING LINE LOAN COMMITMENT AMOUNT" means, on any date,
$10,000,000, as such amount may be reduced from time to time pursuant to SECTION
2.6.
"SWING LINE NOTE" means a promissory note of the Borrower
payable to CSFB, in the form of EXHIBIT A-2 hereto (as such promissory note may
be amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the Borrower to CSFB resulting from outstanding Swing
Line Loans, and also means all other promissory notes accepted from time to time
in substitution therefor or renewal thereof.
"SYNTHETIC LEASE" means any synthetic lease, tax retention
operating lease or off-balance sheet financing product where such transaction is
considered borrowed money Indebtedness for tax purposes but which is classified
as an operating lease pursuant to GAAP.
"TAXES" means any and all income, stamp or other taxes,
duties, levies, imposts, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, and all interest, penalties or similar liabilities with respect
thereto.
"TERM B LOAN" is defined in SECTION 2.3(a).
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"TERM B LOAN COMMITMENT" means, relative to any Lender, such
Lender's obligation (if any) to make Term B Loans pursuant to SECTION 2.3(a).
"TERM B LOAN COMMITMENT AMOUNT" means, on any date,
$100,000,000.
"TERM B LOAN COMMITMENT TERMINATION DATE" means the earliest
of:
(a) March 31, 2000 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) the date the initial Credit Extensions are made
(immediately after the making of the Term B Loans on such date); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in CLAUSES (a), (b) or (c), the Term
B Loan Commitments shall terminate automatically and without any further action.
"TERM B LOAN LENDER" means the Lenders listed on SCHEDULE II
with Term B Loan Commitments and Lenders from time to time holding Term B Loans
after giving effect to any assignments permitted by SECTION 11.11.
"TERM B NOTE" means a promissory note of the Borrower payable
to any Lender, in the form of EXHIBIT A-3 hereto (as such promissory note may be
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the Borrower to such Lender resulting from outstanding
Term B Loans, and also means all other promissory notes accepted from time to
time in substitution therefor or renewal thereof.
"TERM C LOAN" is defined in SECTION 2.3(c)(iii).
"TERM C LOAN COMMITMENT" is defined in SECTION 2.3(c)(i).
"TERM C LOAN COMMITMENT AMOUNT" means an aggregate principal
amount of up to $100,000,000.
"TERM C LOAN COMMITMENT TERMINATION DATE" means the earliest
of:
(a) March 31, 2000 (if the initial Credit Extension has not
occurred on or prior to such date);
(b) the Term C Loan Draw Date (immediately after the making of
the Term C Loans); and
(c) the date on which any Commitment Termination Event occurs.
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Upon the occurrence of any event described in CLAUSES (a), (b) or (c), the Term
C Loan Commitments shall terminate automatically and without any further action.
"TERM C LOAN DRAW DATE" means the date on which the Term C
Loans are drawn by the Borrower.
"TERM C LOAN LENDER" is defined in SECTION 2.3(c)(ii).
"TERM C NOTE" means a promissory note of the Borrower payable
to any Lender, in the form of EXHIBIT A-5 hereto (as such promissory note may be
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the Borrower to such Lender resulting from outstanding
Term C Loans, and also means all other promissory notes accepted from time to
time in substitution therefor or renewal thereof.
"TERM LOAN" means, as the context may require, a Multi-Draw
Term Loan, a Term B Loan and/or a Term C Loan.
"TERM LOAN COMMITMENT" means, as the context may require, a
Term B Loan Commitment, a Term C Loan Commitment and/or a Multi-Draw Term Loan
Commitment.
"TERM LOAN COMMITMENT AMOUNT" means, as the context may
require, the Term B Loan Commitment Amount, the Term C Loan Commitment Amount
and/or the Multi-Draw Term Loan Commitment Amount.
"TERM LOAN COMMITMENT TERMINATION DATE" means, as the context
may require, the Term B Loan Commitment Termination Date, the Term C Loan
Commitment Termination Date and/or the Multi-Draw Term Loan Commitment
Termination Date.
"TERM LOAN LENDER" means each Multi-Draw Term Loan Lender,
each Term B Loan Lender and each Term C Loan Lender.
"TERM NOTE" means, as the context may require, a Multi-Draw
Term Note, a Term B Note and/or a Term C Note.
"TITAN CAPITAL TRUST" means Titan Capital Trust, a Delaware
business trust and a wholly owned Subsidiary of the Borrower.
"TOTAL DEBT" means, on any date of determination, the
outstanding principal amount of all Indebtedness of the Borrower and its
Restricted Subsidiaries (which, in the case of the Loans, shall be deemed to
equal the aggregate amount of Loans outstanding on such date and which, in the
case of Letter of Credit Outstandings shall be deemed to equal the aggregate
amount of Letter of Credit Outstandings on such date), exclusive of (i)
intercompany Indebtedness between the Borrower and any of its Subsidiaries
(including, without limitation, the
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Debentures so long as they are held by Titan Capital Trust) and (ii) the
Indebtedness of Titan Africa, Inc. in connection with the project financing
in Benin, so long as such Indebtedness remains non-recourse to the Borrower
and its Subsidiaries (other than Titan Africa, Inc.) and the Borrower and its
Subsidiaries (other than Titan Africa, Inc.) have no liability or obligations
with respect to such Indebtedness.
"TOTAL DEBT TO EBITDA RATIO" means, as of the last day of any
Fiscal Quarter, the ratio of:
(a) Total Debt outstanding on the last day of such Fiscal
Quarter
TO
(b) EBITDA computed for the period consisting of such Fiscal
Quarter and each of the three immediately preceding Fiscal Quarters.
"TOTAL EXPOSURE AMOUNT" means, on any date of determination
(and without duplication), the outstanding principal amount of all Loans, the
aggregate amount of all Letter of Credit Outstandings and the unfunded amount of
the Commitments.
"TOTAL PERCENTAGE" means, relative to any Lender, the
applicable percentage equal to the sum of (a) the total outstanding amount of
Loans made by such Lender, (b) without duplication of CLAUSE (a), such Lender's
participation interest in Letter of Credit Outstandings, if any, AND (c) the
total unfunded amount of the Commitments of such Lender, DIVIDED BY the Total
Exposure Amount, as such percentage may be adjusted from time to time pursuant
to Lender Assignment Agreement(s) executed by such Lender and its Assignee
Lender(s) and delivered pursuant to SECTION 11.11(a).
"TRADEMARK SECURITY AGREEMENT" means any Trademark Security
Agreement executed and delivered by any Obligor substantially in the form of
Exhibit B to any Security Agreement, as amended, restated, supplemented or
otherwise modified from time to time.
"TYPE" means, relative to any Loan, the portion thereof, if
any, being maintained as a Base Rate Loan or a LIBO Rate Loan.
"U.C.C." means the Uniform Commercial Code as from time to
time in effect in the State of New York.
"UNITED STATES" or "U.S." means the United States of America,
its fifty states and the District of Columbia.
"U.S. SUBSIDIARY" means any Subsidiary that is incorporated or
organized under the laws of the United States or a state thereof or the District
of Columbia.
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"USAGE" means, for each applicable Fiscal Quarter, a
percentage equal to (a) the daily average of the sum of (i) the aggregate
principal amount of all outstanding Revolving Loans (including the aggregate
principal amount of all outstanding Swing Line Loans and the Letter of Credit
Outstandings but excluding Revolving Loans made for the purpose of repaying any
Refunded Swing Line Loans or reimbursing the Issuers for any amount drawn under
any Letter of Credit but not yet so applied, to the extent such amounts are
included as outstanding Swing Line Loans or Letter of Credit Outstandings) PLUS
(ii) the aggregate principal amount of all outstanding Multi-Draw Term Loans,
DIVIDED by (b) the daily average of the sum of (i) the Revolving Loan Commitment
Amount and (ii) either (x) the Multi-Draw Term Loan Commitment Amount (prior to
the Multi-Draw Term Loan Commitment Termination Date) or (y) the aggregate
principal amount of all outstanding Multi-Draw Term Loans (subsequent to the
Multi-Draw Term Loan Commitment Date), for such Fiscal Quarter.
"VOTING STOCK" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the governing body of such
Person.
"WELFARE PLAN" means a "WELFARE PLAN", as such term is defined
in section 3(1) of ERISA.
"WHOLLY OWNED" means any Subsidiary all of the outstanding
common stock (or similar equity interest) of which (other than any director's
qualifying shares or investments by foreign nationals mandated by applicable
laws) is owned directly or indirectly by the Borrower and the officers,
directors or employees of such Subsidiary.
Section 1.2 USE OF DEFINED TERMS. Unless otherwise defined or
the context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in each other Loan Document and the
Disclosure Schedule.
Section 1.3 CROSS-REFERENCES. Unless otherwise specified,
references in this Agreement and in each other Loan Document to any Article or
Section are references to such Article or Section of this Agreement or such
other Loan Document, as the case may be, and, unless otherwise specified,
references in any Article, Section or definition to any clause are references to
such clause of such Article, Section or definition.
Section 1.4 ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless
otherwise specified, all accounting terms used herein or in any other Loan
Document shall be interpreted, and all accounting determinations and
computations hereunder or thereunder (including under SECTION 8.4) shall be
made, in accordance with, those generally accepted accounting principles
("GAAP") in effect on the Closing Date. Unless otherwise expressly provided,
all financial covenants and defined financial terms shall be computed on a
consolidated basis for the Borrower and its U.S. Subsidiaries, in each case
without duplication.
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ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
Section 2.1 REVOLVING LOAN COMMITMENT AND SWING LINE LOAN
COMMITMENT.
(a) On the terms and subject to the conditions
set forth in this Agreement, from time to time on any Business Day occurring
after the Closing Date but prior to the Revolving Loan Commitment Termination
Date, each Revolving Loan Lender will make loans (relative to such Revolving
Loan Lender, its "REVOLVING LOANS") to the Borrower equal to such Revolving Loan
Lender's Percentage of the aggregate amount of each Borrowing of the Revolving
Loans requested by the Borrower to be made on such day. On the terms and subject
to the conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow the Revolving Loans.
(b) On the terms and subject to the conditions
set forth in this Agreement, from time to time on any Business Day occurring
after the Closing Date but prior to the Revolving Loan Commitment Termination
Date, CSFB will make loans (relative to CSFB, its "SWING LINE LOAN") to the
Borrower equal to the principal amount of the Swing Line Loan requested by the
Borrower to be made on such day. The Commitment of CSFB described in this CLAUSE
(b) is herein referred to as its "SWING LINE LOAN COMMITMENT". On the terms and
subject to the conditions hereof, the Borrower may from time to time borrow,
prepay and reborrow Swing Line Loans.
Section 2.2 LETTER OF CREDIT COMMITMENT. On the terms and
subject to the conditions set forth in this Agreement, from time to time on any
Business Day occurring from and after the Closing Date but prior to the
Revolving Loan Commitment Termination Date, the Issuer will (a) issue one or
more standby letters of credit (together with the Existing Letters of Credit,
each a "LETTER OF CREDIT") for the account of the Borrower or any Guarantor in
the Stated Amount requested by the Borrower on such day or (b) extend the Stated
Expiry Date of a standby Letter of Credit previously issued hereunder (but
excluding any Existing Letter of Credit) to a date not later than the earlier of
(i) five Business Days prior to the Revolving Loan Commitment Termination Date
and (ii) 12 months from the date of such extension; PROVIDED, HOWEVER, that with
respect to Letters of Credit with an aggregate undrawn face amount not exceeding
$2,000,000, the Stated Expiry Date of such Letters of Credit may be up to 24
months following the issuance or extension thereof. Notwithstanding the
foregoing, the face amount of all Existing Letters of Credit and all Letters of
Credit issued on the Closing Date shall not exceed $6,000,000.
Section 2.3 TERM LOAN COMMITMENTS.
(a) TERM B LOANS. In a single borrowing (which
shall be a Business Day) occurring on or prior to the Term B Loan Commitment
Termination Date, each Term B Loan Lender will make loans (relative to suchTerm
B Loan Lender, its "TERM B LOANS") to the
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Borrower equal to such Term B Loan Lender's Percentage of the aggregate
amount of each Borrowing of the Term B Loans requested by the Borrower to be
made on the Closing Date. No amounts paid or prepaid with respect to Term B
Loans may be reborrowed.
(b) MULTI-DRAW TERM LOANS. From time to time on
any Business Day occurring after the Closing Date but prior to the Multi-Draw
Term Loan Commitment Termination Date, each Multi-Draw Term Loan Lender will
make loans (relative to such Multi-Draw Term Loan Lender, its "MULTI-DRAW TERM
LOANS") to the Borrower equal to such Multi-Draw Term Loan Lender's Percentage
of the aggregate amount of each Borrowing of the Multi-Draw Term Loans requested
by the Borrower to be made on such day. No amounts paid or prepaid with respect
to Multi-Draw Term Loans may be reborrowed.
(c) TERM C LOANS.
(i) So long as no Default has occurred
and is continuing, at any time prior to the Stated Maturity Date with
respect to Term B Loans, the Borrower may request an additional
commitment up to an aggregate principal amount of $100,000,000 (the
"TERM C LOAN COMMITMENT"). No Lender or other Person shall be obligated
to provide any Term C Loan Commitment. Each of the Credit Agents shall
assist and cooperate with (but shall not be obligated to provide a Term
C Loan Commitment to) the Borrower in connection with obtaining the
Term C Loan Commitments. All Term C Loan Commitments will be issued on
the same date.
(ii) The Administrative Agent, in
consultation with the Borrower, will attempt to identify Persons to
provide the Term C Loan Commitments (it being understood that all such
Persons will be required to satisfy the criteria of a "Lender"
hereunder). Term C Loan Commitments may, subject to the foregoing, be
made by existing Lenders or new Lenders (each, an "ADDITIONAL LENDER")
that will be required to become a party to this Agreement in connection
with the issuance of a Term C Loan Commitment. The aggregate amount of
all Term C Loan Commitments shall not exceed $100,000,000. The existing
Lenders and the Additional Lenders which agree to provide Term C Loan
Commitments are collectively referred to herein as the "TERM C LOAN
LENDERS."
(iii) The Term C Loan Commitments
shall become effective upon the receipt by the Administrative Agent
of an agreement in form and substance satisfactory to the
Administrative Agent signed by the Borrower and by each Term C Loan
Lender, setting forth the Term C Loan Commitments of such Term C
Loan Lenders, the maturity, amortization and interest rates
applicable to the Term C Loans and the agreement of each Additional
Lender to become a party to this Agreement and to be bound by all
the terms and provisions hereof, together with such evidence of
appropriate corporate authorization on the part of the Borrower with
respect to the Term C Loan Commitments and such opinions of counsel
for the Borrower with respect to the Term C Loan Commitments and
such
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agreement as the Administrative Agent may reasonably request. So
long as no Default is in existence or would result therefrom, the
Borrower may borrow under the Term C Loan Commitments by following
the procedures with respect to Credit Extensions set forth herein
(each such loan made by a Term C Loan Lender, a "TERM C LOAN"). The
Term C Loans shall have a final maturity no earlier than the Term B
Loans.
Section 2.4 LENDERS NOT PERMITTED OR REQUIRED TO MAKE LOANS.
No Lender shall be permitted or required to make any Loan if, after giving
effect thereto, the aggregate outstanding principal amount of:
(a) all Revolving Loans
(i) of all Revolving Loan Lenders and \
the outstanding principal amount of all Swing Line Loans, together with
the aggregate amount of all Letter of Credit Outstandings, would exceed
the then existing Revolving Loan Commitment Amount; or
(ii) of such Revolving Loan Lender,
together with such Lender's Percentage of the aggregate amount of all
Swing Line Loans and Letter of Credit Outstandings, would exceed such
Lender's Percentage of the then existing Revolving Loan Commitment
Amount;
(b) all Term B Loans
(i) of all Lenders made on the Closing
Date would exceed the Term B Loan Commitment Amount; or
(ii) of such Lender with a Term B Loan
Commitment made on the Closing Date would exceed such Lender's
Percentage of the Term B Loan Commitment Amount; or
(c) all Multi-Draw Term Loans
(i) of all Lenders made prior to the
Multi-Draw Term Loan Commitment Termination Date would exceed the
Multi-Draw Term Loan Commitment Amount; or
(ii) of such Lender with a Multi-Draw
Term Loan Commitment made prior to the Multi-Draw Term Loan Commitment
Termination Date would exceed such Lender's Percentage of the
Multi-Draw Term Loan Commitment Amount; or
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(d) all Swing Line Loans
(i) would exceed the then existing
Swing Line Loan Commitment Amount; or
(ii) together with all Revolving Loans
and the aggregate amount of all Letter of Credit Outstandings, would
exceed the then existing Revolving Loan Commitment Amount.
Section 2.5 ISSUER NOT PERMITTED OR REQUIRED TO ISSUE LETTERS
OF CREDIT. No Issuer shall be permitted or required to issue any Letter of
Credit if, after giving effect thereto, (a) the aggregate amount of all Letter
of Credit Outstandings would exceed the Letter of Credit Commitment Amount or
(b) the sum of the aggregate amount of all Letter of Credit Outstandings plus
the aggregate principal amount of all Revolving Loans and Swing Line Loans then
outstanding would exceed the Revolving Loan Commitment Amount.
Section 2.6 REDUCTION OF THE COMMITMENT AMOUNTS. The
Commitment Amounts are subject to reduction from time to time pursuant to this
SECTION 2.6.
(a) OPTIONAL. The Borrower may, from time to
time on any Business Day occurring after the Closing Date, voluntarily reduce
the amount of the Revolving Loan Commitment Amount, the Multi-Draw Term Loan
Commitment Amount, the Swing Line Loan Commitment Amount or the Letter of Credit
Commitment Amount on the Business Day so specified by the Borrower; PROVIDED,
HOWEVER, that all such reductions shall require at least one Business Day's
prior notice to the Administrative Agent and be permanent, and any partial
reduction of any Commitment Amount shall be in a minimum amount of $1,000,000
and in an integral multiple of $500,000. Any reduction of the Revolving Loan
Commitment Amount which reduces the Revolving Loan Commitment Amount below the
then current amount of the Swing Line Loan Commitment Amount shall result in an
automatic and corresponding reduction of the Swing Line Loan Commitment Amount
to the amount of the Revolving Loan Commitment Amount, as so reduced, without
any further action on the part of CSFB or otherwise. Any reduction of the
Revolving Loan Commitment Amount which reduces the Revolving Loan Commitment
Amount below the then current amount of the Letter of Credit Commitment Amount
shall result in an automatic and corresponding reduction of the Letter of
Credit Commitment Amount to the amount of the Revolving Loan Commitment Amount,
as so reduced, without any further action on the part of the Administrative
Agent, the Issuers or otherwise.
(b) MANDATORY. (i) On the Multi-Draw Term Loan
Commitment Termination Date, the Multi-Draw Term Loan Commitment Amount shall
automatically and without the requirement of any action on the part of any
Person be permanently reduced to zero, and (ii) on the date the Borrower or any
of its Restricted Subsidiaries receives any Net Proceeds and after the
expiration of any period designated for the purchase of Qualified Assets, if
appropriate (in accordance with the definition of "Net Proceeds"), (1) with
respect to any Net
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Proceeds not applied to reduce the outstanding Term Loans in accordance with
SECTION 3.1(c), the Multi-Draw Term Loan Commitment Amount (prior to the
Multi-Draw Term Loan Commitment Termination Date) shall be reduced by an
amount equal to 100% of Net Proceeds with respect to Net Proceeds described
in CLAUSES (b), (c), and (d) of the definition thereof and 50% of such Net
Proceeds with respect to the Net Proceeds described in CLAUSE (a) of the
definition thereof and (2) the Revolving Loan Commitment Amount (after
application of such Net Proceeds pursuant to SECTION 3.2(b)) shall be reduced
by an amount equal to 100% of the remaining Net Proceeds with respect to Net
Proceeds described in CLAUSES (b), (c), and (d) of the definition thereof and
50% of such Net Proceeds with respect to the Net Proceeds described in CLAUSE
(a) of the definition thereof.
Section 2.7 BORROWING PROCEDURE. In the case of other than
Swing Line Loans, by delivering a Borrowing Request to the Administrative Agent
on or before 1:00 p.m., New York time, on a Business Day, the Borrower may from
time to time irrevocably request, on not less than one Business Day's notice in
the case of Base Rate Loans, or three Business Days' notice in the case of LIBO
Rate Loans, and in either case not more than five Business Days' notice, that a
Borrowing be made, in the case of Revolving Loans, in a minimum amount of
$1,000,000 and an integral multiple of $1,000,000, in the case of Multi-Draw
Term Loans, in a minimum amount of $2,000,000 and an integral multiple of
$1,000,000 or, in either case, in the unused amount of the applicable
Commitment. On the terms and subject to the conditions of this Agreement, each
Borrowing shall be comprised of the type of Loans, and shall be made on the
Business Day, specified in such Borrowing Request. Promptly after receipt of a
Borrowing Request, the Administrative Agent shall provide a notice to the
applicable Lenders specifying the global amount of the Borrowing, such Lender's
pro rata share thereof, the type of Loan, and, in the case of LIBO Rate Loans,
the Interest Period with respect thereto. In the case of other than Swing Line
Loans, on or before 2:00 p.m. (New York time) on such Business Day each Lender
that has a Commitment to make the Loans being requested shall deposit with the
Administrative Agent same day funds in an amount equal to such Lender's
Percentage of the requested Borrowing. Such deposit will be made to an account
which the Administrative Agent shall specify from time to time by notice to the
Lenders. To the extent funds are received from the Lenders, the Administrative
Agent shall make such funds available to the Borrower by wire transfer to the
accounts the Borrower shall have specified in its Borrowing Request. No Lender's
obligation to make any Loan shall be affected by any other Lender's failure to
make any Loan.
Section 2.8 SWING LINE LOANS. By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to CSFB on or before 2:00 p.m., New York time, on the Business Day the
proposed Swing Line Loan is to be made, the Borrower may from time to time
irrevocably request that Swing Line Loans be made by CSFB in an aggregate
minimum principal amount of $500,000 and an integral multiple of $500,000. All
Swing Line Loans shall be made as Base Rate Loans and shall not be entitled to
be converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be
made available by CSFB, by its close of business on the Business Day telephonic
notice is received by it as provided in this clause to the Borrower by wire
transfer to the account the Borrower shall have specified in its notice
therefor.
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If (i) any Swing Line Loan shall be outstanding for more than
four Business Days or (ii) any Default shall occur and be continuing, each
Revolving Loan Lender (other than CSFB) irrevocably agrees that it will, at the
request of CSFB, make a Revolving Loan (which shall initially be funded as a
Base Rate Loan) in an amount equal to such Lender's Percentage of the aggregate
principal amount of all such Swing Line Loans then outstanding (such outstanding
Swing Line Loans hereinafter referred to as the "REFUNDED SWING LINE LOANS"). On
or before 2:00 p.m. (New York time) on the first Business Day following receipt
by each Lender of a request to make Revolving Loans as provided in the preceding
sentence, each Revolving Loan Lender shall deposit in an account specified by
CSFB the amount so requested in same day funds and such funds shall be applied
by CSFB to repay the Refunded Swing Line Loans. At the time the aforementioned
Lenders make the above referenced Revolving Loans, CSFB shall be deemed to have
made, (in consideration of the making of the Refunded Swing Line Loans),
Revolving Loans in an amount equal to CSFB's Percentage (determined by reference
to its Revolving Loan Commitment) of the aggregate principal amount of the
Refunded Swing Line Loans. Upon the making (or deemed making, in the case of
CSFB) of any Revolving Loans pursuant to this clause, the amount so funded shall
become outstanding under such Revolving Loan Lender's Revolving Note and shall
no longer be owed under the Swing Line Note. All interest payable with respect
to any Revolving Loans made (or deemed made, in the case of CSFB) pursuant to
this clause shall be appropriately adjusted to reflect the period of time during
which CSFB had outstanding Swing Line Loans in respect of which such Revolving
Loans were made. Each Revolving Loan Lender's obligation to make the Revolving
Loans referred to in this clause shall be absolute and unconditional and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against CSFB, any
Obligor or any Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default; (iii) any adverse change in the condition (financial
or otherwise) of any Obligor; (iv) the acceleration or maturity of any
Obligations or the termination of any Commitment after the making of any Swing
Line Loan; (v) any breach of this Agreement or any other Loan Document by any
Person; or (vi) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing.
Section 2.9 CONTINUATION AND CONVERSION ELECTIONS. By
delivering a Continuation/Conversion Notice to the Administrative Agent on or
before 1:00 p.m., New York time, on a Business Day, the Borrower may from time
to time irrevocably elect, on not less than one Business Days' notice in the
case of conversion to Base Rate Loans, or three Business Days' notice in the
case of conversion to LIBO Rate Loans, and in either case not more than five
Business Days' notice, that all, or any portion in an aggregate minimum amount
of $1,000,000 and an integral multiple of $1,000,000 be, in the case of Base
Rate Loans, converted into LIBO Rate Loans or be, in the case of LIBO Rate
Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the
absence of delivery of a Continuation/Conversion Notice with respect to any LIBO
Rate Loan at least three Business Days (but not more than five Business Days)
before the last day of the then current Interest Period with respect thereto,
such LIBO Rate Loan shall, on such last day, automatically convert to a Base
Rate Loan); PROVIDED, HOWEVER, that (x) each such conversion or continuation
shall be pro rated among the applicable outstanding
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<PAGE>
Loans of all Lenders that have made such Loans, and (y) no portion of the
outstanding principal amount of any Loans may be continued as, or be
converted into, LIBO Rate Loans when any Default has occurred and is
continuing.
Section 2.10 FUNDING. Each Lender may, if it so elects,
fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by
causing one of its foreign branches or Affiliates (or an international banking
facility created by such Lender) to make or maintain such LIBO Rate Loan;
PROVIDED, HOWEVER, that such LIBO Rate Loan shall nonetheless be deemed to have
been made and to be held by such Lender, and the obligation of the Borrower to
repay such LIBO Rate Loan shall nevertheless be to such Lender for the account
of such foreign branch, Affiliate or international banking facility. In
addition, the Borrower hereby consents and agrees that, for purposes of any
determination to be made for purposes of SECTION 4.1, 4.2, 4.3 or 4.4, it shall
be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by
purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market.
Section 2.11 LETTERS OF CREDIT.
(a) ISSUANCE PROCEDURES. By delivering to the
Administrative Agent an Issuance Request on or before 12:00 noon, New York time,
on a Business Day, the Borrower may from time to time irrevocably request on not
less than three (or such shorter period as may be agreed to by the Issuers in
their sole discretion) nor more than ten Business Days' notice, that an Issuer
issue, or extend the Stated Expiry Date of, as the case may be, an irrevocable
Letter of Credit in such form as may be requested by the Borrower and approved
by such Issuer, solely for the purposes described in SECTION 7.8. Each Letter of
Credit shall by its terms be stated to expire on a date (its "STATED EXPIRY
DATE") no later than the earlier to occur of (i) five Business Days prior to the
Revolving Loan Commitment Termination Date and (ii) 12 months from the date of
its issuance; PROVIDED, HOWEVER, that with respect to Letters of Credit with an
aggregate undrawn face amount not exceeding $2,000,000, the Stated Expiry Date
of such Letters of Credit may be up to 24 months following the issuance or
extension thereof. Each Issuer will make available to the beneficiary thereof
the original of the Letter of Credit which it issues hereunder.
(b) OTHER LENDERS' PARTICIPATION. Upon the
issuance of each Letter of Credit issued by an Issuer pursuant hereto, and
without further action, each Revolving Loan Lender (other than such Issuer)
shall be deemed to have irrevocably purchased, to the extent of its Percentage
to make Revolving Loans, a participation interest in such Letter of Credit
(including the Contingent Liability and any Reimbursement Obligation with
respect thereto), and such Revolving Loan Lender shall, to the extent of its
Percentage to make Revolving Loans, be responsible for reimbursing promptly (and
in any event within one Business Day) the Issuer for Reimbursement Obligations
which have not been reimbursed by the Borrower in accordance with SECTION
2.11(d). In addition, such Revolving Loan Lender shall, to the extent of its
Percentage to make Revolving Loans, be entitled to receive a ratable portion of
the Letter of Credit fees payable pursuant to SECTION 3.6(c) with respect to
each Letter of Credit (other than the fronting and issuance fees payable to an
Issuer pursuant to SECTION 3.6(c)(i)(1) and SECTION 3.6(c)(ii)) and of interest
payable pursuant to SECTION 3.3 with respect to any Reimbursement Obligation. To
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the extent that any Revolving Loan Lender has reimbursed any Issuer for a
Disbursement, such Lender shall be entitled to receive its ratable portion of
any amounts subsequently received (from the Borrower or otherwise) in respect
of such Disbursement.
(c) DISBURSEMENTS. An Issuer will notify the
Borrower and the Administrative Agent promptly of the presentment for payment of
any Letter of Credit issued by such Issuer, together with notice of the date
(the "DISBURSEMENT DATE") such payment shall be made (each such payment, a
"DISBURSEMENT"). Subject to the terms and provisions of such Letter of Credit
and this Agreement, the applicable Issuer shall make such payment to the
beneficiary (or its designee) of such Letter of Credit. Prior to 1:00 p.m., New
York time, on the first Business Day following the Disbursement Date, the
Borrower will reimburse the Administrative Agent, for the account of the
applicable Issuer, for all amounts which such Issuer has disbursed under such
Letter of Credit, together with interest thereon at a rate per annum equal to
the rate per annum then in effect for Base Rate Loans (with the then Applicable
Margin for Revolving Loans accruing on such amount) pursuant to SECTION 3.3 for
the period from the Disbursement Date through the date of such reimbursement.
Without limiting in any way the foregoing and notwithstanding anything to the
contrary contained herein or in any separate application for any Letter of
Credit, the Borrower hereby acknowledges and agrees that it shall be obligated
to reimburse the applicable Issuer upon each Disbursement of a Letter of Credit,
and it shall be deemed to be the obligor for purposes of each such Letter of
Credit issued hereunder (whether the account party on such Letter of Credit is
the Borrower or a Subsidiary).
(d) REIMBURSEMENT. The obligation (a
"REIMBURSEMENT OBLIGATION") of the Borrower under SECTION 2.11(c) to
reimburse an Issuer with respect to each Disbursement (including interest
thereon), and, upon the failure of the Borrower to reimburse an Issuer, each
Revolving Loan Lender's obligation under SECTION 2.11(B) to reimburse an
Issuer, shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower or such Revolving Loan Lender, as the case may be, may have or have
had against such Issuer or any Lender, including any defense based upon the
failure of any Disbursement to conform to the terms of the applicable Letter
of Credit (if, in such Issuer's good faith opinion, such Disbursement is
determined to be appropriate) or any non-application or misapplication by the
beneficiary of the proceeds of such Letter of Credit; PROVIDED, HOWEVER, that
after paying in full its Reimbursement Obligation hereunder, nothing herein
shall adversely affect the right of the Borrower or such Lender, as the case
may be, to commence any proceeding against an Issuer for any wrongful
Disbursement made by such Issuer under a Letter of Credit as a result of acts
or omissions constituting gross negligence or wilful misconduct on the part
of such Issuer.
(e) DEEMED DISBURSEMENTS. Upon the occurrence
and during the continuation of any Default under SECTION 9.1(i) or upon
notification by the Administrative Agent (acting at the direction of the
Required Lenders) to the Borrower of its obligations under this Section,
following the occurrence and during the continuation of any other Event of
Default,
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(i) the aggregate Stated Amount of all
Letters of Credit shall, without demand upon or notice to the Borrower
or any other Person, be deemed to have been paid or disbursed by the
Issuers of such Letters of Credit (notwithstanding that such amount may
not in fact have been paid or disbursed); and
(ii) the Borrower shall be immediately
obligated to reimburse the Issuers for the amount deemed to have been
so paid or disbursed by such Issuers.
Amounts payable by the Borrower pursuant to this Section shall be deposited in
immediately available funds with the Administrative Agent and held as collateral
security for the Reimbursement Obligations and all other Obligations. When all
Defaults giving rise to the deemed disbursements under this Section have been
cured or waived the Administrative Agent shall, if no other Default is then
existing, return to the Borrower all amounts then on deposit with the
Administrative Agent pursuant to this Section which have not been applied to the
satisfaction of the Reimbursement Obligations and all other Obligations.
(f) NATURE OF REIMBURSEMENT OBLIGATIONS. The
Borrower, each other Obligor and, to the extent set forth in SECTION 2.11(b),
each Revolving Loan Lender shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. No Issuer (except to
the extent of its own gross negligence or wilful misconduct) shall be
responsible for:
(i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any Letter of Credit or any
document submitted by any party in connection with the application for
and issuance of a Letter of Credit, even if it should in fact prove to
be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged;
(ii) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the
rights or benefits thereunder or the proceeds thereof in whole or in
part, which may prove to be invalid or ineffective for any reason;
(iii) failure of the beneficiary to
comply fully with conditions required in order to demand payment under
a Letter of Credit;
(iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise; or
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(v) any loss or delay in the
transmission or otherwise of any document or draft required in order to
make a Disbursement under a Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted to any Issuer or any Revolving Loan Lender hereunder.
In furtherance and not in limitation or derogation of any of the foregoing, any
action taken or omitted to be taken by an Issuer in good faith (and not
constituting gross negligence or willful misconduct) shall be binding upon each
Obligor and each such Secured Party, and shall not put such Issuer under any
resulting liability to any Obligor or any Secured Party, as the case may be.
(g) REPORTING REQUIREMENTS FOR ISSUERS. Within
two Business Days following the last day of each calendar month, each Issuer
shall deliver to the Administrative Agent a report detailing all activity during
the preceding month with respect to any Letters of Credit issued by any such
Issuer, including the face amount, the account party, the beneficiary and the
expiration date of such Letters of Credit and any other information with respect
thereto as may be requested by the Administrative Agent.
Section 2.12 NOTES. Each Lender's Loans under a Commitment
shall be evidenced by a Note payable to the order of such Lender in a maximum
principal amount equal to such Lender's Percentage of the original applicable
Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to
make (or cause to be made) appropriate notations on the grid attached to such
Lender's Note (or on any continuation of such grid), which notations, if made,
shall evidence, INTER ALIA, the date of, the outstanding principal of, and the
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be rebuttably presumptive evidence of the accuracy of the
information so set forth; PROVIDED, HOWEVER, that the failure of any Lender to
make any such notations shall not limit or otherwise affect any Obligations of
any Obligor.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
Section 3.1 REPAYMENTS AND PREPAYMENTS. The Borrower shall
repay in full the unpaid principal amount of each Loan upon the applicable
Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans
shall or may be made as set forth below.
(a) From time to time on any Business Day, the
Borrower may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any:
(i) Loans (other than Swing Line
Loans), PROVIDED, HOWEVER, that
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(1) any such prepayment of the
Term Loans shall be made PRO RATA among all the Term Loans and, if
applicable, having the same Interest Period of all Lenders that have
made such Term Loans, and shall be applied to the remaining
amortization payments, for the relevant Term Loans as provided for in
SECTION 3.1(d) and any such prepayment of Revolving Loans shall be made
PRO RATA among the Revolving Loans of the same type and, if applicable,
having the same Interest Period of all Lenders that have made such
Revolving Loans;
(2) all such voluntary
prepayments shall require at least one but no more than five Business
Days' prior written notice to the Administrative Agent; and
(3) all such voluntary partial
prepayments shall be in an aggregate minimum amount of $1,000,000 and
an integral multiple of $1,000,000; and
(ii) Swing Line Loans, PROVIDED that
(1) all such voluntary
prepayments shall require prior telephonic notice to CSFB on or before
2:00 p.m., New York time, on the day of such prepayment (such notice to
be confirmed in writing within 24 hours thereafter); and
(2) all such voluntary partial
prepayments shall be in an aggregate minimum amount of $500,000 and an
integral multiple of $500,000.
(b) On each date when the sum of (i) the
aggregate outstanding principal amount of all Revolving Loans and Swing Line
Loans and (ii) the aggregate amount of all Letter of Credit Outstandings exceeds
the Revolving Loan Commitment Amount (as it may be reduced from time to time,
including pursuant to SECTION 2.6), the Borrower shall make a mandatory
prepayment of all the Revolving Loans or all Swing Line Loans (or both) and, if
necessary, give cash collateral to the Administrative Agent pursuant to an
agreement satisfactory to the Administrative Agent to collateralize Letter of
Credit Outstandings, in an aggregate amount equal to such excess.
(c) Concurrently with the receipt (or deemed
receipt) of any Net Proceeds (or after the expiration of any period designated
for the purchase of Qualified Assets, if appropriate) by the Borrower or any of
its Restricted Subsidiaries, the Borrower shall make a mandatory prepayment of
the Loans (i) in an amount equal to 100% of the Net Proceeds with respect to Net
Proceeds described in CLAUSES (b), (c) AND (d) of the definition thereof and
(ii) 50% of such Net Proceeds with respect to the Net Proceeds described in
CLAUSE (a) of the definition thereof, in each case, to be applied as set forth
in SECTION 3.2. The Borrower will, prior to
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prepaying the Loans, give the Administrative Agent telephone notice (promptly
confirmed in writing) requesting that the Administrative Agent provide notice
of such prepayment to each Lender entitled to receive any portion of such
prepayment.
(d) The Borrower shall make a scheduled
repayment of the aggregate outstanding principal amount of:
(i) Multi-Draw Term Loans in
installments on the dates set forth below (PROVIDED that if such date
is not a Business Day, the installment shall be paid on the preceding
Business Day), each such installment to be in an amount equal to the
corresponding percentages set forth below of the principal amount of
the Multi-Draw Term Loans outstanding as of the Multi-Draw Term Loan
Commitment Termination Date:
<TABLE>
<CAPTION>
SCHEDULED REPAYMENT
DATE OF MULTI-DRAW TERM
LOANS
---- -------------------
<S> <C>
June 30, 2001 2.50%
September 30, 2001 2.50%
December 31, 2001 2.50%
March 31, 2002 2.50%
June 30, 2002 3.75%
September 30, 2002 3.75%
December 31, 2002 3.75%
March 31, 2003 3.75%
June 30, 2003 5.00%
September 30, 2003 5.00%
December 31, 2003 5.00%
March 31, 2004 5.00%
June 30, 2004 6.25%
September 30, 2004 6.25%
December 31, 2004 6.25%
March 31, 2005 6.25%
June 30, 2005 7.50%
September 30, 2005 7.50%
December 31, 2005 7.50%
Sixth Anniversary 7.50%
of the Closing Date
</TABLE>
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<PAGE>
; PROVIDED that the scheduled installments of principal of the Multi-Draw
Term Loans set forth above shall be reduced on a PRO RATA basis in connection
with any voluntary or mandatory prepayments of the Multi-Draw Term Loans in
accordance with SECTION 3.1; and PROVIDED, FURTHER that the final installment
specified above for the repayment by the Borrower of the Multi-Draw Term
Loans shall be in an amount, if such amount is different from that specified
above, sufficient to repay all amounts owing by the Borrower under this
Agreement with respect to the Multi-Draw Term Loans.
(ii) Term B Loans in installments on the
dates set forth below (PROVIDED that if such date is not a Business
Day, the installment shall be paid on the preceding Business Day), each
such installment to be in an amount equal to the corresponding
percentages set forth below of the principal amount of the Term B Loans
outstanding on the Closing Date:
<TABLE>
<CAPTION>
SCHEDULED REPAYMENT
DATE OF
TERM B LOANS
---- --------------------
<S> <C>
June 30, 2000 0.25%
September 30, 2000 0.25%
December 31, 2000 0.25%
March 31, 2001 0.25%
June 30, 2001 0.25%
September 30, 2001 0.25%
December 31, 2001 0.25%
March 31, 2002 0.25%
June 30, 2002 0.25%
September 30, 2002 0.25%
December 31, 2002 0.25%
March 31, 2003 0.25%
June 30, 2003 0.25%
September 30, 2003 0.25%
December 31, 2003 0.25%
March 31, 2004 0.25%
June 30, 2004 0.25%
September 30, 2004 0.25%
December 31, 2004 0.25%
March 31, 2005 0.25%
June 30, 2005 0.25%
September 30, 2005 0.25%
December 31, 2005 0.25%
March 31, 2006 0.25%
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<PAGE>
June 30, 2006 23.5%
September 30, 2006 23.5%
December 31, 2006 23.5%
Seventh Anniversary 23.5%
of the Closing Date
</TABLE>
; PROVIDED that the scheduled installments of principal of the Term B Loans set
forth above shall be reduced on a PRO RATA basis in connection with any
voluntary or mandatory prepayments of the Term B Loans in accordance with
SECTION 3.1; and PROVIDED, FURTHER that the final installment specified above
for the repayment by the Borrower of the Term B Loans shall be in an amount, if
such amount is different from that specified above, sufficient to repay all
amounts owing by the Borrower under this Agreement with respect to the Term B
Loans.
(iii) Term C Loans in equal quarterly
installments payable at the end of each Fiscal Quarter (commencing with
the end of the first full Fiscal Quarter following the Term C Loan Draw
Date) aggregating 1.0% per year of the aggregate principal amount of
Term C Loans outstanding on the Term C Loan Draw Date, except for the
final year during which the Borrower will pay one-quarter of the
remaining principal amount outstanding of the Term C Loans at the end
of each Fiscal Quarter of such final year (PROVIDED that if such date
is not a Business Day, the installment shall be paid on the preceding
Business Day); PROVIDED that the scheduled installments of principal of
the Term C Loans set forth above shall be reduced on a PRO RATA basis
in connection with any voluntary or mandatory prepayments of the Term C
Loans in accordance with SECTION 3.1; and PROVIDED, FURTHER that the
final installment specified above for the repayment by the Borrower of
the Term C Loans shall be in an amount, if such amount is different
from that specified above, sufficient to repay all amounts owing by the
Borrower under this Agreement with respect to the Term C Loans.
(e) Immediately upon any acceleration of the
Stated Maturity Date of any Loans pursuant to SECTION 9.2 or SECTION 9.3, the
Borrower shall repay all the Loans, unless, pursuant to SECTION 9.3, only a
portion of all the Loans is so accelerated (in which case the portion so
accelerated shall be so repaid).
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by SECTION 4.4. No prepayment of
principal of any Revolving Loans or Swing Line Loans pursuant to CLAUSE (a) or
(b) shall cause a reduction in the Revolving Loan Commitment Amount or the Swing
Line Loan Commitment Amount, as the case may be.
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Section 3.2 APPLICATION. Amounts prepaid shall be applied as
set forth in this Section.
(a) Subject to CLAUSE (b), each prepayment or
repayment of the principal of the Loans shall be applied, to the extent of such
prepayment or repayment, FIRST, to the principal amount thereof being maintained
as Base Rate Loans, and SECOND, to the principal amount thereof being maintained
as LIBO Rate Loans; PROVIDED, that prepayments of LIBO Rate Loans made pursuant
to SECTION 3.1, if not made on the last day of the Interest Period with respect
thereto, shall be (i) prepaid subject to the provisions of SECTION 4.4 (together
with a payment of all accrued interest) or (ii) upon the written request of the
Borrower, so long as no Default or Event of Default has occurred and is
continuing, the last day of the relevant Interest Period so long as the funds
representing such prepayment are deposited with the Administrative Agent
pursuant to arrangements and documentation in form and substance reasonably
satisfactory to the Administrative Agent.
(b) Each prepayment of Loans made pursuant to
CLAUSE (c) of SECTION 3.1 shall be applied (i) FIRST, to the mandatory
prepayment of the outstanding principal amount of all Term Loans (with the
amount of such prepayment of the Term Loans being applied PRO RATA to all
remaining amortization payments of each Term Loan, PRO RATA among all such
outstanding Term Loans), until all Term Loans have been paid in full, and
except that with respect to the amount of any such prepayment that is
allocated to the then outstanding Term B Loans and Term C Loans, each such
Term B Loan Lender and Term C Loan Lender shall have the right to refuse any
such prepayment by giving written notice of such refusal to the
Administrative Agent (such written notice to be delivered to the Borrower
upon request) within five Business Days after such Term B Loan Lender's or
such Term C Loan Lender's receipt of notice from the Administrative Agent of
such prepayment (and the Borrower shall not prepay any such Term B Loans and
Term C Loans until the tenth Business Day); PROVIDED that (x) 100% of any
prepayment so refused shall be applied PRO RATA to the Multi-Draw Term Loans
until the Multi-Draw Term Loans have been repaid in full and (y) after all
Multi-Draw Term Loans have been repaid in full and the Multi-Draw Term Loan
Commitment has terminated, any remaining amount of the prepayment refused by
the Term B Loan Lenders and the Term C Loan Lenders shall be applied PRO RATA
to the Term B Loans and the Term C Loans; and (ii) SECOND, once all Term
Loans have been repaid in full and all Term Loan Commitment Amounts have been
reduced to $0, all prepayments of Loans made pursuant to CLAUSE (c) of
SECTION 3.1 shall be applied to the repayment of any outstanding Revolving
Loans and a reduction of the Revolving Loan Commitment Amount in accordance
with SECTION 2.6(b).
Section 3.3 INTEREST RATES. Subject to CLAUSE (c) below and
SECTION 2.8, pursuant to an appropriately delivered Borrowing Request or
Continuation/Conversion Notice, the Borrower may elect that Loans comprising a
Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time
as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to
time in effect plus the Applicable
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Margin; PROVIDED that all Swing Line Loans shall always accrue interest at
the then effective Applicable Margin for Revolving Loans maintained as Base
Rate Loans; and
(b) on that portion maintained as a LIBO Rate
Loan, during each Interest Period applicable thereto, equal to the sum of the
LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable
Margin.
Notwithstanding the foregoing, from the Closing Date until the
earlier to occur of (x) the date syndication is reasonably determined to be
closed by the Administrative Agent and (y) thirty (30) days after the Closing
Date, all Loans shall bear interest at the Alternate Base Rate plus the
Applicable Margin.
All LIBO Rate Loans shall bear interest from and including
the first day of the applicable Interest Period to (but not including) the
last day of such Interest Period at the interest rate determined as
applicable to such LIBO Rate Loan. Following the occurrence and during the
continuance of a Default or an Event of Default, all Loans shall be
maintained as Base Rate Loans; provided that LIBO Rate Loans in effect upon
the occurrence thereof shall be converted to Base Rate Loans upon the
expiration of the then current Interest Period.
(c) The Term C Loans shall bear interest at a
rate determined by the Administrative Agent on the Term C Loan Draw Date. On the
Term C Loan Draw Date, the interest rate (and Applicable Margin) applicable to
the Term B Loans shall be reset to the greater of (i) the interest rate (and
Applicable Margin) applicable to the Term B Loans on the Term C Loan Draw Date
and (ii) the interest rate (and Applicable Margin) applicable to the Term C
Loans.
Section 3.4 DEFAULT RATES. Upon the occurrence and during the
continuation of a Default or an Event of Default, the Borrower shall pay
interest on all Obligations at a rate per annum equal to two percent (2%) above
the otherwise applicable interest rate or, if no such rate is applicable, at a
rate per annum equal to the Alternate Base Rate from time to time in effect plus
the Applicable Margin then in effect plus a margin of 2%.
Section 3.5 PAYMENT DATES. Interest accrued on each Loan shall
be payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any conversion of a LIBO Rate
Loan to a Base Rate Loan;
(c) on the date of any payment or prepayment, in
whole or in part, of principal outstanding on such Loan on the principal amount
so paid or prepaid;
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<PAGE>
(d) with respect to Base Rate Loans, on each
Quarterly Payment Date occurring after the Closing Date for the period ending on
(and including) the last day of the immediately preceding December, March, June
or September, respectively;
(e) with respect to LIBO Rate Loans, on the last
day of each applicable Interest Period (and, if such Interest Period shall
exceed three months, on the date occurring on each three-month interval
occurring after the first day of such Interest Period); and
(f) on that portion of any Loans the Stated
Maturity Date of which is accelerated pursuant to SECTION 9.2 or SECTION 9.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
Section 3.6 FEES. The Borrower agrees to pay the fees set
forth in this SECTION 3.6. All such fees shall be non-refundable.
(a) NON-UTILIZATION FEE. The Borrower agrees to
pay to the Administrative Agent for the account of each Lender, in accordance
with such Lender's Percentage of the sum of (i) the Revolving Loan Commitment
Amount and (ii) the Multi-Draw Term Loan Commitment Amount (on and prior to the
Multi-Draw Term Loan Commitment Termination Date) or the outstanding Multi-Draw
Term Loans (subsequent to the Multi-Draw Term Loan Commitment Termination Date),
for the period (including any portion thereof when any of its Commitments are
suspended by reason of the Borrower's inability to satisfy any condition of
ARTICLE V) commencing on the Closing Date and continuing through the Revolving
Loan Commitment Termination Date, the Non-Utilization Fee. The Non-Utilization
Fee payable pursuant to this Section shall be calculated on a year comprised of
360 days and payable by the Borrower in arrears on each Quarterly Payment Date,
commencing with the first Quarterly Payment Date following the Closing Date, for
the period ending on (and including) the last day of the immediately preceding
December, March, June or September, respectively, on the Multi-Draw Term Loan
Commitment Termination Date and on the Revolving Loan Commitment Termination
Date.
(b) AGENT'S FEE. The Borrower agrees to pay to
the Administrative Agent, for its own account, the fees in the amounts and on
the dates set forth in the Fee Letter.
(c) LETTER OF CREDIT FEE. The Borrower agrees to
pay the following amounts to the Administrative Agent for the account of the
Issuers and the Revolving Loan Lenders, as applicable, with respect to Letters
of Credit issued by the Issuers for the account of the Borrower or any of its
Subsidiaries:
(i) with respect to each Letter of
Credit, (1) a fronting fee equal to 0.25% per annum of the Stated
Amount of such Letter of Credit and (2) a
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<PAGE>
Letter of Credit fee equal to the product of (x) the then Applicable
Margin for Revolving Loans maintained as LIBO Rate Loans and (y) the
Stated Amount of such Letter of Credit, in each case payable in
arrears on each Quarterly Payment Date for the period ending on (and
including) the last day of the immediately preceding December,
March, June or September, respectively, and on the Revolving Loan
Commitment Termination Date and computed on the basis of a 360-day
year for the actual number of days elapsed; and
(ii) with respect to the issuance,
amendment or transfer of each Letter of Credit (without duplication of
the fees payable under CLAUSE (i) above), documentary and processing
charges in accordance with such Issuer's standard schedule for such
charges in effect at the time of such issuance, amendment or transfer,
as the case may be.
Promptly upon receipt by the Administrative Agent of any amount described in
CLAUSE (i)(2) of this SECTION 3.6(c), the Administrative Agent shall distribute
to each other Revolving Loan Lender its Percentage of such amount.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
Section 4.1 LIBO RATE LENDING UNLAWFUL. If any Lender shall
determine (which determination shall, upon notice thereof to the Borrower and
the other Lenders, be conclusive and binding on the Borrower) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any central bank or other Governmental Authority asserts that it is
unlawful, for such Lender to make, continue or maintain any Loan as, or to
convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make,
continue, maintain or convert any such LIBO Rate Loan shall, upon such
determination, forthwith be suspended until such Lender shall notify the
Administrative Agent that the circumstances causing such suspension no longer
exist, and all outstanding LIBO Rate Loans of such Lender shall automatically
convert into Base Rate Loans at the end of the then current Interest Periods
with respect thereto or sooner, if required by such law or assertion.
Section 4.2 DEPOSITS UNAVAILABLE. If the Administrative Agent
shall have determined that:
(a) Dollar deposits in the relevant amount and
for the relevant Interest Period are not available to it in its relevant market;
or
(b) by reason of circumstances affecting its
relevant market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBO Rate Loans,
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then, upon notice from the Administrative Agent to the Borrower and the
Lenders, the obligations of all Lenders under SECTION 2.7 and SECTION 2.9 to
make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans
shall forthwith be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
Section 4.3 INCREASED LIBO RATE LOAN COSTS, ETC. The
Borrower agrees to reimburse each Lender for any increase in the cost to such
Lender of, or any reduction in the amount of any sum receivable by such
Lender in respect of, making, continuing or maintaining (or of its obligation
to make, continue or maintain) any Loans as, or of converting (or of its
obligation to convert) any Loans into, LIBO Rate Loans that arise in
connection with any change in, or the introduction, adoption, effectiveness,
interpretation, reinterpretation or phase-in after the date hereof of, any
law or regulation, directive, guideline, decision or request (whether or not
having the force of law) of any court, central bank, regulator or other
Governmental Authority, except for such changes with respect to increased
capital costs and taxes which are governed by SECTIONS 4.5 and 4.6,
respectively. Such Lender shall promptly notify the Administrative Agent and
the Borrower in writing of the occurrence of any such event, such notice to
state, in reasonable detail, the reasons therefor and the additional amount
required fully to compensate such Lender for such increased cost or reduced
amount. Such additional amounts shall be payable by the Borrower directly to
such Lender within five days (with at least one day being a Business Day) of
its receipt of such notice, and such notice shall, in the absence of manifest
error, be conclusive and binding on the Borrower.
Section 4.4 FUNDING LOSSES. In the event any Lender shall
incur any loss or expense (including any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to make, continue or maintain any portion of the principal amount of any
Loan as, or to convert any portion of the principal amount of any Loan into, a
LIBO Rate Loan) as a result of:
(a) any conversion or repayment or prepayment of
the principal amount of any LIBO Rate Loans on a date other than the scheduled
last day of the Interest Period applicable thereto, whether pursuant to SECTION
3.1 or otherwise;
(b) any Loans not being made as LIBO Rate Loans
in accordance with the Borrowing Request therefor; or
(c) any Loans not being continued as, or
converted into, LIBO Rate Loans in accordance with the Continuation/Conversion
Notice therefor,
then, upon the written notice of such Lender to the Borrower (with a copy to the
Administrative Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall be rebuttably presumptive evidence of the amount of such loss or expense.
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Section 4.5 INCREASED CAPITAL COSTS. If any change in, or
the introduction, adoption, effectiveness, interpretation, reinterpretation
or phase-in of, any law or regulation, directive, guideline, decision or
request (whether or not having the force of law) of any court, central bank,
regulator or other Governmental Authority affects or would affect the amount
of capital required or expected to be maintained by any Lender (including any
Issuer) or any Person controlling such Lender, and such Lender determines (in
good faith but in its sole and absolute discretion) that the rate of return
on its or such controlling Person's capital as a consequence of the
Commitments or the Loans made, or the Letters of Credit issued by or
participated in, by such Lender is reduced to a level below that which such
Lender or such controlling Person could have achieved but for the occurrence
of any such circumstance, then, in any such case upon notice from time to
time by such Lender to the Borrower, the Borrower shall immediately pay
directly to such Lender additional amounts sufficient to compensate such
Lender or such controlling Person for such reduction in rate of return. A
statement of such Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall be rebuttably
presumptive evidence of the amount of such loss or expense. In determining
such amount, such Lender may use any method of averaging and attribution that
it (in its sole and absolute discretion) shall deem applicable.
Section 4.6 TAXES.
(a) Any and all payments by the Borrower and
each other Obligor under this Agreement and each other Loan Document shall be
made without setoff, counterclaim or other defense, and free and clear of, and
without deduction or withholding for or on account of, any Taxes, except to the
extent such Taxes are required by law to be deducted or withheld. In the event
that any Taxes are required by law to be deducted or withheld from any payment
required to be made by the Borrower or any other Obligor to or on behalf of the
Administrative Agent or any Lender hereunder or under any other Loan Document,
then:
(i) subject to CLAUSE (f), if such
Taxes are Non-Excluded Taxes, the amount of such payment shall be
increased as may be necessary such that such payment is made, after
withholding or deduction for or on account of such Taxes, in an amount
that is not less than the amount provided for herein or in such other
Loan Document; and
(ii) the Borrower shall withhold the
full amount of such Taxes from such payment (as increased pursuant to
CLAUSE (a) (i)) and shall pay such amount to the Governmental Authority
imposing such Taxes in accordance with applicable law.
(b) In addition, the Borrower and each other
Obligor shall pay any and all Other Taxes imposed to the relevant Governmental
Authority imposing such Other Taxes in accordance with applicable law.
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(c) As promptly as practicable after the payment
of any Taxes or Other Taxes, and in any event within 45 days of any such payment
being due, the Borrower shall furnish to the Administrative Agent a copy of an
official receipt (or a certified copy thereof) evidencing the payment of such
Taxes or Other Taxes. The Administrative Agent shall make copies thereof
available to any Lender upon request therefor.
(d) Subject to CLAUSE (f), the Borrower shall
indemnify the Administrative Agent and each Lender for any Non-Excluded Taxes
and Other Taxes levied, imposed or assessed on (and whether or not paid
directly by) the Administrative Agent or such Lender (and whether or not such
Non-Excluded Taxes or Other Taxes are correctly or legally asserted by the
relevant Governmental Authority). Promptly upon having knowledge that any
such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed,
and promptly upon notice thereof by the Administrative Agent or any Lender,
the Borrower shall pay such Non-Excluded Taxes or Other Taxes directly to the
relevant Governmental Authority (PROVIDED, HOWEVER, that neither the
Administrative Agent nor any Lender shall be under any obligation to provide
any such notice to the Borrower). In addition, the Borrower shall indemnify
the Administrative Agent and each Lender for any incremental Taxes that may
become payable by the Administrative Agent or any Lender as a result of any
failure of the Borrower to pay any Taxes when due to the appropriate
Governmental Authority or to deliver to the Administrative Agent, pursuant to
CLAUSE (c), documentation evidencing the payment of Taxes or Other Taxes.
With respect to indemnification for Non-Excluded Taxes and Other Taxes
actually paid by the Administrative Agent or any Lender or the
indemnification provided in the immediately preceding sentence, such
indemnification shall be made within 30 days after the date the
Administrative Agent or such Lender, as the case may be, makes written demand
therefor. The Borrower acknowledges that any payment made to the
Administrative Agent or any Borrower or to any Governmental Authority in
respect of the indemnification obligations of the Borrower provided in this
clause shall constitute a payment in respect of which the provisions of
CLAUSE (a) and this clause shall apply.
(e) Each Non-U.S. Lender, on or prior to the
date on which such Non- U.S. Lender becomes a Lender hereunder (and from time to
time thereafter upon the request of the Borrower or the Administrative Agent,
but only for so long as such Non-U.S. Lender is legally entitled to do so),
shall deliver to the Borrower and the Administrative Agent either
(i) two duly completed copies of either
(A) Internal Revenue Service Form W-8BEN or (B) Internal Revenue
Service Form W-8ECI, or in either case an applicable successor form; or
(ii) in the case of a Non-U.S. Lender
claiming exemption from U.S. federal income withholding tax under
Section 871(h) or 881(c) of the Code with respect to payment of
"portfolio interest", (x) a certificate of a duly authorized officer of
such Non-U.S. Lender to the effect that such Non-U.S. Lender is not (A)
a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a
"10 percent shareholder" of the Borrower within the meaning of Section
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881(c)(3)(B) of the Code, or (C) a controlled foreign corporation
receiving interest from a related person within the meaning of
Section 881(c)(3)(C) of the Code (such certificate, an "Exemption
Certificate") and (y) two duly completed copies of Internal Revenue
Service Form W-8BEN or an applicable successor form.
(f) The Borrower shall not be obligated to
gross up any payments to any Lender pursuant to CLAUSE (a)(i), or to
indemnify any Lender pursuant to CLAUSE (d), in respect of United States
federal withholding taxes to the extent imposed as a result of (i) the
failure of such Lender to deliver to the Borrower the form or forms and/or an
Exemption Certificate, as applicable to such Lender, pursuant to CLAUSE (e),
(ii) such form or forms and/or Exemption Certificate not establishing a
complete exemption from U.S. federal withholding tax or the information or
certifications made therein by the Lender being untrue or inaccurate on the
date delivered in any material respect, or (iii) the Lender designating a
successor lending office at which it maintains its Loans which has the effect
of causing such Lender to become obligated for tax payments in excess of
those in effect immediately prior to such designation; PROVIDED, HOWEVER,
that the Borrower shall be obligated to gross up any payments to any such
Lender pursuant to CLAUSE (a)(i), and to indemnify any such Lender pursuant
to CLAUSE (d), in respect to United States federal withholding taxes if (i)
any such failure to deliver a form or forms or an Exemption Certificate or
the failure of such form or forms or Exemption Certificate to establish a
complete exemption from U.S. federal withholding tax or inaccuracy or untruth
contained therein resulted from a change in any applicable statute, treaty,
regulation or other applicable law or any interpretation of any of the
foregoing occurring after the date hereof, which change rendered such Lender
no longer legally entitled to deliver such form or forms or Exemption
Certificate or otherwise ineligible for a complete exemption from U.S.
federal withholding tax, or rendered the information or certifications made
in such form or forms or Exemption Certificate untrue or inaccurate in a
material respect, (ii) the redesignation of the Lender's lending office was
made at the request of the Borrower or (iii) the obligation to gross up
payments to any such Lender pursuant to CLAUSE (a)(i) or to indemnify any
such Lender pursuant to CLAUSE (d) is with respect to an Assignee Lender that
becomes an Assignee Lender as a result of an assignment made at the request
of the Borrower.
Section 4.7 PAYMENTS, COMPUTATIONS, ETC. Unless otherwise
expressly provided, all payments by the Borrower pursuant to this Agreement, the
Notes, each Letter of Credit or any other Loan Document shall be made by the
Borrower to the Administrative Agent for the PRO RATA account of the Lenders
entitled to receive such payment. All such payments required to be made to the
Administrative Agent shall be made, without setoff, deduction or counterclaim,
not later than 1:00 p.m., New York time, on the date due, in same day or
immediately available funds, to such account as the Administrative Agent shall
specify from time to time by notice to the Borrower. Funds received after that
time shall be deemed to have been received by the Administrative Agent on the
next succeeding Business Day. The Administrative Agent shall promptly remit in
same day funds to each Lender its share, if any, of such payments received by
the Administrative Agent for the account of such Lender. All interest (including
interest on LIBO Rate Loans) and fees shall be computed on the basis of the
actual number of
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days (including the first day but excluding the last day) occurring during
the period for which such interest or fee is payable over a year comprised of
360 days (or, in the case of interest on a Base Rate Loan (calculated at
other than the Federal Funds Rate), 365 days or, if appropriate, 366 days).
Whenever any payment to be made shall otherwise be due on a day which is not
a Business Day, such payment shall (except as otherwise required by CLAUSE
(c) of the definition of the term "INTEREST PERIOD") be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
Section 4.8 SHARING OF PAYMENTS. If any Lender shall obtain
any payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan or Reimbursement Obligation (other
than pursuant to the terms of SECTION 4.3, 4.4, 4.5 or 4.6) in excess of its PRO
RATA share of payments then or therewith obtained by all Lenders, such Lender
shall purchase from the other Lenders such participations in Credit Extensions
made by them as shall be necessary to cause such purchasing Lender to share the
excess payment or other recovery ratably with each of them; PROVIDED, HOWEVER,
that if all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender shall repay to
the purchasing Lender the purchase price to the ratable extent of such recovery
together with an amount equal to such selling Lender's ratable share (according
to the proportion of (a) the amount of such selling Lender's required repayment
to the purchasing Lender TO (b) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including pursuant to SECTION 4.9) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a setoff to which this Section applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.
Section 4.9 SETOFF. Each Lender shall, upon the occurrence and
during the continuance of any Event of Default or any Default described in
SECTION 9.1(i), have the right to appropriate and apply to the payment of the
Obligations (whether or not then due), and (as security for such Obligations)
the Borrower hereby grants to each Lender a continuing security interest in, any
and all balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter maintained with such Lender or any Affiliate of such Lender;
PROVIDED, HOWEVER, that any such appropriation and application shall be subject
to the provisions of SECTION 4.8. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such setoff and application made
by such Lender or its Affiliate; PROVIDED, HOWEVER, that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Lender may have.
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Section 4.10 REPLACEMENT OF LENDER. Each Lender agrees
that, upon the occurrence of any event set forth in SECTIONS 4.1, 4.3, 4.5,
or 4.6, such Lender will use reasonable efforts to book and maintain its
Loans through a different lending office or to transfer its Loans to an
Affiliate with the objective of avoiding or minimizing the consequences of
such event; PROVIDED that such booking or transfer is not otherwise
disadvantageous to such Lender as determined by such Lender in its sole and
absolute discretion. If any Lender has demanded to be paid additional amounts
pursuant to SECTIONS 4.1, 4.3, 4.5 or 4.6, and the payment of such additional
amounts are, and are likely to continue to be, more onerous in the reasonable
judgment of the Borrower than with respect to the other Lenders, then the
Borrower shall have the right at any time when no Default or Event of Default
shall have occurred and be continuing to seek one or more financial
institutions which are not Affiliates of the Borrower (each, a "REPLACEMENT
LENDER") to purchase with the written consent of the Administrative Agent
(which consent shall not be (x) required if such proposed Replacement Lender
is already a Lender, or an Affiliate of a Lender, or (y) unreasonably delayed
or withheld) the outstanding Loans and Commitments of such Lender (the
"AFFECTED LENDER"), and if the Borrower locates a Replacement Lender, the
Affected Lender shall, upon
(a) prior written notice to the Administrative
Agent,
(b) (i) payment to the Affected Lender of the
purchase price agreed between it and the Replacement Lender (or, failing such
agreement, a purchase price in the amount of the outstanding principal amount of
the Affected Lender's Loans and accrued interest thereon to the date of payment)
by the Replacement Lender plus (ii) payment by the Borrower of all amounts
(other than principal and interest) then due to the Affected Lender or accrued
for its account hereunder or under any other Loan Document,
(c) satisfaction of the provisions set forth in
SECTION 11.11(a), and
(d) payment by the Borrower to the Affected
Lender and the Administrative Agent of all reasonable out-of-pocket expenses in
connection with such assignment and assumption (including the processing fees
described in SECTION 11.11(a)),
assign and delegate all its rights and obligations under this Agreement and any
other Loan Document to which it is a party (including its outstanding Loans) to
the Replacement Lender (such assignment to be made without recourse,
representation or warranty), and the Replacement Lender shall assume such rights
and obligations, whereupon the Replacement Lender shall in accordance with
SECTION 11.11(a) become a party to each Loan Document to which the Affected
Lender is a party and shall have the rights and obligations of a Lender
thereunder and the Affected Lender shall be released from its obligations
hereunder and each other Loan Document to the extent of such assignment and
delegation.
ARTICLE V
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CONDITIONS TO CREDIT EXTENSIONS
Section 5.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF
THIS AGREEMENT. This Credit Agreement shall become effective on the date when
each of the conditions precedent set forth in this SECTION 5.1 have been
satisfied (unless waived by the Lenders or unless the deadline for delivery
has been extended by the Administrative Agent). All such conditions may occur
contemporaneously but shall be deemed to have occurred simultaneously.
(a) EXECUTION OF COUNTERPARTS. The
Administrative Agent shall have received counterparts of this Agreement, duly
executed and delivered on behalf of each of the Borrower and the Lenders.
(b) RESOLUTIONS, ETC. The Administrative Agent
shall have received from the Borrower and each Guarantor, (i) a copy of a good
standing certificate, dated a date reasonably near the Closing Date, and (ii) a
certificate, dated the Closing Date and with counterparts for each Lender, duly
executed and delivered by such Person's Secretary or Assistant Secretary, as to:
(A) resolutions of such Person's Board of Directors then
in full force and effect authorizing the execution, delivery and performance of
each Loan Document to be executed by such Person and the transactions
contemplated by the Loan Documents to be performed by such Person;
(B) the incumbency and signatures of those of its
officers, authorized to act with respect to each Loan Document to be executed by
such Person; and
(C) the full force and validity of each Organic Document
of such Person and copies thereof; upon which certificates the Administrative
Agent, each Lender and each Issuer may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary, of such
Person, canceling or amending its prior certificate.
(c) CLOSING DATE CERTIFICATE. The Administrative
Agent shall have received, with counterparts for each Lender, a certificate (the
"CLOSING DATE CERTIFICATE"), dated the Closing Date and duly executed and
delivered by an Authorized Officer of the Borrower, in which certificate the
Borrower shall agree and acknowledge that the statements made therein shall be
deemed to be true and correct representations and warranties of the Borrower as
of such date, and, at the time each such certificate is delivered, such
statements shall in fact be true and correct. All documents and agreements
required to be appended to the Closing Date Certificate shall be in form and
substance reasonably satisfactory to the Administrative Agent.
(d) NOTES. The Administrative Agent shall have
received, for the account of each Lender, such Lender's Revolving Note,
Multi-Draw Term Note and Term B
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Note, as applicable. In addition, the Administrative Agent shall have
received, for the account of CSFB, the Swing Line Note.
(e) PLEDGE AGREEMENTS. The Administrative Agent
shall have received, with counterparts for each Lender,
(i) the Borrower Pledge Agreement,
dated as of the Closing Date, duly executed and delivered by an
Authorized Officer of the Borrower, together with:
(1) certificates evidencing
all of the issued and outstanding shares of Capital Stock of each of
its Subsidiaries (other than Titan Capital Trust) owned by the
Borrower, which certificates shall be accompanied by undated stock
powers duly executed in blank; and
(2) all Pledged Notes (as
defined in the Borrower Pledge Agreement), if any, evidencing
Indebtedness of any of the Borrower's Subsidiaries payable to the
Borrower duly endorsed to the order of the Administrative Agent;
(ii) the Subsidiary Pledge Agreement,
dated as of the Closing Date, duly executed and delivered by an
Authorized Officer of each Guarantor, together with:
(1) certificates evidencing
all of the issued and outstanding shares of Capital Stock owned by such
Guarantor which certificates shall be accompanied by undated stock
powers duly executed in blank; and
(2) all Pledged Notes (as
defined in the Subsidiary Pledge Agreement), if any, evidencing
Indebtedness payable to a Guarantor duly endorsed to the order of the
Administrative Agent; and
(iii) the Administrative Agent and its
counsel shall be satisfied that the Lien granted to the Administrative
Agent, for the benefit of the Secured Parties in the collateral
described above is a first priority (or local equivalent thereof)
security interest; and no Lien exists on any of the collateral
described above other than the Lien created in favor of the
Administrative Agent, for the benefit of the Secured Parties, pursuant
to a Loan Document.
(f) SECURITY AGREEMENTS. The Administrative
Agent shall have received, with counterparts for each Lender, counterparts of
the Borrower Security Agreement, duly executed by the Borrower, and of the
Subsidiary Security Agreement, executed by each Guarantor, each dated as of the
Closing Date, together with
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(i) executed copies of Uniform
Commercial Code financing statements (Form UCC-1), naming the
applicable Obligor as a debtor and the Administrative Agent as the
secured party, or other similar instruments or documents, to be
filed under the Uniform Commercial Code of all jurisdictions as may
be necessary or, in the opinion of the Administrative Agent,
desirable to perfect the security interests of the Administrative
Agent pursuant to the applicable Security Agreement;
(ii) executed copies of proper Uniform
Commercial Code Form UCC-3 termination statements necessary to release
all Liens and other rights of any Person in any collateral described in
such Security Agreement previously granted by any Person together with
such other Uniform Commercial Code Form UCC-3 termination statements as
the Administrative Agent may reasonably request from such Obligors; and
(iii) certified copies of Uniform
Commercial Code Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party acceptable to the
Administrative Agent, dated a date reasonably near to the Closing Date,
listing all effective financing statements which name any Obligor
(under its present name and any previous names) as the debtor and which
are filed in the jurisdictions in which filings were made pursuant to
CLAUSE (a) above, together with copies of such financing statements.
(iv) the Administrative Agent and its
counsel shall be satisfied that the Lien granted to the Administrative
Agent, for the benefit of the Secured Parties in the collateral
described above is a first priority (or local equivalent) security
interest (subject to the filing of the documents described in CLAUSE b
above); and no other effective Lien (other than Liens permitted under
SECTION 8.3) exists on any of the collateral described above other than
the Lien created in favor of the Administrative Agent, for the benefit
of the Secured Parties, pursuant to a Loan Document.
(g) PATENT SECURITY AGREEMENT, COPYRIGHT
SECURITY AGREEMENT AND TRADEMARK SECURITY AGREEMENT. The Administrative Agent
shall have received the Patent Security Agreement, the Copyright Security
Agreement and the Trademark Security Agreement, as applicable, each dated as of
the Closing Date, duly executed and delivered by the Borrower and any Subsidiary
of the Borrower that is required to execute and deliver such Loan Documents
pursuant to the Credit Agreement.
(h) FINANCIAL INFORMATION, ETC. The
Administrative Agent shall have received, with copies for each Lender, financial
statements of the Borrower (including notes thereto), consisting of (i)
consolidated financial statements of the Borrower and its Subsidiaries including
balance sheets as of the end of each of the last two Fiscal Years and income and
cash
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flow statements as of the end of and for each of the last three Fiscal Years,
in each case audited by independent public accountants of recognized national
standing and prepared in conformity with GAAP, together with the report
thereon which shall not contain an Impermissible Qualification; (ii)
unaudited selected financial information of the Borrower and its Subsidiaries
for the two Fiscal Years immediately preceding the last three Fiscal Years;
(iii) comparable unaudited historical and pro forma interim financial
statements covering all quarterly or other appropriate periods subsequent to
the Fiscal Year most recently ended (the "PRO FORMA FINANCIAL STATEMENTS"),
giving effect to the contemplated financing, the contemplated ACS Acquisition
and reflecting the existing and proposed legal and capital structure (both
debt and equity) of the Borrower and its Subsidiaries, and (iv) such final
projections in respect of the Obligors and their respective Subsidiaries as
the Lenders may reasonably request; and all such financial statements,
historical or pro forma, delivered pursuant to this CLAUSE (h) shall be in
compliance with the requirements of Regulation S-X for a public offering
registered under the Securities Act of 1933, and all financial statements and
projections referred to in this CLAUSE (h) shall not be materially
inconsistent with financial statements, projections and estimates previously
provided to the Lenders.
(i) COMPLIANCE CERTIFICATE. The Administrative
Agent shall have received, with counterparts for each Lender, a Compliance
Certificate on a PRO FORMA basis as if the Credit Extension to be made on the
Closing Date had occurred as of December 31, 1999 and as to such items therein
as the Administrative Agent reasonably requests, dated the Closing Date, duly
executed (and with all schedules thereto duly completed) and delivered by the
chief executive officer, the chief financial officer, the treasurer or the
assistant treasurer of the Borrower.
(j) SOLVENCY, ETC. The Administrative Agent
shall have received, with counterparts for each Lender, a certificate duly
executed and delivered by the chief financial officer, the treasurer or the
assistant treasurer of the Borrower, dated the Closing Date, in the form of
EXHIBIT L attached to this Agreement.
(k) SUBSIDIARY GUARANTY. The Administrative
Agent shall have received, with counterparts for each Lender, the Subsidiary
Guaranty, dated as of the Closing Date, duly executed and delivered by each
Guarantor.
(l) INTERCO SUBORDINATION AGREEMENT. The
Administrative Agent shall have received, with counterparts for each Lender, a
copy of the Interco Subordination Agreement executed by each Guarantor.
(m) INSURANCE. The Administrative Agent shall
have received, with copies for each Lender, certificates of insurance from one
or more insurance companies satisfactory to the Administrative Agent, evidencing
coverage required to be maintained pursuant to this Agreement and each other
Loan Document.
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(n) OPINIONS OF COUNSEL. The Administrative
Agent shall have received opinions, dated the Closing Date and addressed to
the Administrative Agent and all Lenders, from (i) Morgan, Lewis & Bockius,
LLP and (ii) Cooley Godward LLP, counsel to the Obligors, in form and
substance reasonably satisfactory to the Administrative Agent.
(o) MATERIAL ADVERSE CHANGE. Since December 31,
1998, there shall not have occurred or become known to the Lenders any event or
events, adverse condition or change that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.
(p) PAYMENT OF OUTSTANDING INDEBTEDNESS, ETC.
After giving effect to the transactions contemplated by this Agreement, no
Obligor shall have outstanding any Indebtedness or preferred stock other than
(i) the Loans and Letters of Credit hereunder, (ii) the HIGH TIDES, (iii) the
Indebtedness permitted under SECTION 8.2, and (iv) 2,345,000 shares of preferred
stock issued by Cayenta Operating Company. The Administrative Agent shall have
received payoff letters satisfactory in form and substance to the Administrative
Agent with respect to any Indebtedness to be repaid on the Closing Date.
(q) CONSENTS, ETC. All governmental and third
party approvals and consents required to be obtained prior to the Closing Date
in connection with the acquisitions of Acquisition Two and LinCom and all
governmental and third party approvals and consents necessary in connection with
the ACS Acquisition (other than the approval of the shareholders of ACS), the
financing contemplated pursuant to this Agreement (including the execution and
delivery of this Agreement and each other Loan Document required hereunder by
each Obligor and the performance of their respective Obligations) and continuing
operations of the Borrower, each Guarantor, ACS (after giving effect to the
consummation of the ACS Acquisition), Acquisition Two and LinCom (after giving
effect to the consummation of the acquisitions of Acquisition Two and LinCom)
shall have been obtained and be in full force and effect (and, to the extent
requested by the Administrative Agent, the Administrative Agent shall have
received true and correct copies of such approvals and consents) and all
applicable waiting periods shall have expired without any action being taken or
threatened by any competent authority which would restrain, prevent or otherwise
impose adverse conditions on the transactions contemplated by this Agreement.
(r) LITIGATION, ETC. There shall exist no
pending or, to the knowledge of the Borrower, threatened, litigation,
proceedings or investigations which could reasonably be expected to have (i) a
material adverse effect on the ACS Acquisition or the acquisitions of
Acquisition Two and LinCom or (ii) a Material Adverse Effect.
(s) DUE DILIGENCE. The Administrative Agent
shall have completed and be satisfied in its sole discretion with respect to its
comprehensive due diligence in all matters pertaining to the business,
properties, operations, financial condition or prospects of the Borrower, its
Restricted Subsidiaries and ACS, including, without limitation, any
documentation as the Administrative Agent may require in its sole discretion.
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(t) APPROVAL OF ACS ACQUISITION AND ACQUISITIONS
OF ACQUISITION TWO AND LINCOM. The Administrative Agent shall review and be
satisfied in its reasonable discretion with (i) the final legal and capital
structure of the ACS Acquisition and the acquisitions of Acquisition Two and
LinCom, (ii) the sources and uses of proceeds used to consummate the ACS
Acquisition and the acquisitions of Acquisition Two and LinCom and (iii) the
terms and provisions of all documents, agreements and contracts related to the
ACS Acquisition and the acquisition of LinCom (including the amount of
liabilities assumed by the Obligors in connection with the ACS Acquisition and
the acquisition of LinCom).
(u) CLOSING FEES, EXPENSES, ETC. The
Administrative Agent shall have received for its own account all fees, costs and
expenses due and payable pursuant to SECTIONS 3.6 and 11.3 of this Agreement, if
then invoiced (in reasonable detail).
(v) LEGAL DETAILS, ETC. All documents executed
or submitted pursuant hereto shall be reasonably satisfactory in form and
substance to the Administrative Agent and its counsel. The Administrative Agent
and its counsel shall have received all information and such counterpart
originals or such certified or other copies or such materials, as the
Administrative Agent or its counsel may reasonably request, and all legal, tax
and accounting matters incident to the transactions contemplated by this
Agreement shall be satisfactory to the Administrative Agent and its counsel.
(w) NO MATERIAL ADVERSE CHANGE IN THE MARKET.
There shall not have occurred and be continuing (i) any general suspension of
trading in securities on the New York or American Stock Exchange or in the
NASDAQ National Market System (other than circuit breakers), (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, or (iii) any other material adverse change in
banking or capital market conditions that has had or could reasonably be
expected to have a material adverse effect on the syndication of leveraged bank
credit facilities or the consummation of high yield offerings, as the case may
be, that the Administrative Agent reasonably determines makes it impracticable
to successfully syndicate the Commitments and the Loans.
(x) MARGIN REGULATIONS. All Loans and other
Credit Extensions made by the Lenders shall be in full compliance with all
applicable requirements of Regulations T, U and X of the F.R.S. Board.
(y) PRO FORMA EBITDA. The Borrower shall have a
minimum EBITDA, pro forma for the twelve months ended September 30, 1999, of
$45,600,000, excluding pending acquisitions and any unrealized synergies.
Section 5.2 ALL CREDIT EXTENSIONS. The obligation of each
Lender and each Issuer to make any Credit Extension (including the initial
Credit Extension) shall be subject to SECTIONS 2.4 and 2.5 and the satisfaction
of each of the conditions precedent set forth in this SECTION 5.2.
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(a) COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC.
Both before and after giving effect to any Credit Extension, the following
statements shall be true and correct:
(i) the representations and warranties
set forth in ARTICLE VI (excluding, however, those contained in SECTION
6.7) and in each other Loan Document shall, in each case, be true and
correct in all respects (with respect to representations and warranties
qualified by materiality or Material Adverse Effect) and in all
material respects (with respect to all other representations and
warranties) with the same effect as if then made (unless stated to
relate solely to an earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of
such earlier date unless such representations and warranties are
qualified by materiality or Material Adverse Effect, in which case such
representations and warranties shall be true and correct as of such
earlier date);
(ii) except as disclosed by the Borrower
to the Administrative Agent and the Lenders pursuant to SECTION 6.7,
(1) no labor controversy,
litigation, arbitration or governmental investigation or proceeding
shall be pending or, to the knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries which could reasonably
be expected to have a Material Adverse Effect, or which would adversely
affect the legality, validity or enforceability of this Agreement or
any other Loan Document; and
(2) no development shall have
occurred in any labor controversy, litigation, arbitration or
governmental investigation or proceeding disclosed pursuant to SECTION
6.7 which could reasonably be expected to have a Material Adverse
Effect; and
(iii) no Default shall have then occurred
and be continuing.
(b) CREDIT EXTENSION REQUEST, ETC. Subject to
SECTION 2.8, the Administrative Agent shall have received a Borrowing Request if
Loans are being requested, or an Issuance Request if a Letter of Credit is being
requested or extended. Each of the delivery of a Borrowing Request or Issuance
Request and the acceptance by the Borrower of the proceeds of such Credit
Extension shall constitute a representation and warranty by the Borrower that on
the date of such Credit Extension (both immediately before and after giving
effect to such Credit Extension and the application of the proceeds thereof) the
statements made in SECTION 5.2(a) are true and correct in all material respects.
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(c) SATISFACTORY LEGAL FORM. All documents
executed or submitted pursuant hereto by or on behalf of the Borrower or any of
its Subsidiaries or any other Obligors shall be reasonably satisfactory in form
and substance to the Administrative Agent and its counsel; the Administrative
Agent and its counsel shall have received all information, approvals, opinions,
documents or instruments as the Administrative Agent or its counsel may
reasonably request.
Section 5.3 TERM C LOANS. In addition to the conditions set
forth in SECTION 5.2, on the Term C Loan Draw Date, the Administrative Agent
shall have received, for the account of each Term C Loan Lender, such Lender's
Term C Note and executed counterparts of the agreements and documents referenced
in SECTION 2.3(c).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Secured Parties to enter into this Agreement and
to make Credit Extensions hereunder, the Borrower represents and warrants to
each Secured Party as set forth in this Article.
Section 6.1 ORGANIZATION, ETC. The Borrower and each of its
Subsidiaries is (a) validly organized and existing and in good standing under
the laws of the state or jurisdiction of its incorporation or organization, and
(b) duly qualified to do business and is in good standing as a foreign entity in
each jurisdiction where the nature of its business requires such qualification,
except where the failure to so qualify would not result in a Material Adverse
Effect, and has full power and authority and holds all requisite governmental
licenses, permits and other approvals to enter into and perform its Obligations
under this Agreement and each other Loan Document to which it is a party and to
own and hold under lease its property and to conduct its business substantially
as currently conducted by it except where the failure to hold such licenses,
permits and other approvals would not result in a Material Adverse Effect.
Section 6.2 DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The
execution, delivery and performance by the Borrower of this Agreement and each
other Loan Document executed or to be executed by it and the execution, delivery
and performance by each other Obligor of each Loan Document executed or to be
executed by it, are in each case within each such Person's powers, have been
duly authorized by all necessary action, and do not
(a) contravene any such Person's Organic
Documents;
(b) contravene any contractual restriction
binding on or affecting any such Person;
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(c) contravene (i) any court decree or order
binding on or affecting any such Person or (ii) any law or governmental
regulation binding on or affecting any such Person; or
(d) result in, or require the creation or
imposition of, any Lien on any of such Person's properties (except as permitted
by this Agreement).
Section 6.3 GOVERNMENT APPROVAL, REGULATION, ETC. Except as
set forth in Item 6.3 of the Disclosure Schedule, no authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
or regulatory body or other Person other than those that have been duly obtained
or made and which are in full force and effect is required for the due
execution, delivery or performance by the Borrower or any other Obligor of any
Loan Document to which it is a party. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 6.4 VALIDITY, ETC. This Agreement and each other Loan
Document executed by the Borrower will, on the due execution and delivery
thereof, constitute, the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms; and
each other Loan Document executed by each other Obligor will, on the due
execution and delivery thereof by such Obligor, constitute the legal, valid and
binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms (except, in any case, as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and by principles of equity).
Section 6.5 FINANCIAL INFORMATION. The financial statements of
the Borrower and its Subsidiaries furnished to the Administrative Agent and each
Lender pursuant to SECTION 5.1(h) have been prepared in accordance with GAAP
consistently applied, and present fairly the consolidated financial condition of
the Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended. All balance sheets, all statements of
operations, shareholders' equity and cash flow and all other financial
information of each of the Borrower and its Subsidiaries furnished pursuant to
SECTION 7.1 have been and will for periods following the Closing Date be
prepared in accordance with GAAP consistently applied, and do or will present
fairly the consolidated financial condition of the Persons covered thereby as at
the dates thereof and the results of their operations for the periods then
ended.
Section 6.6 NO MATERIAL ADVERSE EFFECT. (a) No Material
Adverse Effect has occurred since December 31, 1998 with respect to the Borrower
and its Subsidiaries and (b) no material adverse effect on the business,
condition (financial or otherwise), operations, assets, properties or prospects
has occurred since December 31, 1998 with respect to ACS and its Subsidiaries,
Acquisition Two and its Subsidiaries or LinCom and its Subsidiaries, which would
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have a Material Adverse Effect with respect to the Borrower and its
Subsidiaries after giving effect to the ACS Acquisition and the acquisitions
of Acquisition Two and LinCom.
Section 6.7 LITIGATION, LABOR CONTROVERSIES, ETC. There is no
pending or, to the knowledge of the Borrower or its Subsidiaries, threatened
litigation, action, proceeding, investigation or labor controversy (a) affecting
the Borrower or any of its Subsidiaries or any Obligor, or any of their
respective properties, businesses, assets or revenues, which could, if adversely
determined, have a Material Adverse Effect except as disclosed in ITEM 6.7 of
the Disclosure Schedule or (b) which purports to affect the legality, validity
or enforceability of this Agreement or any other Loan Document.
Section 6.8 SUBSIDIARIES. The Borrower has no Subsidiaries,
except those Subsidiaries
(a) which are identified in ITEM 6.8 of the
Disclosure Schedule; or
(b) which constitute Investments permitted by
SECTION 8.5 or which are permitted to have been organized or acquired in
accordance with SECTIONS 8.5 or 8.9.
Section 6.9 OWNERSHIP OF PROPERTIES. The Borrower and each of
its Subsidiaries owns (a) in the case of owned real property, good and
marketable fee title to, and (b) in the case of owned personal property, good
and valid title to, or, in the case of leased real or personal property, valid
and enforceable leasehold interests (as the case may be) in, all of its
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever, free and clear in each case of all Liens or claims, except for Liens
permitted pursuant to SECTION 8.3.
Section 6.10 TAXES. The Borrower and each of its Subsidiaries
has timely filed all tax returns and reports required by law to have been filed
by it, and all such tax returns are complete, accurate and correct in all
material respects. The Borrower and each of its Subsidiaries has paid all
material taxes and governmental charges due and payable on or prior to the date
hereof, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
Section 6.11 PENSION AND WELFARE PLANS. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the date of any Credit Extension hereunder, no
steps have been taken to terminate any Pension Plan under circumstances in which
the Pension Plan has insufficient assets to pay all of its benefit liabilities
(as required by section 4041(b)(1) of ERISA), and no contribution failure has
occurred with respect to any Pension Plan, sufficient to give rise to a Lien
under section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which might result in the incurrence
by the Borrower or any member of the Controlled Group of any material liability,
material fine or material penalty. Except as disclosed in ITEM 6.11 of the
Disclosure Schedule, neither the Borrower nor any member of the Controlled Group
has any
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material contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of Title I of ERISA.
Section 6.12 ENVIRONMENTAL WARRANTIES. Except as set forth in
ITEM 6.12 of the Disclosure Schedule:
(a) all facilities and property (including
underlying groundwater) owned or leased by the Borrower or any of its
Subsidiaries have been, and continue to be, owned or leased by the Borrower and
its Subsidiaries in material compliance with all Environmental Laws;
(b) there have been no past, and there are no
pending or threatened
(i) actions, investigations, claims,
complaints, notices or requests for information received by the
Borrower or any of its Subsidiaries with respect to any alleged
violation of any Environmental Law which could result in a liability to
the Borrower or its Restricted Subsidiaries in excess of $1,000,000
individually or $2,000,000 in the aggregate, or
(ii) actions, investigations,
complaints, notices or inquiries to the Borrower or any of its
Subsidiaries regarding potential liability under any Environmental Law
which could result in a liability to the Borrower or its Restricted
Subsidiaries in excess of $1,000,000 individually or $2,000,000 in the
aggregate;
(c) there have been no Releases of Hazardous
Materials at, on or under any property now or previously owned or leased by the
Borrower or any of its Subsidiaries that have, or could reasonably be expected
to result in a liability to the Borrower or its Restricted Subsidiaries in
excess of $1,000,000 individually or $2,000,000 in the aggregate;
(d) the Borrower and its Subsidiaries have been
issued and are in material compliance with all permits, certificates, approvals,
licenses and other authorizations relating to environmental matters and
necessary for their businesses;
(e) no property now or previously owned or
leased by the Borrower or any of its Subsidiaries is listed or proposed for
listing (with respect to owned property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of sites
requiring investigation or clean-up;
(f) there are no underground storage tanks,
active or abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its Subsidiaries
that, singly or in the aggregate, have, or could
reasonably be expected to result in a liability to the Borrower or its
Restricted Subsidiaries in excess of $1,000,000 individually or $2,000,000 in
the aggregate;
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(g) neither the Borrower nor any Subsidiary of
the Borrower has directly transported or directly arranged for the
transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of federal, state
or local enforcement actions or other investigations which may lead to material
claims against the Borrower or such Subsidiary for any response costs, remedial
work, damage to natural resources or personal injury, including claims under
CERCLA;
(h) there are no polychlorinated biphenyls or
friable asbestos present at any property now or previously owned or leased by
the Borrower or any Subsidiary of the Borrower that, singly or in the aggregate,
have, or could reasonably be expected to result in a liability to the Borrower
or its Restricted Subsidiaries in excess of $1,000,000 individually or
$2,000,000 in the aggregate; and
(i) no conditions exist at, on or under any
property now or previously owned or leased by the Borrower which, with the
passage of time, or the giving of notice or both, would give rise to material
liability under any Environmental Law.
Section 6.13 ACCURACY OF INFORMATION. None of the factual
information heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to any Secured Party for purposes of or in connection with
this Agreement, or any transaction contemplated hereby or with respect to any
Permitted Acquisition or the financing contemplated hereby (true and complete
copies of which were furnished to the Secured Parties in connection with its
execution and delivery hereof), contains any untrue statement of a material
fact, and none of the other factual information hereafter furnished in
connection with this Agreement or any other Loan Document by the Borrower or any
other Obligor to any Secured Party will contain any untrue statement of a
material fact on the date as of which such information is dated or certified
and, as of the date of the execution and delivery of this Agreement by the
Administrative Agent and each Lender, the information delivered prior to the
date of execution and delivery of this Agreement (unless such information
specifically relates to a prior date) does not, and the factual information
hereafter furnished shall not on the date as of which such information is dated
or certified, omit to state any material fact necessary to make any information
not misleading.
Section 6.14 REGULATIONS T, U AND X. No Obligor is engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Credit Extensions will be used to purchase
or carry margin stock or otherwise for a purpose which violates, or would be
inconsistent with, F.R.S. Board Regulation T, U or X. Terms for which meanings
are provided in F.R.S. Board Regulation T, U or X or any regulations substituted
therefor, as from time to time in effect, are used in this Section with such
meanings.
Section 6.15 YEAR 2000 PROBLEM. No Obligor has been adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by such Obligor may
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be unable to recognize and properly perform date-sensitive functions
involving certain dates prior to and any date after December 31, 1999). No
Obligor reasonably believes that the "Year 2000 Problem" could reasonably be
expected to have a Material Adverse Effect. At the request of the
Administrative Agent, the Borrower shall provide the Administrative Agent
assurance reasonably acceptable to the Administrative Agent of the Borrower's
Year 2000 compatibility.
Section 6.16 GOVERNMENT CONTRACTS. The Borrower is not
materially in default as to the terms of any government contract and has
received no notices of default or notices to cure under any government contract
for which the performance deficiency noted by any Governmental Authority has not
been cured or otherwise resolved to such Governmental Authority's satisfaction.
Section 6.17 NO DEBARMENT. The Borrower is not subject to any
pending or threatened debarment proceedings.
Section 6.18 ASSIGNMENT OF PAYMENTS. Except with respect to
contracts for which the government has determined that a prohibition on
assignment of claims is in the government's interest, the Borrower has the right
to assign to the Administrative Agent all payments due or to become due under
each of the Borrower's or the Restricted Subsidiary's government contracts, and
there exists no uncancelled prior assignment of payments under any of such
Persons's government contracts.
Section 6.19 SOLVENCY. The Borrower and its Subsidiaries,
taken as a whole, are, and, upon the incurrence of any Obligations by any
Obligor (including, without limitation, the making of the Loans, the delivery of
the Subsidiary Guaranty and the Liens created by the Collateral Documents) on
any date on which this representation is made, will be, Solvent.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Borrower agrees with each Lender, each Issuer and the
Administrative Agent that until all Commitments have expired or terminated, all
Obligations have been paid and performed in full and all Letters of Credit have
expired or terminated (or the Administrative Agent shall have received cash (in
a cash collateral account on terms satisfactory to the Administrative Agent) in
the amount of all Letters of Credit Outstanding), the Borrower will, and will
cause its Subsidiaries to, perform or cause to be performed the obligations set
forth below.
Section 7.1 FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. The
Borrower will furnish or cause to be furnished to the Administrative Agent (with
sufficient copies for each Lender) copies of the following financial statements,
reports, notices and information:
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(a) as soon as available and in any event within
60 days after the end of each of the first three Fiscal Quarters of each Fiscal
Year, an unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of
income and cash flow of the Borrower and its Subsidiaries for such Fiscal
Quarter and for the period commencing at the end of the previous Fiscal Year and
ending with the end of such Fiscal Quarter, and including (in each case), in
comparative form the figures for the corresponding Fiscal Quarter in, and year
to date portion of, the immediately preceding Fiscal Year, certified as complete
and correct by the chief financial or accounting Authorized Officer of the
Borrower;
(b) as soon as available and in any event within
105 days after the end of each Fiscal Year, a copy of the consolidated balance
sheet of the Borrower and its Subsidiaries, and the related consolidated
statements of stockholders' equity and cash flow and the consolidated statements
of income of the Borrower and its Subsidiaries for such Fiscal Year, setting
forth in comparative form the figures for the immediately preceding Fiscal Year,
audited (without any Impermissible Qualification) by independent public
accountants acceptable to the Administrative Agent, stating that, in performing
the examination necessary to deliver the audited financial statements of the
Borrower, no knowledge was obtained of any Default;
(c) concurrently with the delivery of the
financial information pursuant to CLAUSES (a) and (b), a Compliance Certificate,
executed by the chief executive, financial or accounting Authorized Officer of
the Borrower, showing compliance with the financial covenants set forth in
SECTION 8.4 and stating that no Default has occurred and is continuing (or, if a
Default has occurred, specifying the details of such Default and the action that
the Borrower has taken or proposes to take with respect thereto);
(d) as soon as possible and in any event within
five days after the Borrower or any of its Subsidiaries obtains knowledge of the
occurrence of a Default, a statement of the chief executive, financial or
accounting Authorized Officer of the Borrower setting forth details of such
Default and the action which the Borrower has taken and proposes to take with
respect thereto;
(e) as soon as possible and in any event within
five days after the Borrower or any of its Subsidiaries obtains knowledge of (i)
the occurrence of any material adverse development with respect to any
litigation, action, proceeding or labor controversy described in ITEM 6.7 of the
Disclosure Schedule or (ii) the commencement of any litigation, action,
proceeding or labor controversy of the type and materiality described in SECTION
6.7, notice thereof and, to the extent the Administrative Agent requests, copies
of all documentation relating thereto;
(f) promptly after the sending or filing
thereof, copies of all reports, notices, prospectuses and registration
statements which the Borrower or any of its Subsidiaries files with the SEC or
any national securities exchange;
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(g) immediately upon becoming aware of (i) the
institution of any steps by the Borrower or any other Person to terminate any
Pension Plan, (ii) the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under Section 302(f)
of ERISA, (iii) the taking of any action with respect to a Pension Plan which
could result in the requirement that the Borrower furnish a bond or other
security to the PBGC or such Pension Plan, or (iv) the occurrence of any event
with respect to any Pension Plan which could result in the incurrence by the
Borrower of any material liability, fine or penalty, notice thereof and copies
of all documentation relating thereto;
(h) promptly upon receipt thereof from the
Borrower's audit committee, copies of all "management letters" submitted to the
Borrower by the independent public accountants referred to in CLAUSE (b) in
connection with each audit made by such accountants; and
(i) such other financial and other information
as any Lender through the Administrative Agent may from time to time reasonably
request (including information and reports in such detail as the Administrative
Agent may request with respect to the terms of and information provided pursuant
to the Compliance Certificate).
Section 7.2 MAINTENANCE OF EXISTENCE; COMPLIANCE WITH LAWS,
ETC. The Borrower will, and will cause each of its Subsidiaries to,
(a) except as otherwise permitted by SECTION
8.9, preserve and maintain its legal existence; and
(b) comply in all material respects with all
applicable laws, rules, regulations and orders, including the payment, before
the same become delinquent, of all taxes, assessments and governmental charges
imposed upon the Borrower or its Subsidiaries or upon their property except to
the extent being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP have been set aside on
the books of the Borrower or its Subsidiaries, as applicable.
Section 7.3 MAINTENANCE OF PROPERTIES. The Borrower will, and
will cause each of its Subsidiaries to, maintain, preserve, protect and keep its
and their respective properties in good repair, working order and condition
(ordinary wear and tear excepted), and make necessary repairs, renewals and
replacements so that the business carried on by the Borrower and its
Subsidiaries may be properly conducted at all times, unless the Borrower
determines in good faith that the continued maintenance of such property is no
longer economically desirable.
Section 7.4 INSURANCE. The Borrower will, and will cause each
of its Subsidiaries to:
(a) maintain insurance on its property with
financially sound and reputable insurance companies against loss and damage in
at least the amounts (and with only
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those deductibles) customarily maintained, and against such risks as are
typically insured against in the same general area, by Persons of comparable
size engaged in the same or similar business as the Borrower and its
Subsidiaries; and
(b) all worker's compensation, employer's
liability insurance or similar insurance as may be required under the laws of
any state or jurisdiction in which it may be engaged in business.
Without limiting the foregoing, all insurance policies required pursuant to this
Section shall (i) name the Administrative Agent on behalf of the Secured Parties
as loss payee (in the case of property insurance) or additional insured (in the
case of liability insurance), as applicable, and provide that no cancellation or
modification of the policies will be made without thirty days' prior written
notice (or ten days' prior written notice with respect to failure to pay the
premium), to the Administrative Agent and (ii) be in addition to any
requirements to maintain specific types of insurance contained in the other Loan
Documents.
Section 7.5 BOOKS AND RECORDS. The Borrower will, and will
cause each of its Subsidiaries to, keep books and records in accordance with
GAAP which accurately reflect all of its business affairs and transactions and
permit the Administrative Agent and each Lender or any of their respective
representatives, at reasonable times and intervals upon reasonable notice to the
Borrower, to visit its offices, to discuss its financial matters with its
officers and employees, and its independent public accountants (and the Borrower
hereby authorizes such independent public accountants to discuss the Borrower's
and Subsidiaries' financial matters with the Administrative Agent and each
Lender or their representatives whether or not any representative of the
Borrower is present so long as the Borrower has been given reasonable prior
written notice of such meeting) and to examine (and photocopy extracts from) any
of its books and records. The Borrower shall pay any fees of such independent
public accountants incurred in connection with the Administrative Agent's or any
Lender's exercise of its rights pursuant to this Section. In addition to having
the right to perform field audits of the Borrower's books and records, the
Administrative Agent shall have the right, but not the obligation, to contact
the contracting officer under any government contract directly to determine the
Borrower's or any Restricted Subsidiary's contract performance status on the
government contract; however, any contact between the Administrative Agent and
the contracting officer shall be made on reasonable notice to the Borrower and
in the presence of a representative or representatives of the Borrower. At the
Administrative Agent's request, the Borrower shall promptly arrange for such
communications between the Administrative Agent and a contracting officer.
Section 7.6 ENVIRONMENTAL LAW COVENANT. The Borrower will, and
will cause each of its Subsidiaries to,
(a) use and operate all of its facilities and
properties in material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in
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material compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws; and
(b) promptly notify the Administrative Agent and
provide copies upon receipt of all material written claims, complaints, notices
or inquiries relating to the condition of its facilities and properties in
respect of, or as to compliance with, Environmental Laws, and shall promptly
resolve any non-compliance with Environmental Laws and keep its property free of
any Lien imposed by any Environmental Law.
Section 7.7 FUTURE SUBSIDIARIES; COLLATERAL. The Borrower
shall promptly notify the Administrative Agent upon any Person becoming a
Subsidiary, or upon an Obligor directly or indirectly acquiring additional
Capital Stock of any existing Subsidiary or real property described in CLAUSE
(d) below, and
(a) such Person shall, if it is a U.S.
Subsidiary, (i) execute and deliver to the Administrative Agent a supplement to
the Subsidiary Guaranty and a supplement to the Subsidiary Security Agreement
and (ii) to the extent such U.S. Subsidiary is required to pledge stock of a
Subsidiary pursuant to CLAUSE (b) of SECTION 7.7, execute and deliver to the
Administrative Agent a supplement to the Subsidiary Pledge Agreement, if not
already a party thereto as a pledgor, in a manner satisfactory to the
Administrative Agent;
(b) the Borrower and each U.S. Subsidiary shall,
pursuant to the applicable Pledge Agreement (as supplemented, if necessary, by a
foreign pledge agreement in form and substance satisfactory to the
Administrative Agent), pledge to the Administrative Agent all of the outstanding
shares of Capital Stock of (i) each U.S. Subsidiary and (ii) any Subsidiary that
is not a U.S. Subsidiary owned (other than where such ownership is in such U.S.
Subsidiary's capacity as a nominee shareholder) directly by the Borrower or such
U.S. Subsidiary (PROVIDED, that, subject to the last sentence of this Section,
not more than 65% of the Capital Stock of any Foreign Subsidiary shall be so
pledged), along with undated stock powers for such certificates, executed in
blank (or, if any such shares of Capital Stock are uncertificated, confirmation
and evidence satisfactory to the Administrative Agent that the security interest
in such uncertificated securities has been perfected (as a first priority Lien)
by the Administrative Agent, for the benefit of the Secured Parties, in
accordance with the U.C.C. or any other similar or local or foreign law which
may be applicable);
(c) the Borrower and each U.S. Subsidiary
shall, pursuant to the applicable Pledge Agreement, pledge to the
Administrative Agent for its benefit and that of the Secured Parties, all
intercompany notes evidencing Indebtedness in favor of the Borrower or such
U.S. Subsidiary (which shall be in a form acceptable to the Administrative
Agent); and
(d) if such Person owns any real property having
a value as determined in good faith by the Administrative Agent in excess of
$2,500,000, such Obligor will execute and deliver to the Administrative Agent a
Mortgage, together with, in the case of real property, mortgagee's title
insurance policies in amounts, in form and substance (including, if available, a
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revolving credit endorsement) and issued by insurers satisfactory to the
Administrative Agent, and such policies shall be accompanied by evidence of
the payment in full of all premiums thereon;
together, in each case, with such opinions of legal counsel for the Borrower,
which may be the corporate general counsel of the Borrower (which shall be from
counsel satisfactory to the Administrative Agent) relating thereto, which legal
opinions shall be in form and substance satisfactory to the Administrative
Agent. The Borrower agrees that if, as a result of a change in law after the
date hereof, (i) a Foreign Subsidiary can execute and deliver a supplement to
the Subsidiary Guaranty or execute and deliver a supplement to the Subsidiary
Pledge Agreement as a pledgor or (ii) the Borrower or any Subsidiary can pledge
more than 65% of the Capital Stock of any Foreign Subsidiary or any intercompany
Indebtedness of any Subsidiary evidenced by a note or other instrument, in any
such case without material adverse tax consequences to the Borrower or such
Subsidiary, then the provisions of CLAUSE (a) of this Section shall thereafter
apply to any Foreign Subsidiary and/or (as the case may be) the provisions of
CLAUSE (b) of this Section shall thereafter apply to 100% of the Capital Stock
of such Foreign Subsidiary.
The Borrower shall, and shall cause each of its Subsidiaries
to, cause the Administrative Agent on behalf of the Secured Parties to have at
all times a first priority perfected security interest (subject only to Liens
permitted under SECTION 8.3) in all of the property (real and personal,
including Capital Stock owned by such Obligors) now or hereafter acquired from
time to time by the Borrower and such Subsidiaries to the extent the same is of
the type of property that constitutes "Collateral" (as defined in any Loan
Document) or is required to be pledged or assigned to the Administrative Agent
on behalf of the Secured Parties hereunder. Without limiting the generality of
the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to,
promptly execute, deliver and/or file (as applicable) Uniform Commercial Code
financing statements and other instruments and documentation deemed necessary by
the Administrative Agent to grant and perfect such security interest, in each
case in form and substance satisfactory to the Administrative Agent.
Notwithstanding the foregoing, in no event shall (i) Cayenta
Post IPO, Titan Capital Trust or Titan Africa, Inc. be subject to the provisions
of this SECTION 7.7 or be required to grant any Liens in favor of the
Administrative Agent on behalf of the Secured Parties and (ii) the Borrower be
required to grant any Lien on any Capital Stock of Titan Capital Trust.
Section 7.8 USE OF PROCEEDS. The Borrower (a) will apply the
Revolving Loans only in accordance with CLAUSES (i), (ii) and (iii) below, (b)
will apply the proceeds of the Term B Loans only in accordance with CLAUSE (iv)
below and (c) will apply the proceeds of the Multi-Draw Term Loans and the Term
C Loans only in accordance with CLAUSES (i), (ii), (iii) and (iv) below:
(i) for working capital and general corporate purposes of
the Borrower and its Restricted Subsidiaries, including Permitted Acquisitions
by such Persons;
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(ii) to pay fees and expenses related to the Loans and the
Letters of Credit;
(iii) to finance Capital Expenditures; and
(iv) to repay certain existing Indebtedness of the
Borrower and its Subsidiaries and pay related fees and expenses.
Section 7.9 CONTRACT OBLIGATIONS. The Borrower shall, and
shall cause each Restricted Subsidiary, to perform in accordance with its terms
every contract, agreement, obligation or other arrangement to which such Person
is a party or by which it or any of its property is bound, including government
contracts. In the event that any material default or material performance
deficiency occurs, the Borrower shall notify the Administrative Agent promptly
in writing. The Borrower shall provide the Administrative Agent promptly with
copies of any cure notices or default notices it may receive from a Governmental
Authority on any government contract and detail the proposed corrective action.
At the Administrative Agent's request, the Borrower shall also provide the
Administrative Agent with copies of any stop work notices in effect at the date
of the Administrative Agent's request.
ARTICLE VIII
NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender, each
Issuer and the Administrative Agent that until all Commitments have expired or
terminated, all Obligations have been paid and performed in full and all Letters
of Credit have expired or terminated (or the Administrative Agent shall have
received immediately available funds in a collateral account on terms
satisfactory to the Administrative Agent in the amount of all Letters of Credit
Outstanding), the Borrower will not, and will not permit its Restricted
Subsidiaries to, do any of the following.
Section 8.1 BUSINESS ACTIVITIES. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, engage in any business
activity except those business activities primarily engaged in by the
Borrower and its Restricted Subsidiaries as of the Closing Date and
activities reasonably incidental thereto.
Section 8.2 INDEBTEDNESS. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, create, incur, assume or permit to
exist any Indebtedness, other than:
(a) Indebtedness in respect of the Obligations;
(b) Indebtedness in respect of Hedging
Obligations;
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(c) Indebtedness existing as of the Closing Date
which is identified in ITEM 8.2 of the Disclosure Schedule;
(d) unsecured Indebtedness (i) incurred in the
ordinary course of business of the Borrower and the Guarantors (including open
accounts extended by suppliers on normal trade terms in connection with
purchases of goods and services which are not overdue for a period of more than
90 days or, if overdue for more than 90 days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been established on the books of
the Borrower or such Guarantor) and (ii) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, but excluding (in each
case), Indebtedness incurred through the borrowing of money or Contingent
Liabilities in respect thereof;
(e) Indebtedness of any Guarantor owing to the
Borrower or any other Guarantor, which Indebtedness shall be evidenced by one or
more promissory notes in form and substance satisfactory to the Administrative
Agent, duly executed and delivered in pledge to the Administrative Agent
pursuant to a Loan Document, and shall not be forgiven or otherwise discharged
for any consideration other than payment in full or in part in cash (PROVIDED,
that only the amount repaid in part shall be discharged);
(f) unsecured Indebtedness (not evidenced by a
note or other instrument) of the Borrower owing to a Guarantor that has
previously executed and delivered to the Administrative Agent the Interco
Subordination Agreement;
(g) Indebtedness of the Borrower and the
Guarantors in respect of purchase money Indebtedness and Capitalized Lease
Liabilities which does not exceed $15,000,000 in the aggregate; and
(h) Indebtedness of the Borrower to Titan
Capital Trust consisting of the Debentures in an aggregate principal amount not
to exceed $257,732,000 plus the amount of any accrued interest which is added to
principal in accordance with the HIGH TIDES Documents and the Sub Debt
Documents;
(i) other unsecured Indebtedness of the Borrower
and the Guarantors in an aggregate amount at any time outstanding not to exceed
$15,000,000;
PROVIDED, HOWEVER, that no Indebtedness otherwise permitted by CLAUSE (e) shall
be assumed or otherwise incurred if a Default has occurred and is then
continuing or would result therefrom.
Section 8.3 LIENS. The Borrower will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or permit to exist
any Lien upon any of its property (including Capital Stock of any Person),
revenues or assets, whether now owned or hereafter acquired, except:
(a) Liens securing payment of the Obligations;
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(b) Liens existing as of the Closing Date and
disclosed in ITEM 8.3 of the Disclosure Schedule securing Indebtedness described
in CLAUSE (c) of SECTION 8.2; PROVIDED that no such Lien shall encumber any
additional collateral and the amount of Indebtedness secured by such Lien is not
increased from that existing on the Closing Date;
(c) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter payable
without penalty or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books;
(d) Liens in favor of carriers, warehousemen,
mechanics, materialmen and landlords granted in the ordinary course of business
for amounts not overdue or being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(e) Liens incurred or deposits made in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or benefits, or
to secure performance of tenders, statutory obligations, bids, leases or other
similar obligations (other than for borrowed money) entered into in the ordinary
course of business or to secure obligations on surety and appeal bonds or
performance bonds;
(f) judgment Liens in existence for less than 45
days after the entry thereof or with respect to which execution has been stayed
or the payment of which is covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies and which do not
otherwise result in an Event of Default under SECTION 9.1(f);
(g) easements, rights-of-way, zoning
restrictions, minor defects or irregularities in title and other similar
encumbrances not interfering in any material respect with the value or use of
the property to which such Lien is attached; and
(h) Liens securing payment of Indebtedness of
the type described in CLAUSE (g) of SECTION 8.2 used to purchase or lease assets
of the Borrower or any Guarantor so long as such Lien extends only to the asset
or assets so financed.
Section 8.4 FINANCIAL CONDITION AND OPERATIONS. The Borrower
will not permit to occur any of the events set forth below.
(a) TOTAL DEBT TO EBITDA RATIO. The Borrower
will not permit the Total Debt to EBITDA Ratio as of the last day of any Fiscal
Quarter to be greater than the ratio set forth opposite such date:
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<TABLE>
<CAPTION>
DATE TOTAL DEBT TO EBITDA RATIO
<S> <C>
Closing Date and First Fiscal Quarter of
Fiscal Year 2000 3.50:1.00
Second Fiscal Quarter of Fiscal Year 2000 3.50:1.00
Third Fiscal Quarter of Fiscal Year 2000 3.50:1.00
Fourth Fiscal Quarter of Fiscal Year 2000 3.50:1.00
First Fiscal Quarter of Fiscal Year 2001 3.25:1.00
Second Fiscal Quarter of Fiscal Year 2001 3.25:1.00
Third Fiscal Quarter of Fiscal Year 2001 3.25:1.00
Fourth Fiscal Quarter of Fiscal Year 2001 3.25:1.00
First Fiscal Quarter of Fiscal Year 2002 3.00:1.00
Second Fiscal Quarter of Fiscal Year 2002 3.00:1.00
Third Fiscal Quarter of Fiscal Year 2002 3.00:1.00
Fourth Fiscal Quarter of Fiscal Year 2002 3.00:1.00
First Fiscal Quarter of Fiscal Year 2003 and
each Fiscal Quarter thereafter 2.50:1.00
</TABLE>
(b) MINIMUM NET WORTH.
(i) Prior to the consummation of the
ACS Acquisition, the Borrower shall not permit its Net Worth as of
the end of any Fiscal Quarter to be less than the sum of (u)
$80,000,000, PLUS (v) 50% of Net Income in excess of zero for all
Fiscal Quarters, commencing with the Fiscal Quarter ending March 31,
2000, PLUS (w) the product of 80% TIMES the net increase to the
Borrower's shareholders' equity resulting from the initial public
offering of Cayenta after the Closing Date, PLUS (x) the product of
80% TIMES the net cash proceeds derived from the issuance of common
stock by the Borrower after the Closing Date, MINUS (y) subsequent
to any spin-off of Cayenta, the portion of Net Worth attributable to
Cayenta immediately prior to such spin-off, MINUS (z) the net
decrease to the Borrower's shareholders' equity resulting from the
deferred compensation charge related to the employee, director,
officer and consultant stock options of Cayenta in connection with
the initial public offering of Cayenta.
(ii) Subsequent to the consummation of
the ACS Acquisition, the Borrower shall not permit its Net Worth as of
the end of the Fiscal Quarter during which the ACS Acquisition occurred
and each Fiscal Quarter thereafter to be less than the sum of (u)
$115,000,000, PLUS (v) 50% of Net Income in excess of zero for all
Fiscal Quarters, commencing with the Fiscal Quarter ending March 31,
2000, PLUS (w) the product of 80% TIMES the net increase to the
Borrower's shareholders' equity resulting from the initial public
offering of Cayenta after the Closing Date, PLUS (x) the product of 80%
TIMES the
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net cash proceeds derived from the issuance of common stock by the
Borrower after the Closing Date, MINUS (y) subsequent to any
spin-off of Cayenta, the portion of Net Worth attributable to
Cayenta immediately prior to such spin-off, MINUS (z) the net
decrease to the Borrower's shareholders' equity resulting from the
deferred compensation charge related to the employee, director,
officer and consultant stock options of Cayenta in connection with
the initial public offering of Cayenta.
(c) FIXED CHARGE COVERAGE RATIO. The Borrower
will not permit the Fixed Charge Coverage Ratio as of the end of any Fiscal
Quarter to be less than 1.00:1.00.
(d) INTEREST COVERAGE RATIO. The Borrower will
not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter
to be less than the ratio set forth below:
(i) For any Fiscal Quarter of Fiscal
Year 2000, 3.25:1.00;
(ii) For any Fiscal Quarter of Fiscal
Year 2001, 3.75:1.00; and
(iii) For any Fiscal Quarter of Fiscal
Year 2002 and thereafter, 4.00:1.00.
(e) Any calculation to determine compliance
with CLAUSES (a), (b) or (d) of this SECTION 8.4 or to determine whether a
Default has occurred or would occur as a result of a particular transaction
shall be on a PRO FORMA basis and calculated on the assumption that any
Permitted Acquisitions or other relevant transaction which occurred during
the relevant period were consummated on the first day of such period. Any
calculation to determine compliance with CLAUSE (c) of this SECTION 8.4 or to
determine whether a Default has occurred or would occur as a result of a
particular transaction shall be (i) on a PRO FORMA basis and calculated on
the assumption that any Permitted Acquisitions using the pooling method of
accounting or other transaction (except as set forth in CLAUSE (ii) below)
which occurred during the relevant period were consummated on the first day
of such period and (ii) on a historical basis with respect solely to the
Borrower and its U.S. Subsidiaries to the extent any Permitted Acquisitions
using the purchase method of accounting were consummated during the relevant
period.
Section 8.5 INVESTMENTS. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, purchase, make, incur, assume or
permit to exist any Investment in any other Person, except:
(a) Investments existing on the Closing Date and
identified in ITEM 8.5 of the Disclosure Schedule;
(b) Cash Equivalent Investments;
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(c) without duplication, Investments to the
extent permitted as Indebtedness pursuant to SECTION 8.2;
(d) Investments by way of contributions to
capital or purchases of equity (i) by the Borrower in any Guarantor (other than
Cayenta) or by such Guarantor in other Guarantors (other than Cayenta); or (ii)
by any Subsidiary in the Borrower;
(e) Investments constituting (i) accounts
receivable arising, (ii) trade debt granted, or (iii) deposits made in
connection with the purchase price of goods or services, in each case in the
ordinary course of business;
(f) Investments by way of Permitted
Acquisitions;
(g) Investments received in connection with the
bankruptcy or reorganization of, or settlement of delinquent accounts and
disputes with, customers and suppliers, in each case in the ordinary course of
business;
(h) Investments consisting of any deferred
portion of the sales price received by the Borrower or any Guarantor in
connection with any asset sale permitted under SECTION 8.10;
(i) Hedging Agreements; and
(j) after the Closing Date, other Investments
(other than any acquisition of any Person) in an amount not to exceed
$25,000,000 in the aggregate over the remaining term of this Agreement;
PROVIDED, HOWEVER, that
(i) any Investment which when made
complies with the requirements of CLAUSES (a), (b) or (c) of the
definition of the term "Cash Equivalent Investment" may continue to be
held notwithstanding that such Investment if made thereafter would not
comply with such requirements;
(ii) no Investment otherwise permitted
by CLAUSES (c), (d), (e), (f), (g) or (j) shall be permitted to be made
if any Default has occurred and is continuing or would result
therefrom; and
(iii) after the Closing Date the
aggregate amount of acquisitions (whether pursuant to an acquisition of
stock, assets constituting a business unit of any Person or all or
substantially all of the assets of any Person or otherwise and
including any assumed debt) by the Borrower or any Guarantor of any
Person or the assets of any Person shall not exceed $100,000,000 over
the remaining term of this Agreement (excluding the ACS Acquisition and
the
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acquisitions of Acquisition Two and LinCom and the amount of any
acquisition which has received the prior written consent of the
Required Lenders).
Section 8.6 RESTRICTED PAYMENTS, ETC. The Borrower will not,
and will not permit any of its Restricted Subsidiaries to, declare or make a
Restricted Payment, or make any deposit for any Restricted Payment, other than:
(a) dividends or distributions payable in common
stock of the Borrower and its Restricted Subsidiaries;
(b) Restricted Payments made by Restricted
Subsidiaries to the Borrower or wholly owned Restricted Subsidiaries;
(c) the payment of accrued and unpaid
distributions by Titan Capital Trust on the HIGH TIDES so long as no Default
shall have occurred and be continuing or would result therefrom;
(d) solely in the event that the ACS Acquisition
is not consummated on or prior to March 31, 2000, the repurchase of HIGH TIDES
having an aggregate liquidation value not to exceed the lesser of (x) an amount
equal to 50% of the gross proceeds of the HIGH TIDES (including any HIGH TIDES
issued as a result of the exercise of the over-allotment option) plus a premium
equal to 2.5% of such gross proceeds and (y) the aggregate liquidation value of
HIGH TIDES tendered pursuant to the repurchase offer made by Titan Capital Trust
as a result of the failure to consummate such acquisition plus a premium equal
to 2.5% of such aggregate liquidation value;
(e) subsequent to the issuance of shares in
connection with the initial public offering of Cayenta pursuant to the terms
of the applicable underwriting agreement, the spin-off of Cayenta to
shareholders of the Borrower; provided that the Total Debt to EBITDA Ratio
does not exceed 3.00:1:00 (calculated on a PRO FORMA basis) at the time of
such spin-off and, at the time of such spin-off, no Default shall have
occurred and be continuing or be caused thereby, both before and after giving
effect to such spin-off (with financial covenants to be calculated on a
historical and a PRO FORMA basis after giving effect to such spin-off); and
(f) redemptions of Capital Stock, provided, that
the following conditions are met:
(i) the Total Debt to EBITDA Ratio,
immediately following such redemption is less than 3.00:1.00,
calculated on a PRO FORMA basis; and
(ii) the Fixed Charge Coverage Ratio
immediately following the redemption shall not be less than the ratio
required for the period in
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which such redemption occurs, as set forth in SECTION 8.4(c),
calculated on a PRO FORMA basis; and
(iii) the aggregate value of such
redemptions shall not exceed $5,000,000 in any Fiscal Year; and
(iv) the aggregate value of all such
redemptions shall not exceed $20,000,000; and
(v) the unborrowed Revolving Loan
Commitment Amount shall not be less than $20,000,000 at the time of
such redemption; and
(vi) at the time of such Restricted Payment,
both before and after giving effect to such Restricted Payment, no
Default shall have occurred and be continuing or caused thereby.
Section 8.7 SUBORDINATED DEBT. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, (a) make any payment
or prepayment of principal of, or premium or interest on, any Subordinated
Debt; (b) pay or cause to be paid any consideration, whether by way of
payment of principal, interest, fee, indemnity or otherwise, to (i) any
holder of any Indebtedness (in its capacity as such) that is subordinate or
junior in right of payment to amounts owing hereunder or (ii) any holder (in
its capacity as such) of any Capital Stock or other securities of any Obligor
or any warrants, options or subscription rights with respect to any Capital
Stock of any Obligor (whether as payment of such obligations, Capital Stock,
securities, warrants, options or subscription rights or otherwise or as
inducement to, any consent, waiver or amendment of any of the terms or
provisions of the documentation evidencing such Subordinated Debt or such
Capital Stock, securities, warrants, options or subscription rights); (c)
refinance, redeem, retire, purchase, defease or otherwise acquire any
Subordinated Debt; or (d) make any deposit (including the payment of amounts
into a sinking fund or other similar fund) for any of the foregoing purposes;
PROVIDED that
(i) the Borrower and its Restricted
Subsidiaries may pay, in the case of interest only, interest on such
Subordinated Debt no earlier than the stated, scheduled date for such
payment of interest set forth in the Sub Debt Documents governing such
Subordinated Debt, so long as no Default shall have occurred and be
continuing or would result therefrom;
(ii) (x) the Borrower may redeem the
Debentures having an aggregate principal amount not to exceed the
aggregate liquidation value of HIGH TIDES permitted to be repurchased
under SECTION 8.6(d) plus a premium of 2.5% of such principal amount
and pay accrued and unpaid interest on such redeemed Debentures in the
event that the ACS Acquisition is not consummated on or prior to March
31, 2000 and (y) the Borrower may remarket
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the Debentures in accordance with the HIGH TIDES Documents and the
Sub Debt Documents and pay any interest thereon in accordance with
CLAUSE (i) above; and
(iii) the Borrower and its Restricted
Subsidiaries may make Restricted Payments as permitted under SECTION
8.6.
Section 8.8 STOCK OF RESTRICTED SUBSIDIARIES. The Borrower
will not permit any of its Restricted Subsidiaries to, (a) issue any Capital
Stock (whether for value or otherwise) to any Person other than (i) officers or
employees of the Guarantors, in connection with incentive compensation programs
or employee benefit plans, (ii) the Borrower or another wholly owned Guarantor,
(iii) in connection with any remarketing of the HIGH TIDES or (b) other than as
set forth in SECTION 8.6, become liable in respect of any obligation (contingent
or otherwise) to purchase, redeem, retire, acquire or make any other payment in
respect of any shares of Capital Stock of the Borrower or any Restricted
Subsidiary or any option, warrant or other right to acquire any such shares of
Capital Stock; PROVIDED, HOWEVER, that Titan Capital Trust may incur such
obligations contemplated by, the HIGH TIDES Documents (it being understood that
performance of such obligations shall be subject to the provisions of this
Agreement); PROVIDED, FURTHER, that the options and warrants issued by the
Guarantors as set forth in ITEM 8.8 of the Disclosure Schedule shall be
permitted; and PROVIDED, FURTHER, that each Guarantor (other than any member of
the Cayenta Group) may issue options and warrants for up to five percent (5%) of
such Guarantor's Capital Stock, inclusive of options and warrants issued by such
Guarantor as set forth in ITEM 8.8 of the Disclosure Schedule.
Section 8.9 CONSOLIDATION, MERGER, ETC. The Borrower will not,
and will not permit any of its Restricted Subsidiaries to, liquidate or
dissolve, consolidate with, or merge into or with, any other Person, or purchase
or otherwise acquire all or substantially all of the assets of any Person (or of
any division thereof), except
(a) any Guarantor may liquidate or dissolve
voluntarily into, and may merge with and into, the Borrower or any other
Guarantor, and the assets or stock of any Guarantor may be purchased or
otherwise acquired by the Borrower or any other Guarantor; PROVIDED, FURTHER,
that in no event shall any Guarantor consolidate with or merge with and into any
other Guarantor unless after giving effect thereto, the Administrative Agent
shall have a perfected pledge of, and security interest in and to, at least the
same percentage of the issued and outstanding shares of Capital Stock of the
surviving Person as the Administrative Agent had immediately prior to such
merger or consolidation in form and substance satisfactory to the Administrative
Agent and its counsel, pursuant to such documentation and opinions as shall be
necessary in the opinion of the Administrative Agent to create, perfect or
maintain the collateral position of the Administrative Agent and the Secured
Parties therein as contemplated by this Agreement; and
(b) so long as no Default has occurred and is
continuing or would occur after giving effect thereto, the Borrower or any
Guarantor may (to the extent permitted by CLAUSE (f) of SECTION 8.5) purchase
all or substantially all of the assets or stock of any Person (or
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any division thereof) (other than the Borrower or any Restricted Subsidiary,
such intercompany transactions being subject to CLAUSE (a)), or acquire such
Person by merger.
Section 8.10 PERMITTED DISPOSITIONS. Other than in
connection with the Borrower's incentive compensation arrangements, the
Borrower will not, and will not permit any of its Restricted Subsidiaries to,
sell, transfer, lease, contribute or otherwise convey (including by way of
merger), or grant options, warrants or other rights with respect to, any of
the Borrower's or such Restricted Subsidiaries' assets (including accounts
receivable and Capital Stock of the Borrower and its Restricted Subsidiaries)
to any Person in one transaction or series of transactions unless such
transaction is (a) in the ordinary course of its business (including, without
limitation, leasing of equipment of the Titan Wireless or Titan Scan business
units) or in connection with the Borrower's internal reorganization, so long
as such transaction does not involve all or substantially all of the
Borrower's or a Guarantor's assets and the transaction is solely between or
among the Borrower and the Guarantors, (b) a transaction among the Borrower
and/or the Guarantors permitted by SECTION 8.9(a), (c) the disposition of
Capital Stock of Cayenta in connection with an initial public offering (i) so
long as no Default shall have occurred and then be continuing or would result
from the initial public offering and (ii) the Borrower continues to own at
least 51% of the Capital Stock of Cayenta subsequent to such initial public
offering, (d) a spin-off of the remaining Capital Stock of Cayenta owned by
the Borrower to the shareholders of the Borrower subsequent to Cayenta's
initial public offering so long as (i) the Total Debt to EBITDA Ratio does
not exceed 3.00:1:00 (calculated on a PRO FORMA basis) at the time of such
spin-off and (ii) at the time of such spin-off, no Default shall have
occurred and be continuing or be caused thereby, both before and after giving
effect to such spin-off (with financial covenants to be calculated on a
historical and a PRO FORMA basis after giving effect to such spin-off), or
(e) of assets having an aggregate fair market value not in excess of
$10,000,000 in any Fiscal Year or $40,000,000 over the term of this Agreement
so long as the Borrower complies with SECTION 3.1(c).
Section 8.11 MODIFICATION OF CERTAIN AGREEMENTS. The Borrower
will not, and will not permit any of its Restricted Subsidiaries to, consent to
any amendment, supplement, waiver or other modification of, or enter into any
forbearance from exercising any rights with respect to the terms or provisions
contained in,
(a) the Sub Debt Documents or the HIGH TIDES
Documents, other than (i) pursuant to the remarketing provisions contained in
the HIGH TIDES Documents or (ii) any amendment, supplement, waiver or
modification which (x) extends the date or reduces the amount of any required
repayment, prepayment or redemption of the principal of such Subordinated Debt
or the liquidation value of the HIGH TIDES, (y) reduces the rate or extends the
date of payment of the interest, premium (if any) or fees payable on such
Subordinated Debt or the distributions payable on the HIGH TIDES, or (z) makes
the covenants, events of default or remedies in such Sub Debt Documents or HIGH
TIDES Documents less restrictive on the Borrower or Titan Capital Trust; or
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(b) each purchase agreement pursuant to which a
Permitted Acquisition occurs (including, without limitation, the ACS Acquisition
Agreement); or
(c) the Borrower's or any Restricted
Subsidiary's Organic Documents to the extent that any such change would be
adverse to the interests of the Secured Parties.
Section 8.12 TRANSACTIONS WITH AFFILIATES. The Borrower will
not, and will not permit any of its Restricted Subsidiaries to, enter into or
cause or permit to exist any arrangement or contract (including for the
purchase, lease or exchange of property or the rendering of services) with any
of its other Affiliates, unless such arrangement or contract (i) is on fair and
reasonable terms no less favorable to the Borrower or such Restricted Subsidiary
than it could obtain in an arm's-length transaction with a Person that is not an
Affiliate and (ii) is of the kind which would be entered into by a prudent
Person in the position of the Borrower or such Restricted Subsidiary with a
Person that is not one of its Affiliates.
Section 8.13 RESTRICTIVE AGREEMENTS, ETC. The Borrower will
not, and will not permit any of its Restricted Subsidiaries to, enter into any
agreement prohibiting
(a) the creation or assumption of any Lien upon
its properties, revenues or assets, whether now owned or hereafter acquired;
(b) the ability of any Obligor to amend or
otherwise modify this Agreement or any other Loan Document; or
(c) the ability of any Restricted Subsidiary to
make any payments, directly or indirectly, to the Borrower, including by way of
dividends, advances, repayments of loans, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on investments.
The foregoing prohibitions shall not apply to restrictions contained in this
Agreement and any other Loan Document.
Section 8.14 SALE AND LEASEBACK. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly
enter into any agreement or arrangement providing for the sale or transfer by it
of any property (now owned or hereafter acquired) to a Person and the subsequent
lease or rental of such property or other similar property from such Person
involving an amount of sale proceeds in excess of $5,000,000 per transaction or
series of related transactions. The Net Proceeds of such sale and leaseback
shall be applied by the Borrower pursuant to SECTION 3.1(c).
Section 8.15 INDEBTEDNESS OF FOREIGN SUBSIDIARIES. The
Borrower will not permit any of its direct or indirect Foreign Subsidiaries to
create, incur, assume or permit to exist any Indebtedness in excess of
$10,000,000 in the aggregate at any one time outstanding, other
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than any such Indebtedness which is non-recourse to the Borrower or any of
its U.S. or Foreign Subsidiaries.
Section 8.16 RESTRICTIONS ON TITAN CAPITAL TRUST.
Notwithstanding anything herein to the contrary, the Borrower shall not permit
Titan Capital Trust to engage in any business or conduct any activities other
than as permitted under the Declaration of Trust.
ARTICLE IX
EVENTS OF DEFAULT
Section 9.1 EVENTS OF DEFAULT. Each of the following events or
occurrences described in this Article shall constitute an "EVENT OF DEFAULT".
(a) NON-PAYMENT OF OBLIGATIONS. The Borrower
shall default in the payment or prepayment when due of
(i) any principal of or interest on any
Loan, or any Reimbursement Obligation or any deposit of cash for
collateral purposes pursuant to SECTION 2.11(E); or
(ii) any fee described in ARTICLE III or
any other monetary Obligation and such default shall continue
unremedied for a period of three days (including one Business Day)
after such amount was due.
(b) BREACH OF WARRANTY. Any representation or
warranty of any Obligor made or deemed to be made in any Loan Document
(including any certificates delivered pursuant to ARTICLE V) is or shall be
incorrect (i) in any respect when made or deemed to have been made (with respect
to representations and warranties qualified by materiality or a Material Adverse
Effect) or (ii) in any material respect when made or deemed to have been made
(with respect to all other representations or warranties).
(c) NON-PERFORMANCE OF CERTAIN COVENANTS AND
OBLIGATIONS. The Borrower shall default in the due performance or observance of
any of its obligations under SECTION 7.1, SECTION 7.8 or ARTICLE VIII or any
Obligor shall default in the due performance or observance of its obligations
under (i) Articles III or IV of the Subsidiary Guaranty, (ii) Articles III or IV
of a Security Agreement, or (iii) Articles III or IV of a Pledge Agreement.
(d) NON-PERFORMANCE OF OTHER COVENANTS AND
OBLIGATIONS. Any Obligor shall default in the due performance and observance of
any other agreement contained herein or in any other Loan Document executed by
it, and such default shall continue unremedied for a period of 30 days after
notice thereof shall have been given to the Borrower by the Administrative Agent
or any Lender.
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(e) DEFAULT ON OTHER INDEBTEDNESS. A default
shall occur in the payment when due (subject to any applicable grace period),
whether by acceleration or otherwise, of any Indebtedness (including for
purposes of this SECTION 9.1(e), all items which, in accordance with GAAP, would
be included as liabilities on the liability side of the balance sheet of a
Person as of the date at which Indebtedness is to be determined, but excluding
Indebtedness described in SECTION 9.1(a)) of the Borrower or any of its
Subsidiaries (other than Cayenta Post IPO) or any other Obligor having a
principal amount, individually or in the aggregate, in excess of $5,000,000, or
a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or such default shall continue
unremedied for any applicable period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent for such holders, to cause
or declare such Indebtedness to become due and payable or to require such
Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer
to purchase or defease such Indebtedness to be made, prior to its expressed
maturity.
(f) JUDGMENTS. Any judgment or order for the
payment of money in excess of $4,000,000 (exclusive of any amounts fully
covered by insurance (less any applicable deductible) and as to which the
insurer has acknowledged its responsibility to cover such judgment or order)
shall be rendered against the Borrower or any of its Subsidiaries (other than
Cayenta Post IPO) or any other Obligor and such judgment shall not have been
vacated or discharged or stayed or bonded pending appeal within 30 days after
the entry thereof.
(g) PENSION PLANS. Any of the following events
shall occur with respect to any Pension Plan
(i) the institution of any steps by the
Borrower, any member of its Controlled Group or any other Person to
terminate a Pension Plan if, as a result of such termination, the
Borrower or any such member could be required to make a contribution to
such Pension Plan, or could reasonably expect to incur a liability or
obligation to such Pension Plan, in excess of $1,000,000; or
(ii) a contribution failure occurs with
respect to any Pension Plan sufficient to give rise to a Lien under
section 302(f) of ERISA.
(h) CHANGE IN CONTROL. Any Change in Control
shall occur.
(i) BANKRUPTCY, INSOLVENCY, ETC. The Borrower,
any of its Restricted Subsidiaries, any other Significant Subsidiary (other than
Cayenta Post IPO) or any other Obligor shall
(i) become insolvent or generally fail
to pay, or admit in writing its inability or unwillingness generally to
pay, debts as they become due;
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(ii) apply for, consent to, or acquiesce
in the appointment of a trustee, receiver, sequestrator or other
custodian for any substantial part of the property of any thereof, or
make a general assignment for the benefit of creditors;
(iii) in the absence of such application,
consent or acquiescence, permit or suffer to exist the appointment of a
trustee, receiver, sequestrator or other custodian for a substantial
part of the property of any thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 60 days;
PROVIDED, that the Borrower, each Subsidiary (other than Cayenta Post
IPO) and each other Obligor hereby expressly authorizes each Secured
Party to appear in any court conducting any relevant proceeding during
such 60-day period to preserve, protect and defend their rights under
the Loan Documents;
(iv) permit or suffer to exist the
commencement of any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law or
any dissolution, winding up or liquidation proceeding, in respect
thereof, and, if any such case or proceeding is not commenced by the
Borrower, any Subsidiary (other than Cayenta Post IPO) or any
Obligor, such case or proceeding shall be consented to or acquiesced
in by the Borrower, such Subsidiary or such Obligor, as the case may
be, or shall result in the entry of an order for relief or shall
remain for 60 days undismissed; PROVIDED, that the Borrower, each
Subsidiary (other than Cayenta Post IPO) and each Obligor hereby
expressly authorizes each Secured Party to appear in any court
conducting any such case or proceeding during such 60-day period to
preserve, protect and defend their rights under the Loan Documents;
or
(v) take any action authorizing, or in
furtherance of, any of the foregoing.
(j) IMPAIRMENT OF SECURITY, ETC. Any Loan
Document or any Lien granted thereunder shall (except in accordance with its
terms), in whole or in part, terminate, cease to be effective or cease to be the
legally valid, binding and enforceable obligation of any Obligor party thereto;
any Obligor or any other party shall, directly or indirectly, contest in any
manner such effectiveness, validity, binding nature or enforceability; or,
except as permitted under any Loan Document, any Lien securing any Obligation
shall, in whole or in part, cease to be a perfected first priority Lien.
(k) FAILURE OF SUBORDINATION. Unless otherwise
waived or consented to by the Administrative Agent, the Lenders and the Issuers
in writing, the subordination provisions relating to any Subordinated Debt (the
"SUBORDINATION PROVISIONS") shall fail to be enforceable by the Administrative
Agent, the Lenders and the Issuers in accordance with the terms thereof, or the
monetary Obligations shall fail to constitute "Senior Indebtedness" or "Secured
Debt" (or
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similar term) referring to the Obligations; or the Borrower or any of its
Subsidiaries shall, directly or indirectly, disavow or contest in any manner
(i) the effectiveness, validity or enforceability of any of the Subordination
Provisions, (ii) that the Subordination Provisions exist for the benefit of
the Administrative Agent, the Lenders and the Issuers or (iii) that all
payments of principal of or premium and interest on the Subordinated Debt, or
realized from the liquidation of any property of any Obligor, shall be
subject to any of such Subordination Provisions.
(l) GOVERNMENT CONTRACTS. Any government
contract is terminated for default or any "show cause" letter is not ultimately
cured.
(m) ISSUANCE OF DEBENTURES TO HOLDERS OF HIGH
TIDES OR REDEMPTION. Any event occurs which, pursuant to the terms of the HIGH
TIDES Documents, requires the Borrower to dissolve Titan Capital Trust and issue
the Debentures directly to the holders of the HIGH TIDES or requires the
Borrower or Titan Capital Trust to redeem, prepay or offer to purchase the
Debentures or the HIGH TIDES (except as permitted by SECTION 8.6(d) and SECTION
8.7(d)(ii)).
(n) EVENT OF DEFAULT UNDER DECLARATION OF TRUST.
Any "Event of Default" as defined in the Declaration of Trust, or any event
which, with the passing of time or the giving of notice, or both, would
constitute an "Event of Default" as defined in the Declaration of Trust, occurs.
Section 9.2 ACTION IF BANKRUPTCY. If any Event of Default
described in SECTION 9.1(i) shall occur, the Commitments (if not theretofore
terminated) shall automatically terminate and the outstanding principal amount
of all outstanding Loans and all other Obligations (including Reimbursement
Obligations) shall automatically be and become immediately due and payable,
without presentment, protest, notice or demand (all of which are hereby
expressly waived by the Borrower) and the Borrower or any other Obligor shall
automatically and immediately be obligated to deposit with the Administrative
Agent cash collateral in an amount equal to all Letter of Credit Outstandings.
Section 9.3 ACTION IF OTHER EVENT OF DEFAULT. If any Event of
Default (other than any Event of Default described in SECTION 9.1(i)) shall
occur for any reason, whether voluntary or involuntary, and be continuing, the
Administrative Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations (including Reimbursement Obligations)
to be due and payable and/or the Commitments (if not theretofore terminated) to
be terminated, whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further presentment, protest, notice or
demand (all of which are hereby expressly waived by the Borrower) and/or, as the
case may be, the Commitments shall terminate and the Borrower and the Obligors
shall automatically and immediately be obligated to deposit with the
Administrative Agent cash collateral in an amount equal to all Letter of Credit
Outstandings.
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ARTICLE X
THE CREDIT AGENTS
Section 10.1 ACTIONS. Each Lender hereby appoints (a) CSFB
as its Administrative Agent, First Union Securities, Inc. as its Syndication
Agent and Scotiabank as its Documentation Agent under and for purposes of
this Agreement, the Notes and each other Loan Document, and (b) CSFB as its
Administrative Agent under and for purposes of the Collateral Documents. Each
Lender authorizes the Credit Agents to act on behalf of such Lender under
this Agreement, the Notes and each other Loan Document and, in the absence of
other written instructions from the Required Lenders received from time to
time by the Credit Agents (with respect to which the Credit Agents agree that
they will comply, except as otherwise provided in this Section or as
otherwise advised by counsel in order to avoid contravention of applicable
law), to exercise such powers hereunder and thereunder as are specifically
delegated to or required of the Credit Agents by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto.
Each Lender hereby indemnifies, to the extent not indemnifed by the Borrower
(which indemnity shall survive any termination of this Agreement), the Credit
Agents, PRO RATA according to such Lender's Total Percentage, from and
against any and all liabilities, obligations, losses, damages, claims, costs
or expenses of any kind or nature whatsoever which may at any time be imposed
on, incurred by, or asserted against, the Credit Agents in any way relating
to or arising out of this Agreement, the Notes and any other Loan Document,
including reasonable attorneys' fees, and as to which the Credit Agents are
not reimbursed by the Borrower; PROVIDED, HOWEVER, that no Lender shall be
liable for the payment of any portion of such liabilities, obligations,
losses, damages, claims, costs or expenses which are determined by a court of
competent jurisdiction in a final proceeding to have resulted from the Credit
Agents' gross negligence or wilful misconduct. The Credit Agents shall not be
required to take any action hereunder or under any other Loan Document, or to
prosecute or defend any suit in respect of this Agreement or any other Loan
Document, unless they are indemnified hereunder to their satisfaction. If any
indemnity in favor of the Credit Agents shall be or become, in the Credit
Agents' determination, inadequate, the Credit Agents may call for additional
indemnification from the Lenders and cease to do the acts indemnified against
hereunder until such additional indemnity is given; PROVIDED, HOWEVER, that
any such additional indemnity shall be in accordance with, and limited to,
such Lender's Total Percentage.
Section 10.2 FUNDING RELIANCE, ETC. Unless the Administrative
Agent shall have been notified by telephone, confirmed in writing, by any Lender
by 3:00 p.m., New York time, on the Business Day prior to a Borrowing that such
Lender will not make available the amount which would constitute its Percentage
of such Borrowing on the date specified therefor, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent and, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent that such Lender shall not have made
such amount available to the Administrative Agent, such Lender and the Borrower
severally agree to repay the
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Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date the Administrative Agent
made such amount available to the Borrower to the date such amount is repaid
to the Administrative Agent, at the interest rate applicable at the time to
Loans comprising such Borrowing (in the case of the Borrower) and (in the
case of a Lender), at the Federal Funds Rate for the first two Business Days
after which such amount has not been repaid, and thereafter at the interest
rate applicable to Loans comprising such Borrowing.
Section 10.3 EXCULPATION. Neither the Credit Agents nor any
of their directors, officers, employees or agents shall be liable to any
Lender for any action taken or omitted to be taken by them under this
Agreement or any other Loan Document, or in connection herewith or therewith,
except for their own wilful misconduct or gross negligence, nor responsible
for any recitals or warranties herein or therein, nor for the effectiveness,
enforceability, validity or due execution of this Agreement or any other Loan
Document, nor for the creation, perfection or priority of any Liens purported
to be created by any of the Loan Documents, or the validity, genuineness,
enforceability, existence, value or sufficiency of any collateral security,
nor to make any inquiry respecting the performance by the Borrower of its
obligations hereunder or under any other Loan Document. Any such inquiry
which may be made by the Credit Agents shall not obligate it to make any
further inquiry or to take any action. The Credit Agents shall be entitled to
rely upon advice of counsel concerning legal matters and upon any notice,
consent, certificate, statement or writing which the Credit Agents believe to
be genuine and to have been presented by a proper Person.
Section 10.4 SUCCESSOR. Any of the Credit Agents may resign
from its agency position at any time upon at least 30 days' prior notice to the
Borrower and all Lenders. If any of the Credit Agents at any time shall resign,
the Required Lenders may, upon at least 3 days' (so long as one of such days is
a Business Day) prior notice to the Borrower and all Lenders, appoint another
Lender as a successor Administrative Agent, Syndication Agent or Documentation
Agent, as appropriate, which shall thereupon become the Administrative Agent,
Syndication Agent or Documentation Agent, as appropriate, hereunder. If no
successor Administrative Agent, Syndication Agent or Documentation Agent, as
appropriate, shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Credit Agent's
giving notice of resignation, then the retiring Credit Agent may, on behalf of
the Lenders, upon at least 3 days' prior notice to the Borrower and all Lenders,
appoint a successor Administrative Agent, Syndication Agent or Documentation
Agent, as appropriate, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State thereof) or a
U.S. branch or agency of a commercial banking institution, and having (x) a
combined capital and surplus of at least $250,000,000 and (y) a credit rating of
AA or better by Moody's or a comparable rating by S&P; PROVIDED, HOWEVER, that
if, after expending all reasonable commercial efforts, such retiring Credit
Agent is unable to find a commercial banking institution which is willing to
accept such appointment and which meets the qualifications set forth in CLAUSE
(y) above, such retiring Credit Agent shall be permitted to appoint as its
successor from all available commercial banking institutions willing to accept
such appointment such institution having the highest credit rating of all such
available and willing
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institutions. Upon the acceptance of any appointment as such Credit Agent
hereunder by a successor Credit Agent, such successor Credit Agent shall be
entitled to receive from the retiring Credit Agent such documents of transfer
and assignment as such successor Credit Agent may reasonably request, and
shall thereupon succeed to and become vested with all rights, powers,
privileges and duties of the retiring Credit Agent, and the retiring Credit
Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Credit Agent's resignation hereunder as the
Credit Agent, the provisions of
(a) this ARTICLE X shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was a Credit Agent
under this Agreement; and
(b) SECTION 11.3 and SECTION 11.4 shall continue
to inure to its benefit.
Section 10.5 CREDIT EXTENSIONS BY THE CREDIT AGENTS. Each
of the Credit Agents, in its individual capacity, shall have the same rights
and powers with respect to (x) the Credit Extensions made by it or any of its
Affiliates, and (y) the Notes held by it or any of its Affiliates as any
other Lender and may exercise the same as if it were not a Credit Agent. Such
Credit Agent and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with the Borrower or any Subsidiary
or Affiliate of the Borrower as if such Credit Agent were not a Credit Agent
hereunder.
Section 10.6 CREDIT DECISIONS. Each Lender acknowledges that
it has, independently of the Credit Agents and each other Lender, and based on
such Lender's review of the financial information of the Borrower, this
Agreement, the other Loan Documents (the terms and provisions of which being
satisfactory to such Lender) and such other documents, information and
investigations as such Lender has deemed appropriate, made its own credit
decision to extend its Commitments. Each Lender also acknowledges that it will,
independently of the Credit Agents and each other Lender, and based on such
other documents, information and investigations as it shall deem appropriate at
any time, continue to make its own credit decisions as to exercising or not
exercising from time to time any rights and privileges available to it under
this Agreement or any other Loan Document.
Section 10.7 COPIES, ETC. Each Credit Agent shall give prompt
notice to each Lender of each notice or request required or permitted to be
given to such Credit Agent by the Borrower pursuant to the terms of this
Agreement (unless concurrently delivered to the Lenders by the Borrower). Such
Credit Agent will distribute to each Lender each document or instrument received
for its account and copies of all other communications received by such Credit
Agent from the Borrower for distribution to the Lenders by such Credit Agent in
accordance with the terms of this Agreement or any other Loan Document.
ARTICLE XI
MISCELLANEOUS PROVISIONS
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Section 11.1 WAIVERS, AMENDMENTS, ETC. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; PROVIDED, HOWEVER, that
no such amendment, modification or waiver shall:
(a) extend any Commitment Termination Date or
modify this SECTION 11.1 without the consent of all Lenders;
(b) increase any Commitment Amount, increase the
aggregate amount of any Lender's Percentage of any Commitment Amount, increase
the aggregate amount of any Loans required to be made by a Lender pursuant to
its Commitments or reduce any fees described in ARTICLE III payable to any
Lender without the consent of such Lender;
(c) extend the Stated Maturity Date for any
Lender's Loan, or reduce the principal amount of or rate of interest on any
Lender's Loan or extend the date on which interest or fees are payable in
respect of such Lender's Loans, in each case, without the consent of such Lender
(it being understood and agreed, however, that any vote to rescind any
acceleration made pursuant to SECTION 9.2 and SECTION 9.3 of amounts owing with
respect to the Loans and other Obligations shall only require the vote of the
Required Lenders);
(d) change the definition of "Required Lenders"
or any requirement hereunder that any particular action be taken by all Lenders
without the consent of all Lenders;
(e) increase the Stated Amount of any Letter of
Credit unless consented to by the Issuer of such Letter of Credit;
(f) release (i) any Guarantor from its
obligations under a Guaranty (except as contemplated under this Agreement with
respect to the Cayenta Group upon the issuance of shares in connection with the
initial public offering of Cayenta pursuant to the terms of the applicable
underwriting agreement) or (ii) all or substantially all of the collateral under
the Loan Documents, in either case without the consent of all Lenders as
expressly provided herein or therein;
(g) change any of the terms of CLAUSE (d) of
SECTION 2.4 or SECTION 2.8 without the consent of CSFB; or
(h) affect adversely the interests, rights or
obligations of the Administrative Agent (in its capacity as the Administrative
Agent), or any Issuer (in its capacity as Issuer), unless consented to by the
Administrative Agent or such Issuer, as the case may be.
Notwithstanding the foregoing, any technical amendments or
modifications to this Agreement required to give effect to the issuance of the
Term C Loan Commitment or the Term C Loans in accordance with SECTION 2.3(c)
shall only require the consent of the Administrative
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Agent, the Term C Loan Lenders and the Borrower. Any technical amendments or
modifications to this Agreement required to give effect to the increase, if
any, in the interest rate (and Applicable Margin) with respect to the Term B
Loans in accordance with SECTION 3.3(c) shall only require the consent of the
Administrative Agent, the Term B Loan Lenders and the Borrower.
No failure or delay on the part of the Administrative
Agent, any Issuer or any Lender in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or
right. No notice to or demand on the Borrower or any other Obligor in any
case shall entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by the Administrative Agent, any Issuer
or any Lender under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
Section 11.2 NOTICES. All notices and other communications
provided to any party hereto under this Agreement or any other Loan Document
shall be in writing or by facsimile and addressed, delivered or transmitted to
such party at its address or facsimile number set forth below its signature
hereto or set forth in the Lender Assignment Agreement or at such other address
or facsimile number as may be designated by such party in a notice to the other
parties. Any notice, if mailed and properly addressed with postage prepaid or if
properly addressed and sent by pre-paid courier service, shall be deemed given
when received; any notice, if transmitted by facsimile, shall be deemed given
when the confirmation of transmission thereof is received by the transmitter.
Section 11.3 PAYMENT OF COSTS AND EXPENSES. The Borrower
agrees to pay on demand all reasonable expenses of the Administrative Agent
(including the reasonable fees, costs and out-of-pocket expenses of counsel to
the Administrative Agent, special counsel to the Administrative Agent, and of
local counsel, if any, who may be retained by counsel to the Administrative
Agent) in connection with
(a) (i) the syndication efforts of CSFB and any
due diligence investigation; PROVIDED, HOWEVER, that the Borrower shall not pay
for expenses incurred in connection with assignments which occur 30 days after
the Closing Date and (ii) the negotiation, preparation, execution and delivery
and administration of this Agreement and of each other Loan Document, including
schedules and exhibits, and any amendments, waivers, consents, supplements or
other modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions contemplated
hereby or thereby are consummated; and
(b) the filing, recording, refiling or
rerecording of any Loan Document and/or any Uniform Commercial Code financing
statements relating thereto and all amendments,
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supplements, amendments and restatements and other modifications to any
thereof and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or rerecorded by the terms hereof
or the terms of any Loan Document; and
(c) the preparation and review of the form of
any document or instrument relevant to this Agreement or any other Loan
Document.
The Borrower further agrees to pay, and to save each Secured Party harmless
from all liability for, any stamp or other taxes which may be payable in
connection with the execution or delivery of this Agreement, the Credit
Extensions hereunder, or the issuance of the Notes, Letters of Credit or any
other Loan Documents. The Borrower also agrees to reimburse each Secured
Party upon demand for all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and legal expenses of counsel to each Secured
Party) incurred by such Secured Party in connection with (x) the negotiation
of any restructuring or "work-out" with the Borrower, whether or not
consummated, of any Obligations and (y) the enforcement of any Obligations.
Section 11.4 INDEMNIFICATION. In consideration of the
execution and delivery of this Agreement by each Secured Party, the Borrower
hereby indemnifies, exonerates and holds each Secured Party and each of their
respective officers, directors, employees and agents (collectively, the
"INDEMNIFIED PARTIES") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements, whether incurred in
connection with actions between or among the parties hereto or the parties
hereto and third parties (collectively, the "INDEMNIFIED LIABILITIES"), incurred
by the Indemnified Parties or any of them as a result of, or arising out of, or
relating to
(a) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of any Credit
Extension, including all Indemnified Liabilities arising in connection with
transactions contemplated hereby or by any other Loan Document or transactions
which are financed with proceeds of any Loan or which are supported by any
Letter of Credit;
(b) the entering into and performance of this
Agreement and any other Loan Document by any of the Indemnified Parties
(including any action brought by or on behalf of the Borrower as the result of
any determination by the Required Lenders pursuant to ARTICLE V not to fund any
Credit Extension);
(c) any investigation, litigation or proceeding
related to any acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person, whether
or not an Indemnified Party is party thereto;
(d) any investigation, litigation or proceeding
related to any environmental cleanup, audit, compliance or other matter relating
to Environmental Laws or the
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protection of the environment or the Release by the Borrower or any of its
Subsidiaries of any Hazardous Material;
(e) the presence on or under, or the Release or
threatened Release from, any real property owned or operated by the Borrower or
any Subsidiary thereof of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or arising
under any Environmental Law), regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary; or
(f) each Lender's Environmental Liability
(the indemnification herein shall survive repayment of the Notes and any
transfer of the property of the Borrower or any of its Subsidiaries by
foreclosure or by a deed in lieu of foreclosure for any Lender's
Environmental Liability, regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary);
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. The Borrower and its successors and assigns
hereby waive, release and agree not to make any claim or bring any cost recovery
action against, any Secured Party under CERCLA or any state equivalent, or any
similar law now existing or hereafter enacted. It is expressly understood and
agreed that to the extent that any of such Persons is strictly liable under any
Environmental Laws, the Borrower's obligation to such Person under this
indemnity shall likewise be without regard to fault on the part of the Borrower
with respect to the violation or condition which results in liability of such
Person. If and to the extent that the foregoing undertaking may be unenforceable
for any reason, the Borrower hereby agrees to make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
Section 11.5 SURVIVAL. The obligations of the Borrower under
SECTIONS 4.3, 4.4, 4.5, 4.6, 11.3 and 11.4, and the obligations of the Lenders
under SECTION 10.1, shall in each case survive any assignment from one Lender to
another (in the case of SECTIONS 11.3 and 11.4) and any termination of this
Agreement, the payment in full of all the Obligations and the termination of all
the Commitments. The representations and warranties made by the Borrower and
each other Obligor in this Agreement and in each other Loan Document shall
survive the execution and delivery of this Agreement and each such other Loan
Document.
Section 11.6 SEVERABILITY. Any provision of this Agreement or
any other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.7 HEADINGS. The various headings of this Agreement
and of each other Loan Document are inserted for convenience only and shall not
affect the meaning or interpretation of this Agreement or such other Loan
Document or any provisions hereof or thereof.
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Section 11.8 EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC.
This Agreement may be executed by the parties hereto in several counterparts,
each of which shall be an original and all of which shall constitute together
but one and the same agreement. This Agreement shall become effective when
counterparts hereof executed on behalf of the Borrower, the Administrative Agent
and each Lender (or notice thereof satisfactory to the Administrative Agent)
shall have been received by the Administrative Agent and notice thereof shall
have been given by the Administrative Agent to the Borrower and each Lender.
Section 11.9 GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT,
THE NOTES AND EACH OTHER LOAN DOCUMENT (INCLUDING PROVISIONS WITH RESPECT TO
INTEREST, LOAN CHARGES AND COMMITMENT FEES) SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF A SECURITY INTEREST OR MORTGAGE HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK. This Agreement, the Notes, the
other Loan Documents and the Fee Letter constitute the entire understanding
among the parties hereto with respect to the subject matter hereof and thereof
and supersede any prior agreements, written or oral, with respect thereto.
Section 11.10 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that:
(a) the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of the
Administrative Agent and all Lenders; and
(b) the rights of sale, assignment and transfer
of the Lenders are subject to SECTION 11.11.
Section 11.11 SALE AND TRANSFER OF LOANS AND NOTES;
PARTICIPATIONS IN LOANS AND NOTES. Each Lender may assign, or sell
participations in, its Loans, Letters of Credit and Commitments to one or more
other Persons in accordance with this SECTION 11.11.
(a) ASSIGNMENTS. Any Lender,
(i) with the consent of the Borrower
and the Administrative Agent (which consents shall not be unreasonably
delayed or withheld and, which consent, in the case of the Borrower,
shall not be required during the continuation of a Default) may at any
time assign and delegate to one or more commercial banks; other
financial institutions; special-purpose investment funds which are
organized for the specific purpose of making,
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acquiring participations in or investing in loans of the type made
pursuant to this Agreement; and funds that typically invest in bank
loans, and
(ii) upon notice to the Borrower and the
Administrative Agent, may assign and delegate to any of its Affiliates,
any other Lender or an Approved Fund
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "ASSIGNEE LENDER"), all or any fraction of such Lender's total Loans,
Letter of Credit Outstandings and Commitments in a minimum aggregate amount of
$2,500,000 (or, if less, the entire remaining amount of such Lender's Loans,
Letter of Credit Outstandings and Commitments) if such assignment is to a party
other than an Affiliate of the assignor Lender or an Approved Fund (for which
such Affiliate or Approved Fund, there is no minimum aggregate assignment amount
requirement). Each Obligor and the Administrative Agent shall be entitled to
continue to deal solely and directly with a Lender in connection with the
interests so assigned and delegated to an Assignee Lender until
(iii) notice of such assignment and
delegation, together with (1) payment instructions, (2) the Internal
Revenue Service Forms or other statements contemplated or required to
be delivered pursuant to SECTION 4.6, if applicable, and (3) addresses
and related information with respect to such Assignee Lender, shall
have been delivered to the Borrower and the Administrative Agent by
such assignor Lender and such Assignee Lender;
(iv) such Assignee Lender shall have
executed and delivered to the Borrower and the Administrative Agent a
Lender Assignment Agreement, accepted by the Administrative Agent; and
(v) the processing fees, if applicable,
described below shall have been paid.
From and after the date that the Administrative Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Administrative Agent has received and accepted an executed Lender Assignment
Agreement (and if requested by the Assignee Lender), but subject to CLAUSE (iii)
above, the Borrower shall execute and deliver to the Administrative Agent (for
delivery to the relevant Assignee Lender) a new Note evidencing such Assignee
Lender's assigned Loans and Commitments and, if the assignor Lender has retained
Loans and Commitments hereunder (and if requested by such Lender), a replacement
Note in the principal amount of the Loans and
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Commitments retained by the assignor Lender hereunder (such Note to be in
exchange for, but not in payment of, the Note then held by such assignor
Lender). Each such Note shall be dated the date of the predecessor Note. The
assignor Lender shall mark each predecessor Note "exchanged" and deliver each
of them to the Borrower. Accrued interest on that part of each predecessor
Note evidenced by a new Note, and accrued fees, shall be paid as provided in
the Lender Assignment Agreement. Accrued interest on that part of each
predecessor Note evidenced by a replacement Note shall be paid to the
assignor Lender. Accrued interest and accrued fees shall be paid at the same
time or times provided in the predecessor Note and in this Agreement. Such
assignor Lender or such Assignee Lender must also pay a processing fee in the
amount of $3,500 to the Administrative Agent upon delivery of any Lender
Assignment Agreement unless such Assignee Lender is an Affiliate of such
assignor Lender or an Approved Fund (for which, in any case, no processing
fee will be required). Notwithstanding any other term of this Section, the
agreement of CSFB to provide the Swing Line Loan Commitment shall not impair
or otherwise restrict in any manner the ability of CSFB to make any
assignment of its Loans or Commitments, it being understood and agreed that
CSFB may terminate its Swing Line Loan Commitment, either in whole or in
part, in connection with the making of any assignment so long as the assignee
has agreed to assume the Swing Line Loan Commitment. Any attempted assignment
and delegation not made in accordance with this SECTION 11.11(a) shall be
null and void. Notwithstanding anything to the contrary set forth above, (A)
any Lender may (without requesting the consent of the Borrower or the
Administrative Agent) pledge its Loans to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank, and (B) any
Lender that is a fund that invests in bank loans may (without the consent of
the Borrower or the Administrative Agent) pledge all or any portion of its
rights in connection with this Agreement to holders of obligations owed, or
securities issued, by such fund as security for such obligations or
securities, or to the trustee for, or other representative of, such holders,
PROVIDED, that any foreclosure or other exercise of remedies by such holder
or trustee shall be subject to the provisions of this Section regarding
assignments in all respects. No pledge described in the immediately preceding
CLAUSE (b) shall release such Lender from its obligations hereunder.
(vi) In the event that S&P or Moody's,
shall, after the date that any Person becomes a Lender, downgrade the
long-term certificate of deposit ratings of such Lender, and the
resulting ratings shall be below BBB- or Baa3, respectively, or the
equivalent, then the Borrower, the Swingline Lender and each Issuer
shall each have the right, but not the obligation, upon notice to such
Lender and the Administrative Agent, to replace such Lender with a
Replacement Lender acceptable to the Borrower and the Administrative
Agent (such consents not to be unreasonably withheld or delayed;
PROVIDED, that no such consent shall be required if the Replacement
Lender is an existing Lender), and upon any such downgrading of any
Lender's long-term certificate of deposit rating, each such Lender
hereby agrees to transfer and assign (in accordance with SECTION
11.11(A)) all of its Commitments, Loans, Notes and other rights and
obligations under this Agreement and all other Loan Documents
(including Reimbursement Obligations) to such Replacement Lender;
PROVIDED, HOWEVER, that (i) such assignment shall be without recourse,
representation or warranty
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(other than that such Lender owns the Commitments, Loans and Notes
being assigned, free and clear of any Liens) and (ii) the purchase
price paid by the Replacement Lender shall be in the amount of such
Lender's Loans and its Percentage of outstanding Reimbursement
Obligations, together with all accrued and unpaid interest and fees
in respect thereof, plus all other amounts (other than the amounts
(if any) demanded and unreimbursed under SECTIONS 4.2, 4.3, 4.5 and
4.6, which shall be paid by the Borrower), owing to such Lender
hereunder. Upon any such termination or assignment, such Lender
shall cease to be a party hereto but shall continue to be entitled
to the benefits of any provisions of this Agreement which by their
terms survive the termination of this Agreement.
(vii) Upon receipt by the Borrower of the
predecessor Note marked "canceled", the Borrower shall issue a
replacement Note or Notes, as the case may be, to such Replacement
Lender and such institution shall become a "Lender" for all purposes
under this Agreement and the other Loan Documents.
The Borrower hereby designates the Administrative Agent to serve as the
Borrower's agent, solely for the purpose of this Section, to maintain a register
(the "REGISTER") on which the Administrative Agent will record each Lender's
Commitment, the Loans made by each Lender and the Notes evidencing such Loans,
and each repayment in respect of the principal amount of the Loans of each
Lender and annexed to which the Administrative Agent shall retain a copy of each
Lender Assignment Agreement delivered to the Administrative Agent pursuant to
this Section. Failure to make any recordation, or any error in such recordation,
shall not affect the Borrower's or any other Obligor's Obligations in respect of
such Loans or Notes. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders shall treat each Person in whose name a Loan and related Note is
registered as the owner thereof for all purposes of this Agreement,
notwithstanding notice or any provision herein to the contrary. A Lender's
Commitment and the Loans made pursuant thereto and the Notes evidencing such
Loans may be assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer in the Register. Any assignment or
transfer of a Lender's Commitment or the Loans or the Notes evidencing such
Loans made pursuant thereto shall be registered in the Register only upon
delivery to the Administrative Agent of a Lender Assignment Agreement duly
executed by the assignor thereof. No assignment or transfer of a Lender's
Commitment or the Loans made pursuant thereto or the Notes evidencing such Loans
shall be effective unless such assignment or transfer shall have been recorded
in the Register by the Administrative Agent as provided in this Section.
(b) PARTICIPATIONS. Any Lender may sell to one
or more commercial banks, financial institutions, any of its Affiliates, a fund,
an Approved Fund or another Lender (each of such commercial banks, financial
institutions, any of its Affiliates, a fund, an Approved Fund and another Lender
being herein called a "PARTICIPANT") participating interests in any of the
Loans, Commitments, or other interests of such Lender hereunder; PROVIDED,
HOWEVER, that
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(i) no participation contemplated in
this SECTION 11.11(b) shall relieve such Lender from its Commitments or
its other obligations hereunder or under any other Loan Document;
(ii) such Lender shall remain solely
responsible for the performance of its Commitments and such other
obligations;
(iii) the Borrower and each other Obligor
and the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents;
(iv) no Participant, unless such
Participant is an Affiliate of such Lender or is itself a Lender, shall
be entitled to require such Lender to take or refrain from taking any
action hereunder or under any other Loan Document, except that such
Lender may agree with any Participant that such Lender will not,
without such Participant's consent, take any actions of the type
described in CLAUSE (a), (b), (f) or, to the extent requiring the
consent of each Lender, CLAUSE (c) of SECTION 11.1; and
(v) the Borrower shall not be required
to pay any amount under this Agreement that is greater than the amount
which it would have been required to pay had no participating interest
been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
SECTIONS 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 7.1, 11.3 and 11.4, shall be considered a
Lender. Each Participant shall only be indemnified for increased costs pursuant
to SECTION 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such
participating interest to such Participant is entitled to make, and does make, a
claim on the Borrower for such increased costs. Any Lender that sells a
participating interest in any Loan, Commitment or other interest to a
Participant under this SECTION 11.11(b) shall indemnify and hold harmless the
Borrower and the Administrative Agent from and against any taxes, penalties,
interest or other costs or losses (including reasonable attorneys' fees and
expenses) incurred or payable by the Borrower or the Administrative Agent as a
result of the failure of the Borrower or the Administrative Agent to comply with
its obligations to deduct or withhold any Taxes from any payments made pursuant
to this Agreement to such Lender or the Administrative Agent, as the case may
be, which Taxes would not have been incurred or payable if such Participant had
been a Non-U.S. Lender that was entitled to deliver to the Borrower, the
Administrative Agent or such Lender, and did in fact so deliver, a duly
completed and valid Form W-8BEN or W-8ECI (or applicable successor form)
entitling such Participant to receive payments under this Agreement without
deduction or withholding of any United States federal taxes.
Section 11.12 OTHER TRANSACTIONS. Nothing contained herein
shall preclude the Administrative Agent, any Issuer or any other Lender from
engaging in any transaction, in addition to those contemplated by this Agreement
or any other Loan Document, with the
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Borrower or any of its Affiliates in which the Borrower or such Affiliate is
not restricted hereby from engaging with any other Person.
Section 11.13 CONFIDENTIALITY. The Administrative Agent, the
Issuers and the Lenders shall hold all non-public information (which has been
identified as such by the Borrower or any of its Subsidiaries) provided to them
by the Borrower or any of its Subsidiaries pursuant to or in connection with
this Agreement in accordance with their customary procedures for handling
confidential information of this nature, but may make disclosure to any of their
examiners, regulators (including the National Association of Insurance
Commissioners), Affiliates, outside auditors, counsel and other professional
advisors in connection with this Agreement or any other Loan Document or as
reasonably required by any potential BONA FIDE transferee, participant or
assignee, or in connection with the exercise of remedies under a Loan Document,
or to any direct or indirect contractual conterparty in swap agreements or such
contractual counterparty's professional advisor (so long as such contractual
conterparty or professional advisor to such contractual counterparty agrees to
be bound by the provisions of this SECTION 11.13), or to any nationally
recognized rating agency that requires access to information about a Lender's
investment portfolio in connection with ratings issued with respect to such
Lender, or as requested by any governmental agency or representative thereof or
pursuant to legal process; PROVIDED, HOWEVER, that unless specifically
prohibited by applicable law or court order, the Administrative Agent, the
Issuers and each Lender shall use reasonable efforts to promptly notify the
Borrower of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of the Administrative Agent, the Issuers or such Lender by such
governmental agency) for disclosure of any such non-public information and,
where practicable, prior to disclosure of such information; PROVIDED, HOWEVER,
that none of the Administrative Agent, the Issuers or the Lenders shall be
liable to the Borrower if any such Person fails to provide such notice; prior to
any such disclosure pursuant to this SECTION 11.13, the Administrative Agent,
the Issuers and each Lender shall require any such BONA FIDE transferee,
participant and assignee receiving a disclosure of non-public information to
agree, for the benefit of the Borrower and its Subsidiaries, in writing to be
bound by this SECTION 11.13; and to require such Person to require any other
Person to whom such Person discloses such non-public information to be similarly
bound by this SECTION 11.13; and except as may be required by an order of a
court of competent jurisdiction and to the extent set forth therein, no Lender
shall be obligated or required to return any materials furnished by the Borrower
or any of its Subsidiaries.
Section 11.14 FORUM SELECTION AND CONSENT TO JURISDICTION.
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE
ADMINISTRATIVE AGENT, THE LENDERS, ANY ISSUER OR THE BORROWER IN CONNECTION
HEREWITH OR THEREWITH SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT
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AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY IRREVOCABLY
APPOINTS CSC UNITED STATES CORPORATION COMPANY (THE "PROCESS AGENT"), WITH AN
OFFICE ON THE DATE HEREOF AT 375 HUDSON STREET, NEW YORK, NEW YORK 10014, AS
ITS AGENT TO RECEIVE, ON ITS BEHALF AND ON BEHALF OF ITS PROPERTY, SERVICE OF
COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED
IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR
DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER IN CARE OF THE PROCESS
AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE BORROWER HEREBY
IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE
ON ITS BEHALF. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 11.2.
THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO
THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT
IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW
SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
Section 11.15 WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT,
EACH LENDER, EACH ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDER, SUCH ISSUER OR THE
BORROWER IN CONNECTION HEREWITH OR THEREWITH. THE BORROWER ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
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ADMINISTRATIVE AGENT, EACH LENDER AND EACH ISSUER ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
106
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
THE TITAN CORPORATION
By:
-------------------------------------------------
Dr. Gene W. Ray
Chairman, President and Chief Executive Officer
Address: 3033 Science Park Road
San Diego, CA 92121
Facsimile No.: (619) 552-9759
Attention: General Counsel
<PAGE>
CREDIT SUISSE FIRST BOSTON,
as the Administrative Agent
By:
-------------------------------------------------
Thomas G. Muoio
Vice President
By:
-------------------------------------------------
Name:
Title:
Address: Eleven Madison Avenue
New York, New York 10010
Facsimile No.: (212) 325-8304
Attention: Mark Callahan
<PAGE>
FIRST UNION SECURITIES, INC.,
as the Syndication Agent
By:
-------------------------------------------------
Name:
Title:
Address: 301 South College Street
Charlotte, NC 28288
Facsimile No.:
Attention:
<PAGE>
THE BANK OF NOVA SCOTIA,
as the Documentation Agent
By:
-------------------------------------------------
Name:
Title:
Address: 580 California Street
Suite 2100
San Francisco, CA 94109
Facsimile No.: (415) 616-4170
Attention: Chris Osborne
<PAGE>
LENDERS: BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
-------------------------------------------------
Patrick J. Rounds
Vice President
By:
-------------------------------------------------
Name:
Title:
Address: 50 California Street
Suite 3005
San Francisco, CA 94111
Facsimile No.: (415) 781-0622
Attention: Patrick Rounds
<PAGE>
THE BANK OF NOVA SCOTIA
By:
-------------------------------------------------
Name:
Title:
Address: 580 California Street
Suite 2100
San Francisco, CA 94109
Telephone No.: (415) 616-4170
Attention: Chris Osborne
<PAGE>
BANK POLSKA KASA OPIEKI S.A.,
NEW YORK BRANCH
By:
-------------------------------------------------
Harvey Winter
Vice President
Address: 470 Park Avenue South
15th Floor
New York, NY 10016
Facsimile No.: (212) 679-5910
Attention: Harvey Winter
<PAGE>
COMERICA BANK
By:
-------------------------------------------------
Bonnie E. Kehe
Title:
Address: 611 Anton Boulevard
2nd Floor
Costa Mesa, CA 92626
Facsimile No.: (714) 424-3857
Attention: Craig Nelson
<PAGE>
CREDIT SUISSE FIRST BOSTON,
By:
-------------------------------------------------
Name: Thomas G. Muoio
Title: Vice President
By:
-------------------------------------------------
Name:
Title:
Address: Eleven Madison Avenue
New York, New York
10010
Facsimile No.: (212) 325-8304
Attention: Mark Callahan
<PAGE>
ERSTE BANK
By:
-------------------------------------------------
David Manheim
Title:
By:
-------------------------------------------------
Name:
Title:
Address: 280 Park Avenue
West Building, 32nd Floor
New York, NY 10017
Facsimile No.: (212) 984-5627
Attention: David Manheim
<PAGE>
FIRST UNION NATIONAL BANK
By:
-------------------------------------------------
Name:
Title:
Address: 301 South College Street
Charlotte, NC 28288
Facsimile No.:
Attention: James Zilisch
<PAGE>
FLEET NATIONAL BANK
By:
-------------------------------------------------
Jeffrey Lynch
Title
Address: 100 Federal Street
Boston, MA 02110
Facsimile No.: (617) 434-0601
Attention: Jeffrey Lynch
<PAGE>
FRANKLIN FLOATING RATE TRUST
By:
-------------------------------------------------
Name:
Title
Address: 777 Mariners Island Boulevard
San Mateo, CA 94404
Facsimile No.: (650) 312-3346
Attention: Matthew Gregory
<PAGE>
IBM CREDIT CORPORATION
By:
-------------------------------------------------
Ronald J. Bachner
Title:
Address: North Castle Drive
Armonk, NY 10504
Facsimile No.: (914) 765-6271
Attention: Stephen Santini
<PAGE>
IMPERIAL BANK
By:
-------------------------------------------------
Michael Berrier
Senior Vice President
Address: 701 B Street
Suite 600
San Diego, CA 92101
Facsimile No.: (619) 234-2234
Attention: Michael Berrier
<PAGE>
KEY BANK NATIONAL ASSOCIATION.
By:
-------------------------------------------------
Name:
Title:
Address: 700 Fifth Avenue
Seattle, WA 98104
Facsimile No.: (206) 684-6085
Attention: Mary K. Young
<PAGE>
METROPOLITAN LIFE INSURANCE
COMPANY
By:
-------------------------------------------------
Name:
Title:
Address: 334 Madison Avenue
P.O. Box 633
Convent Station, NJ 07961-0633
Facsimile No.: (973) 254-3032
Attention: Frank Monfalcone
<PAGE>
NATIONAL CITY BANK
By:
-------------------------------------------------
Wilmer J. Jacobs
Title:
Address: 1900 East Ninth Street
Cleveland, OH 44114-3484
Facsimile No.: (216) 222-0003
Attention: Wilmer J. Jacobs
<PAGE>
OPPENHEIMER SENIOR FLOATING
RATE FUND
By:
-------------------------------------------------
David J. Foxhoven
Assistant Vice President
Address: 6803 South Tucson Way
Englewood, CO 80112-3924
Facsimile No.: (303) 763-3434
Attention: Joe Welsh
<PAGE>
PRINCIPAL LIFE INSURANCE COMPANY
BY: PRINCIPAL CAPITAL MANAGEMENT, LLC
A DELAWARE LIMITED LIABILITY COMPANY
ITS AUTHORIZED SIGNATORY
By:
-------------------------------------------------
Name:
Title
By:
-------------------------------------------------
Name:
Title
Address: 801 Grand Avenue
Des Moines, IA 50392-0800
Facsimile No.: (515) 248-2490
Attention: William Lowry
<PAGE>
SANWA BANK CALIFORNIA
By:
-------------------------------------------------
Larry D. Hart
Vice President
Address: 1280 Fourth Avenue
2nd Floor
San Diego, CA 92101
Facsimile No.: (619) 595-1918
Attention: Larry D. Hart
<PAGE>
KZH SOLEIL-2 LLC
By:
-------------------------------------------------
Name:
Title
Address: c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Facsimile No.: (212) 946-7776
Attention: Virginia Conway
<PAGE>
KZH SHOSHONE LLC
By:
-------------------------------------------------
Name:
Title
Address: c/o The Chase Manhattan Bank
450 West 33rd Street - 15th Floor
New York, New York 10001
Facsimile No.: (212) 946-7776
Attention: Virginia Conway
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:
-------------------------------------------------
Perry Vavoules
Senior Vice President
Address: 555 Theodore Fremd Avenue
Suite C-301
Rye, NY 10580
Facsimile No.: (914) 921-9072
Attention: Michael Kerneklian
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE TO CREDIT AGREEMENT
ITEM 6.1 Organization.
ITEM 6.3 Governmental Approval, Regulation.
ITEM 6.7 Litigation.
ITEM 6.8 Existing Subsidiaries.
ITEM 6.11 Employee Benefit Plans.
ITEM 6.12 Environmental Matters.
ITEM 8.2 Outstanding Indebtedness.
CREDITOR OUTSTANDING PRINCIPAL AMOUNT
-------- ----------------------------
ITEM 8.3 Ongoing Liens.
ITEM 8.5 Ongoing Investments.
ITEM 8.8 Options and Warrants.
<PAGE>
SCHEDULE II
PERCENTAGES;
LIBO OFFICE;
DOMESTIC OFFICE
<TABLE>
<CAPTION>
PERCENTAGES
-------------------------------------------------------------
REVOLVING MULTI-DRAW
NAME AND NOTICE DOMESTIC LOAN TERM B LOAN TERM LOAN AGGREGATE
ADDRESS OF LENDER LIBO OFFICE OFFICE COMMITMENT COMMITMENT COMMITMENT COMMITMENT
- ----------------- ----------- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Credit Suisse First Boston Same as Same as 9.14285714% 70.0% 9.14285714% 31.27272727%
Eleven Madison Avenue Notice Notice
New York, New York Address Address
10010
The Bank of Nova Scotia Same as Same as 8.57142857% 0% 8.57142857% 5.45454545%
Atlanta Agency Notice Notice
600 Peachtree Street, N.E. Address Address
Suite 2700
Atlanta, GA 30308
Attn: Eudia Smith
First Union National Bank Same as Same as 8.57142857% 3.0% 8.57142857% 5.45454545%
1970 Chain Bridge Road Notice Notice
9th Floor Address Address
South Tower
McLean, VA 33166
Attn: Jeff McGrath
Comerica Bank Same as Same as 8.0% 0% 8.0% 5.09090909%
611 Anton Boulevard Notice Notice
2nd Floor Address Address
Costa Mesa, CA 92626
Bank Polska Kasa Opieki, Same as Same as 2.85714286% 0% 2.857142856% 1.81818182%
S.A., New York Branch Notice Notice
470 Park Avenue South Address Address
15th Floor
New York, NY 10016
<PAGE>
<CAPTION>
PERCENTAGES
-------------------------------------------------------------
REVOLVING MULTI-DRAW
NAME AND NOTICE DOMESTIC LOAN TERM B LOAN TERM LOAN AGGREGATE
ADDRESS OF LENDER LIBO OFFICE OFFICE COMMITMENT COMMITMENT COMMITMENT COMMITMENT
- ----------------- ----------- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
National City Bank Same as Same as 8.0% 0% 8.0% 5.09090909%
1900 East Ninth Street Notice Notice
Cleveland, OH 44114- Address Address
3484
TransAmerica Business Same as Same as 8.0% 0% 8.0% 5.09090909%
Credit Corporation Notice Notice
555 Theodore Fremd Address Address
Avenue
Suite C-301
Rye, NY 10580
Erste Bank Same as Same as 4.57142857% 0% 4.57142857% 2.90909091%
280 Park Avenue Notice Notice
West Building, 32nd Floor Address Address
New York, NY 10017
Fleet National Bank Same as Same as 8.0% 0% 8.0% 5.09090909%
100 Federal Street Notice Notice
Boston, MA 02110 Address Address
Key Bank National Same as Same as 8.0% 0% 8.0% 5.09090909%
Association Notice Notice
700 Fifth Avenue Address Address
Seattle, WA 98104
IBM Credit Corporation 5000 Executive Same as LIBO 8.0% 0% 8.0% 5.09090909%
North Castle Drive Parkway Office
Armonk, NY 10504 Suite 450
P.O. Box 5157
San Ramon, CA
94583
Imperial Bank Same as Same as 8.0% 0% 8.0% 5.09090909%
701 B Street Notice Notice
Suite 600 Address Address
San Diego, CA 92101
<PAGE>
<CAPTION>
PERCENTAGES
-------------------------------------------------------------
REVOLVING MULTI-DRAW
NAME AND NOTICE DOMESTIC LOAN TERM B LOAN TERM LOAN AGGREGATE
ADDRESS OF LENDER LIBO OFFICE OFFICE COMMITMENT COMMITMENT COMMITMENT COMMITMENT
- ----------------- ----------- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bank Austria Creditanstalt Same as Same as 5.71428571% 0% 5.71428571% 3.63636364%
Corporate Finance, Inc. Notice Notice
50 California Street Address Address
Suite 3005
San Francisco, CA 94111
Sanwa Bank California Same as Same as 4.57142857% 0% 4.57142857% 2.90909091%
1280 Fourth Avenue Notice Notice
2nd Floor Address Address
San Diego, CA 92101
Oppenheimer Senior Same as Same as 0% 2.5% 0% 0.90909091%
Floating Rate Fund Notice Notice
6803 South Tucson Way Address Address
Englewood, CO 80112-
3924
Franklin Floating Rate Same as Same as 0% 7.0% 0% 1.81818182%
Trust Notice Notice
777 Mariners Island Address Address
Boulevard
San Mateo, CA 94404
Metropolitan Life Same as Same as 0% 5.0% 0% 1.81818182%
Insurance Company Notice Notice
334 Madison Avenue Address Address
P.O. Box 633
Convent Station, NJ
07961-0633
KZH Soleil-2 LLC Same as Same as 0% 5.0% 0% 1.81818182%
c/o The Chase Manhattan Notice Notice
Bank Address Address
450 West 33rd Street - 15th
Floor
New York, NY 10001
KZH Shoshone LLC Same as Same as 0% 2.5% 0% 0.90909091%
c/o The Chase Manhattan Notice Notice
Bank Address Address
450 West 33rd Street - 15th
Floor
New York, NY 10001
<PAGE>
<CAPTION>
PERCENTAGES
-------------------------------------------------------------
REVOLVING MULTI-DRAW
NAME AND NOTICE DOMESTIC LOAN TERM B LOAN TERM LOAN AGGREGATE
ADDRESS OF LENDER LIBO OFFICE OFFICE COMMITMENT COMMITMENT COMMITMENT COMMITMENT
- ----------------- ----------- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Principal Life Insurance Same as Same as 0% 5.0% 0% 1.81818182%
Company Notice Notice
801 Grand Avenue Address Address
Des Moines, IA 50392-
0800
</TABLE>
<PAGE>
SCHEDULE III
SYNERGIES
<TABLE>
<CAPTION>
ACQUISITIONS OF ASSIST AND MAINSAVER EBITDA
- ------------------------------------ ------
<S> <C>
For the twelve months ended March 31, 2000 $1,900,000
For the twelve months ended June 30, 2000 $1,425,000
For the twelve months ended September 30, 2000 $950,000
For the twelve months ended December 31, 2000 $475,000
For all periods thereafter $0
ACS ACQUISITION
- ---------------
For the twelve months ended the last day of FQ1* $3,000,000
For the twelve months ended the last day of FQ2* $2,225,000
For the twelve months ended the last day of FQ3* $1,500,000
For the twelve months ended the last day of FQ4* $750,000
For all periods thereafter $0
ACQUISITION OF LINCOM
- ---------------------
For the twelve months ended the last day of FQ1* $500,000
For the twelve months ended the last day of FQ2* $375,000
For the twelve months ended the last day of FQ3* $250,000
For the twelve months ended the last day of FQ4* $125,000
For all periods thereafter $0
<PAGE>
ACQUISITION OF ACQUISITION TWO
- ------------------------------
For the twelve months ended the last day of FQ1* $1,100,000
For the twelve months ended the last day of FQ2* $825,000
For the twelve months ended the last day of FQ3* $550,000
For the twelve months ended the last day of FQ4* $275,000
For all periods thereafter $0
</TABLE>
* FQ1 means the Fiscal Quarter during which the acquisition occurred.
* FQ2 means the Fiscal Quarter following FQ1.
* FQ3 means the Fiscal Quarter following FQ2.
* FQ4 means the Fiscal Quarter following FQ3.
<PAGE>
EXHIBIT A-1
REVOLVING NOTE
$[ ] February ___, 2000
FOR VALUE RECEIVED, the undersigned, THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to the order of [Name of Lender]
and its registered assigns (the "REVOLVING LENDER") on the Stated Maturity Date
for all Revolving Loans, the principal sum of [
] DOLLARS ($[ ]) or, if less, the aggregate unpaid principal
amount of all Revolving Loans made by the Revolving Lender pursuant to that
certain Senior Secured Credit Agreement, dated as of February __, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among the Borrower, the various financial institutions
(including the Revolving Lender) as are or may become parties thereto
(collectively, the "LENDERS"), Credit Suisse First Boston, as administrative
agent for the Lenders ("ADMINISTRATIVE AGENT"), First Union Securities, Inc., as
Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent. Unless
otherwise defined, terms used herein have the meanings provided in the Credit
Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement. Payments of
both principal and interest are to be made in lawful money of the United States
of America in same day or immediately available funds to the account designated
by the Administrative Agent pursuant to the Credit Agreement.
This Revolving Note is one of the Revolving Notes referred to in, and
evidences Obligations incurred under, the Credit Agreement, to which reference
is made for a description of the security for this Revolving Note and for a
statement of the terms and conditions on which the Borrower is permitted and
required to make prepayments and repayments of principal of the Obligations
evidenced by this Revolving Note and on which such Obligations may be declared
to be immediately due and payable.
The Borrower hereby irrevocably authorizes the Revolving Lender to make (or
cause to be made) appropriate notations on the grid attached hereto (or on any
continuation of such grid), which notations, if made, shall evidence, inter
alia, the date of and the outstanding principal of, the Revolving Loans
evidenced hereby. Such notations shall be rebuttable presumptive evidence of
the accuracy of the information so set forth; provided, however, that the
failure of the Revolving Lender to make any such notations shall not limit or
otherwise affect any Obligations of the Borrower.
-1-
<PAGE>
Any assignment or transfer of this Revolving Note shall be effective solely
by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS REVOLVING NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSES SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK).
THE TITAN CORPORATION
By:
---------------------------
Name:
Title:
-2-
<PAGE>
REVOLVING LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Revolving Amount of Principal Unpaid Principal
Loan Made Repaid Balance
------------------- ------------------- ----------------
Interest
Alternate LIBO Period Alternate LIBO Alternate LIBO Total Notation
Date Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Made By
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-2
SWING LINE NOTE
$10,000,000 February __, 2000
FOR VALUE RECEIVED, the undersigned, THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to the order of CREDIT SUISSE
FIRST BOSTON and its registered assigns (the "SWING LINE LENDER") on the Stated
Maturity Date for all Revolving Loans, the principal sum of TEN MILLION DOLLARS
($10,000,000) or, if less, the aggregate unpaid principal amount of all Swing
Line Loans made by the Swing Line Lender pursuant to that certain Senior Secured
Credit Agreement, dated as of February __, 2000 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the Borrower, the various financial institutions (including the Swing Line
Lender) as are or may become parties thereto (collectively, the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (the
"ADMINISTRATIVE AGENT"), First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent. Unless otherwise defined,
terms used herein have the meanings provided in the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement. Payments of
both principal and interest are to be made in lawful money of the United States
of America in same day or immediately available funds to the account designated
by the Administrative Agent pursuant to the Credit Agreement.
This Swing Line Note is the Swing Line Note referred to in, and evidences
Obligations incurred under, the Credit Agreement, to which reference is made for
a description of the security for this Swing Line Note and for a statement of
the terms and conditions on which the Borrower is permitted and required to make
prepayments and repayments of principal of the Obligations evidenced by this
Swing Line Note and on which such Obligations may be declared to be immediately
due and payable.
The Borrower hereby irrevocably authorizes the Swing Line Lender to make
(or cause to be made) appropriate notations on the grid attached hereto (or on
any continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of and the outstanding principal of, the Swing Line Loans
evidenced hereby. Such notations shall be rebuttable presumptive evidence of
the accuracy of the information so set forth; PROVIDED, HOWEVER, that
-1-
<PAGE>
the failure of the Swing Line Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower.
Any assignment or transfer of this Swing Line Note shall be effective
solely by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS SWING LINE NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSES SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK).
THE TITAN CORPORATION
By
------------------------------
Name:
Title:
-2-
<PAGE>
SWING LINE LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Amount of Unpaid
Swing Line Principal Principal Notation
Date Loan Made Repaid Balance Total Made By
========================================================================================
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-3
TERM B NOTE
$_________ February __, 2000
FOR VALUE RECEIVED, the undersigned, THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to the order of [Name of Lender]
and its registered assigns (the "TERM B LOAN LENDER") on the Stated Maturity
Date for all Term B Loans, the principal sum of [_______________] DOLLARS
($_________) or, if less, the aggregate unpaid principal amount of all Term B
Loans made by the Term B Loan Lender pursuant to that certain Senior Secured
Credit Agreement, dated as of February __, 2000 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the Borrower, the various financial institutions (including the Term B
Loan Lender) as are or may become parties thereto (collectively, the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (the
"ADMINISTRATIVE AGENT"), First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent. Terms used herein have the
meanings provided in the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement. Payments of
both principal and interest are to be made in lawful money of the United States
of America in same day or immediately available funds to the account designated
by the Administrative Agent pursuant to the Credit Agreement.
This Term B Note is one of the Term B Notes referred to in, and evidences
Obligations incurred under, the Credit Agreement, to which reference is made for
a description of the security for this Term B Note and for a statement of the
terms and conditions on which the Borrower is permitted and required to make
prepayments and repayments of principal of the Obligations evidenced by this
Term B Note and on which such Obligations may be declared to be immediately due
and payable.
The Borrower hereby irrevocably authorizes the Term B Loan Lender to make
(or cause to be made) appropriate notations on the grid attached hereto (or on
any continuation of such grid), which notations, if made, shall evidence, INTER
ALIA, the date of and the outstanding principal of, the Term B Loans evidenced
hereby. Such notations shall be rebuttable presumptive evidence of the accuracy
of the information so set forth; PROVIDED, HOWEVER, that the failure of the Term
B Loan Lender to make any such notations shall not limit or otherwise affect any
Obligations of the Borrower.
-1-
<PAGE>
Any assignment or transfer of this Term B Note shall be effective solely by
registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS TERM B NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSES
SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK).
THE TITAN CORPORATION
By
------------------------------
Name:
Title:
-2-
<PAGE>
TERM B LOAN AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of
Term B Loan Made Amount of Principal Unpaid Principal
Repaid Balance
- -----------------------------------------------------------------------------------------------------------
Interest
Date Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-4
MULTI-DRAW TERM NOTE
$_________ ____________, 2000
FOR VALUE RECEIVED, the undersigned, THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to the order of [Name of Lender]
and its registered assigns (the "MULTI-DRAW TERM LOAN LENDER") on the Stated
Maturity Date for all Multi-Draw Term Loans, the principal sum of
[_______________] DOLLARS ($_________) or, if less, the aggregate unpaid
principal amount of all Multi-Draw Term Loans made by the Multi-Draw Term Loan
Lender pursuant to that certain Senior Secured Credit Agreement, dated as of
February __, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Borrower, the various financial
institutions (including the Multi-Draw Term Loan Lender) as are or may become
parties thereto (collectively, the "LENDERS"), Credit Suisse First Boston, as
administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent. Terms used herein have the meanings provided in the Credit
Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement. Payments of
both principal and interest are to be made in lawful money of the United States
of America in same day or immediately available funds to the account designated
by the Administrative Agent pursuant to the Credit Agreement.
This Multi-Draw Term Note is one of the Multi-Draw Term Notes referred to
in, and evidences Obligations incurred under, the Credit Agreement, to which
reference is made for a description of the security for this Multi-Draw Term
Note and for a statement of the terms and conditions on which the Borrower is
permitted and required to make prepayments and repayments of principal of the
Obligations evidenced by this Multi-Draw Term Note and on which such Obligations
may be declared to be immediately due and payable.
The Borrower hereby irrevocably authorizes the Multi-Draw Term Loan Lender
to make (or cause to be made) appropriate notations on the grid attached hereto
(or on any continuation of such grid), which notations, if made, shall evidence,
INTER ALIA, the date of and the outstanding principal of, the Multi-Draw Term
Loans evidenced hereby. Such notations shall be rebuttable presumptive evidence
of the accuracy of the information so set forth; PROVIDED, HOWEVER, that the
failure of the Multi-Draw Term Loan Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower.
-1-
<PAGE>
Any assignment or transfer of this Multi-Draw Term Note shall be effective
solely by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
THIS MULTI-DRAW TERM NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSES SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK).
THE TITAN CORPORATION
By
----------------------------
Name:
Title:
-2-
<PAGE>
MULTI-DRAW TERM LOAN AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of
Multi-Draw Term Loan Amount of Principal Unpaid Principal
Made Repaid Balance
- -------------------------------------------------------------------------------------------------------------
Interest
Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Date Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-5
TERM C NOTE
$_________ _______________, 2000
FOR VALUE RECEIVED, the undersigned, THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), promises to pay to the order of [Name of Lender]
and its registered assigns (the "TERM C LOAN LENDER") on the Stated Maturity
Date for all Term C Loans, the principal sum of [_______________] DOLLARS
($_________) or, if less, the aggregate unpaid principal amount of all Term C
Loans made by the Term C Loan Lender pursuant to that certain Senior Secured
Credit Agreement, dated as of February __, 2000 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the Borrower, the various financial institutions (including the Term C
Loan Lender) as are or may become parties thereto (collectively, the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (the
"ADMINISTRATIVE AGENT"), First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent. Terms used herein have the
meanings provided in the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement. Payments of
both principal and interest are to be made in lawful money of the United States
of America in same day or immediately available funds to the account designated
by the Administrative Agent pursuant to the Credit Agreement.
This Term C Note is one of the Term C Notes referred to in, and
evidences Obligations incurred under, the Credit Agreement, to which reference
is made for a description of the security for this Term C Note and for a
statement of the terms and conditions on which the Borrower is permitted and
required to make prepayments and repayments of principal of the Obligations
evidenced by this Term C Note and on which such Obligations may be declared to
be immediately due and payable.
The Borrower hereby irrevocably authorizes the Term C Loan Lender to
make (or cause to be made) appropriate notations on the grid attached hereto (or
on any continuation of such grid), which notations, if made, shall evidence,
INTER ALIA, the date of and the outstanding principal of, the Term C Loans
evidenced hereby. Such notations shall be rebuttable presumptive evidence of the
accuracy of the information so set forth; PROVIDED, HOWEVER, that the failure of
the Term C Loan Lender to make any such notations shall not limit or otherwise
affect any Obligations of the Borrower.
-1-
<PAGE>
Any assignment or transfer of this Term C Note shall be effective solely
by registration thereof in the Register pursuant to the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS TERM C NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSES SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK).
THE TITAN CORPORATION
By
-----------------------------
Name:
Title:
-2-
<PAGE>
TERM C LOAN AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Amount of Principle Upaid Principle
Term C Loan Made Repaid Balance
- --------------------------------------------------------------------------------------------------------------
Interest
Alternate LIBO Period Alternate LIBO Alternate LIBO Notation
Date Base Rate Rate (If Applicable) Base Rate Rate Base Rate Rate Total Made By
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B-1
BORROWING REQUEST
Credit Suisse First Boston,
as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention:______________________
THE TITAN CORPORATION
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 2.7 of
the Senior Secured Credit Agreement, dated as of February __, 2000 (as amended,
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among The Titan Corporation (the "BORROWER"), the various financial
institutions as are or may become parties thereto (collectively, the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (the
"ADMINISTRATIVE AGENT"), First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent. Unless otherwise defined herein
or the context otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that a [Revolving Loan]
[Multi-Draw Term Loan] [Term B Loan] [Term C Loan] [Swing Line Loan] be made
in the aggregate principal amount of $_____ on______ ,_____as a
*[LIBO Rate Loan having an Interest Period of [two weeks] [one] [two] [three]
[six] [nine] [twelve] month(s)] [Base Rate Loan].
The Borrower hereby acknowledges that, pursuant to Section 5.2(b) of
the Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitute a representation and warranty by the Borrower that, on the date of
such Loans, both immediately before and after giving effect thereto and to the
application of the proceeds therefrom, the statements set forth_______________
* Insert appropriate interest rate option and, if applicable, the number
of weeks or months with respect to LIBO Rate Loans. Note that Swing
Line Loans must be made as Base Rate Loans.
-1-
<PAGE>
in Section 5.2(a) of the Credit Agreement are true and correct (it being
understood that such representations and warranties not qualified by reference
to materiality or Material Adverse Effect are true and correct in all material
respects).
The Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct in all material respects at such time as if then made, it will
immediately so notify the Administrative Agent. Except to the extent, if any,
that prior to the time of the Borrowing requested hereby the Administrative
Agent shall receive written notice to the contrary from the Borrower, each
matter certified to herein shall be deemed once again to be certified as true
and correct in all material respects at the date of such Borrowing as if then
made.
Please wire transfer the proceeds of the Borrowing to the accounts of
the following persons at the financial institutions indicated respectively:
Amount to be Name, Account No.,
TRANSFERRED PERSON TO BE PAID ADDRESS, ETC.
______________ __________________ ____________________
$_____________ _________________________
_________________________
Attention:______________
$_____________ _________________________
_________________________
Attention:______________
$_____________ _________________________
Balance of such _________________________
proceeds Attention:______________
-2-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Borrowing Request to
be executed and delivered, and the certification and representations and
warranties contained herein to be made, by its duly Authorized Officer this __
day of ____________, ____.
THE TITAN CORPORATION
By
-------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT B-2
ISSUANCE REQUEST
Credit Suisse First Boston,
as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention:____________________
THE TITAN CORPORATION
Gentlemen and Ladies:
This Issuance Request is delivered to you pursuant to Section 2.11(a)
of the Senior Secured Credit Agreement, dated as of February __, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among The Titan Corporation, a Delaware corporation (the
"BORROWER"), the various financial institutions as are or may become parties
thereto (collectively, the "LENDERS"), Credit Suisse First Boston, as
administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent. Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
The Borrower hereby requests that [name of Issuer], as Issuer *[issue a
Letter of Credit on____________ ,____ (the "DATE OF ISSUANCE") in the initial
Stated Amount of____________ with a Stated Expiry Date (as defined therein) of
______________, ____][extend the Stated Expiry Date (as defined under Letter of
Credit No.__, issued on _______________, ____, in the initial Stated Amount of
$_____________)to a revised Stated Expir y Date (as defined therein) of
________________, ____].
**[The beneficiary of the requested Letter of Credit will be
[_____________________.]
- --------
* Insert and complete as appropriate.
** Delete if Issuance Request is for an extension.
-1-
<PAGE>
The Borrower hereby acknowledges that, pursuant to Section 5.2(b) of
the Credit Agreement, each of the delivery of this Issuance Request and the
*[issuance] [extension] of the Letter of Credit requested hereby constitute a
representation and warranty by the Borrower that, on the date of such Credit
Extension, both immediately before and after giving effect thereto and to the
application of the proceeds therefrom, all statements set forth in Section
5.2(a) of the Credit Agreement are true and correct (it being understood that
such representations and warranties not qualified by reference to materiality or
Material Adverse Effect are true and correct in all material respects).
The Borrower agrees that if, prior to the time of the [issuance]
[extension] of the Letter of Credit requested hereby, any matter certified to
herein by it will not be true and correct in all material respects at such time
as if then made, it will immediately so notify the Administrative Agent. Except
to the extent, if any, that prior to the time of the [issuance] [extension] of
the Letter of Credit requested hereby the Administrative Agent and the Issuer
shall receive written notice to the contrary from the Borrower, each matter
certified to herein shall be deemed to be certified as true and correct in all
material respects at the date of such [issuance] [extension] as if then made.
- --------
* Insert as appropriate.
-2-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Issuance Request to be
executed and delivered, and the certification and representations and warranties
contained herein to be made, by its duly Authorized Officer this __ day of
___________, ____.
THE TITAN CORPORATION
By:
-------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Credit Suisse First Boston,
as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention:_____________________
THE TITAN CORPORATION
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you pursuant to
Section 2.9 of the Senior Secured Credit Agreement, dated as of February __,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among The Titan Corporation, a Delaware
corporation (the "BORROWER"), the various financial institutions as are or may
become parties thereto (collectively, the "LENDERS"), Credit Suisse First
Boston, as administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"),
First Union Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia,
as Documentation Agent. Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
The Borrower hereby requests that on ________, ____,
*[(1) **$ of the presently outstanding principal amount of
the [Revolving Loans] [Multi-Draw Term Loans] [Term B Loans] [Term C
Loans] originally made on _______, ____,]
_________________________________
* Delete if not applicable.
** Subject to minimum amounts and multiples contemplated in Section 2.9.
-1-
<PAGE>
*[(2) and all Loans presently being maintained as *[Base Rate
Loans] [LIBO Rate Loans],]
(3) be [converted into] [continued as],
(4) **[LIBO Rate Loans having an Interest Period of [two weeks]
[one] [two] [three] [six] [nine] [twelve] month(s)] [Base Rate Loans].
The Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing or will (immediately after giving effect to the continuation
or conversion requested hereby) occur and be continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
Administrative Agent.
Except to the extent, if any, that prior to the time of the continuation
or conversion requested hereby the Administrative Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein shall
be deemed to be certified at the date of such continuation or conversion as if
then made.
___________________________________
* Delete if not applicable.
** Insert appropriate interest rate option and, if applicable, the
number of weeks or months with respect to LIBO Rate Loans.
-2-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this
Continuation/Conversion Notice to be executed and delivered, and the
certification and representations and warranties contained herein to be made, by
its duly Authorized Officer this ___ day of _____________,____.
THE TITAN CORPORATION
By:
--------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT D
CLOSING DATE CERTIFICATE
THE TITAN CORPORATION
This Closing Date Certificate (this "CERTIFICATE") is delivered pursuant to
Section 5.1(c) of the Senior Secured Credit Agreement, dated as of February __,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT") among The Titan Corporation, a Delaware
corporation (the "BORROWER"), the various financial institutions as are or may
become parties thereto (collectively, the "LENDERS"), Credit Suisse First
Boston, as administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT"), First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent. Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
The undersigned hereby certifies, represents and warrants for and on behalf
of the Borrower, as of the Closing Date, as follows:
1. FINANCIAL INFORMATION, ETC. Each of the financial statements required
pursuant to Section 5.1(h) of the Credit Agreement have been delivered to the
Administrative Agent.
2. PAYMENT OF OUTSTANDING INDEBTEDNESS, ETC. All Indebtedness to be
repaid pursuant to Section 5.1(p) of the Credit Agreement, together with all
interest, all prepayment premiums and other amounts due and payable with respect
thereto, has been paid in full from the proceeds of the HIGH TIDES and the
Credit Extension made on the Closing Date and the commitments in respect of such
Indebtedness have been terminated.
3. INSURANCE. Attached hereto as ANNEX I are certified copies of
certificates of insurance (or binders in respect thereof), from one or more
insurance companies, evidencing coverage required to be maintained pursuant to
the Credit Agreement and each Loan Document.
4. MATERIAL ADVERSE CHANGE. There has not occurred a Material Adverse
Effect since December 31, 1998.
5. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and after
giving effect to the Credit Extension made on the Closing Date:
(a)the representations and warranties set forth in ARTICLE VI
(excluding, however, those contained in SECTION 6.7) and in each other Loan
Document are, in each case, true
-1-
<PAGE>
and correct in all respects (with respect to representations and warranties
qualified by materiality or Material Adverse Effect) and in all material
respects (with respect to all other representations and warranties) with
the same effect as if then made (unless stated to relate solely to an
earlier date, in which case such representations and warranties are true
and correct in all material respects as of such earlier date unless such
representations and warranties are qualified by materiality or Material
Adverse Effect, in which case such representations and warranties are true
and correct as of such earlier date);
(b) except as disclosed by the Borrower to the Administrative Agent
and the Lenders pursuant to SECTION 6.7,
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect, or which would adversely affect the legality, validity
or enforceability of the Credit Agreement or any other Loan Document;
and
(ii) no development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to SECTION 6.7 which could reasonably be expected
to have a Material Adverse Effect; and
(iii) no Default has occurred and is continuing.
6. CONSENTS, ETC. All governmental and third party approvals and consents
required to be obtained prior to the Closing Date in connection with the
acquisitions of Acquisition Two and LinCom and all governmental and third party
approvals and consents necessary in connection with the ACS Acquisition (other
than the approval of the shareholders of ACS), the financing contemplated
pursuant to the Credit Agreement (including the execution and delivery of the
Credit Agreement and each other Loan Document required thereunder by each
Obligor and the performance of their respective Obligations) and continuing
operations of the Borrower, each Guarantor, ACS (after giving effect to the
consummation of the ACS Acquisition), Acquisition Two and LinCom (after giving
effect to the consummation of the acquisitions of Acquisition Two and LinCom)
have been obtained and are in full force and effect (and, to the extent
requested by the Administrative Agent, the Administrative Agent has received
true and correct copies of such approvals and consents) and all applicable
waiting periods have expired without any action being taken or threatened by any
competent authority which would restrain, prevent or otherwise impose adverse
conditions on the transactions contemplated by the Credit Agreement.
7. LITIGATION. There is no pending or, to the knowledge of the Borrower,
threatened, litigation, proceedings or investigations which could reasonably be
expected to have (i) a
-2-
<PAGE>
material adverse effect on the ACS Acquisition or the acquisitions of
Acquisition Two and LinCom or (ii) a Material Adverse Effect.
8. PRO FORMA EBITDA. The Borrower has a minimum EBITDA, pro forma for the
twelve months ended September 30, 1999, of $45,600,000, excluding pending
acquisitions and any unrealized synergies.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed and delivered, and the certification, representations and warranties
contained herein to be duly made, by an Authorized Officer this _____ day of
February, 2000.
THE TITAN CORPORATION
By:
----------------------------
Name:
Title:
-4-
<PAGE>
ANNEX I
INSURANCE CERTIFICATES
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
Credit Suisse First Boston,
as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention:
THE TITAN CORPORATION
Gentlemen and Ladies:
This Compliance Certificate is delivered to you pursuant to [Section
5.1(i)] [clause (c) of Section 7.1] of the Senior Secured Credit Agreement,
dated as of February __, 2000 (as amended, restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among The Titan
Corporation, a Delaware corporation (the "BORROWER"), the various financial
institutions as are or may become parties thereto (collectively, the "LENDERS"),
Credit Suisse First Boston, as administrative agent for the Lenders (in such
capacity, the "ADMINISTRATIVE AGENT"), First Union Securities, Inc., as
Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent. Unless
otherwise defined in this Compliance Certificate, terms used herein (including
the Attachments hereto) have the meanings provided in the Credit Agreement.
Each reference to a Section is to the relevant Section in the Credit Agreement.
The Borrower hereby certifies and warrants that as of __________ __, ____
(the "COMPUTATION DATE"):
1. The Total Debt to EBITDA Ratio was _____:1.00, as computed on ATTACHMENTS 1
and 2 hereto.
The maximum Total Debt to EBITDA Ratio permitted pursuant to clause (a) of
Section 8.4 is _____:1.00 and, accordingly, the Total Debt to EBITDA Ratio
covenant [has] [has not] been satisfied.
<PAGE>
2. The Net Worth of the Borrower is $_________________, as computed on
ATTACHMENT 3 hereto.
The minimum Net Worth required pursuant to clause (b) of Section 8.4 (as
computed on ATTACHMENT 3 hereto) is $__________, and accordingly, the Net
Worth covenant [has][has not] been satisfied.
3. The Fixed Charge Coverage Ratio was _____:1.00, as computed on ATTACHMENT 4
hereto.
The minimum Fixed Charge Coverage Ratio permitted pursuant to clause (c) of
Section 8.4 is 1:00:1.00 and, accordingly, the Fixed Charge Coverage Ratio
covenant [has] [has not] been satisfied.
4. The Interest Coverge Ratio was _____:1.00, as computed on ATTACHMENT 5
hereto.
The minimum Interest Coverage Ratio permitted pursuant to clause (d) of
Section 8.4 is _____:1.00 and, accordingly, the Interest Coverage Ratio
covenant [has] [has not] been satisfied.
5. The Indebtedness of the Borrower and the Guarantors in respect of purchase
money Indebtedness and Capitalized Lease Liabilities under clause (g) of
Section 8.2 of the Credit Agreement, in the aggregate, was $_________. Such
Indebtedness pursuant to such clause (g) of Section 8.2 of the Credit
Agreement is not allowed to exceed $15,000,000 in the aggregate, and
accordingly, such Indebtedness was [not] permitted.
6. Other unsecured Indebtedness of the Borrower and the Guarantors under
clause (j) of Section 8.2 of the Credit Agreement, was, in the aggregate,
$____________. Such other unsecured Indebtedness pursuant to clause (h) of
Section 8.2 of the Credit Agreement is not allowed to exceed, in an
aggregate amount at any time, $15,000,000, and accordingly, such
Indebtedness was [not] permitted.
7. Other Investments of the Borrower or any of its Restricted Subsidiaries
under clause (j) of Section 8.5 of the Credit Agreement, was $__________.
Such other Investments pursuant to clause (j) of Section 8.5 of the Credit
Agreement are not permitted to exceed $25,000,000 in the aggregate over the
term of the Credit Agreement, and accordingly, to date, such Investments
were [not] permitted.
[8. Compliance with clause (e) of Section 8.6: The Total Debt to EBITDA Ratio
at the time of the spin off of Cayenta to the shareholders of the Borrower
was _____:1.00, calculated on a PRO FORMA basis. The maximum Total Debt
to EBITDA Ratio so calculated on a PRO FORMA basis may not exceed
3:00:1.00, and, accordingly, such spin-off was [not] permitted.]
<PAGE>
[9. Compliance with clause (f) of Section 8.6:
(a) The Total Debt to EBITDA Ratio immediately following the proposed
redemption of Capital Stock of the Borrower or any of its Restricted
Subsections was ___:1.00, calculated on a PRO FORMA basis, giving
effect to such proposed redemption. The maximum Total Debt to EBITDA
Ratio so calculated on a PRO FORMA basis may not exceed 3:00:1.00,
and, accordingly, such redemption was [not] permitted. The aggregate
value of Capital Stock redemptions for the Borrower and its Restricted
Subsidiaries under clause (f)(iii) of Section 8.6 of the Credit
Agreement was $_______. The aggregate value of such redemptions
pursuant to clause (f)(iii) of Section 8.6 of the Credit Agreement are
not permitted to exceed $5,000,000, and accordingly, such redemptions
were [not] permitted.
(b) The aggregate value of Capital Stock redemptions for the Borrower and
its Restricted Subsidiaries under clause (f)(iv) of Section 8.6 of the
Credit Agreement was $_______. The aggregate value of such
redemptions pursuant to clause (f)(iv) of Section 8.6 of the Credit
Agreement are not permitted to exceed $20,000,000, and accordingly, to
date, such redemptions were [not] permitted.
(c) The unborrowed Revolving Loan Commitment Amount at the time of Capital
Stock redemptions for the Borrower and its Restricted Subsidiaries
under clause (f)(v) of Section 8.6 of the Credit Agreement was
$_______. The unborrowed Revolving Loan Commitment Amount at the time
of such Capital Stock redemptions pursuant to clause (f)(v) of Section
8.6 of the Credit Agreement are not permitted to be less than
$20,000,000, and accordingly, to date, such [redemptions] were [not]
permitted.]
10. [Name of Guarantor(s)] [have] [has] issued options and warrants
representing ___% of the Capital Stock of such Guarantor(s). The total
amount of options and warrants issued by any Guarantor (other than Cayenta,
which may not issue any options or warrants not disclosed on ITEM 8.8 of
the Disclosure Schedule) is not permitted to exceed 5% of the Capital Stock
of such Guarantor, inclusive of options and warrants issued by such
Guarantor as set forth in ITEM 8.8 of the Disclosure Schedule, and
accordingly, such issuance(s) [were] [was] [not] permitted.
11. The aggregate fair market value of the sales, transfers, leases,
contributions or conveyances (including by way of merger), or grants of
options, warrants or other rights with respect to, any of the Borrower's or
any Restricted Subsidiary's assets (including accounts receivable and
Capital Stock of the Borrower and its Restricted Subsidiaries) to any
Person in one transaction or series of transactions, pursuant to clause (e)
of Section 8.10 of the Credit Agreement made in the Fiscal Year to date in
<PAGE>
which the Computation Date occurs was $_______. The maximum amount of
assets, in the aggregate, which may be disposed of pursuant to clause (e)
of Section 8.10 of the Credit Agreement is $10,000,000 in any Fiscal Year
and $40,000,000 over the term of the Credit Agreement, so long as the
Borrower complies with Section 3.1(c) of the Credit Agreement, and
accordingly, the aforementioned disposition [is][was][not] permitted.
12. The amount of sale proceeds from sale-leasebacks of the Borrower and its
Restricted Subsidiaries under Section 8.14 of the Credit Agreement was
$_________ per transaction. Such proceeds from sale-leasebacks pursuant to
such Section 8.14 of the Credit Agreement are not allowed exceed $5,000,000
per transaction or series of related transactions, and accordingly, such
sale-leasebacks were [not] permitted.
13. Indebtedness of Foreign Subsidiaries of the Borrower under Section 8.15 of
the Credit Agreement, was, in the aggregate, $____________. Such
Indebtedness pursuant to Section 8.15 of the Credit Agreement is not
allowed to exceed, in an aggregate amount at any time, $10,000,000
(excluding any such Indebtedness which is non-recourse to the Borrower or
any of its U.S. or Foreign Subsidiaries), and accordingly, such
Indebtedness was [not] permitted.
14. [No Default has occurred and is continuing.] [A Default has occurred and
is continuing. The details of such Default and the actions that the
Borrower has taken or proposed to take with respect thereto are set forth
on Schedule 1 hereto.]
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Certificate to be duly
executed and delivered by its chief executive, financial or accounting
Authorized Officer this ____ day of __________, ____.
THE TITAN CORPORATION
By: ________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
(to __/__/__ Compliance
Certificate)
DEFAULTS
[Describe details of Default and actions that the Borrower has taken or proposes
to take with respect thereto.]
<PAGE>
ATTACHMENT 1
(to __/__/__ Compliance
Certificate)
TOTAL DEBT TO EBITDA RATIO
on __/__/__
(the "Computation Date")
<TABLE>
<S> <C> <C>
1. Total Debt:
(a) all obligations of the Borrower and its Restricted
Subsidiaries for borrowed money or advances and all
obligations of the Borrower and its Restricted
Subsidiaries evidenced by bonds, debentures, notes or
similar instruments (which, in the case of the Loans,
shall be deemed to equal the aggregate amount of Loans
outstanding on the Computation Date) . . . . . . . . . $_______
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not
drawn, and banker's acceptances issued for the account of
the Borrower and its Restricted Subsidiaries (which, in
the case of Letter of Credit Outstandings shall be deemed
to equal the aggregate amount of Letter of Credit
Outstandings on the Computation Date) . . . . . . . . . $_______
(c) all monetary obligations of the Borrower or any of its
Restricted Subsidiaries under any leasing or similar
arrangement which have been (or, in accordance with GAAP,
should be) classified as capitalized leases valued at the
capitalized amount thereof . . . . . . . . . . . . . . $_______
(d) net liabilities of the Borrower and its Restricted
Subsidiaries under all Hedging Obligations . . . . . . $_______
<PAGE>
(e) whether or not so included as liabilities in accordance
with GAAP, all obligations of the Borrower and its
Restricted Subsidiaries to pay the deferred purchase
price of property or services excluding Acquisition
Incentives which are not overdue and trade accounts
payable in the ordinary course of business which are not
overdue for a period of more than 90 days or, if overdue
for more than 90 days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been
established on the books of the Borrower or such
Restricted Subsidiary, and indebtedness or other
obligations secured by (or for which the holder of such
indebtedness or other obligations has an existing right,
contingent or otherwise, to be secured by) a Lien on
property owned or being acquired by the Borrower or any
Restricted Subsidiary (including indebtedness or other
obligations arising under conditional sales or other
title retention agreements), whether or not such
indebtedness or other obligations shall have been assumed
by the Borrower or such Restricted Subsidiary or is
limited in recourse . . . . . . . . . . . . . . . . . . $_______
(f) all Contingent Liabilities of the Borrower and its
Restricted Subsidiaries. . . . . . . . . . . . . . . . $_______
(g) the principal portion of all obligations of the Borrower
and its Restricted Subsidiaries under any Synthetic Leas $_______
(h) all Disqualified Stock of the Borrower and its Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . $_______
(i) The sum of ITEMS 1(a) through 1(h) . . . . . . . . . . $_______
(j) intercompany Indebtedness between the Borrower and any of
its Restricted Subsidiaries (including, without
limitation, the Debentures so long as they are held by
Titan Capital Trust) . . . . . . . . . . . . . . . . . $________
(k) the Indebtedness of Titan Africa, Inc. in connection with
the project financing in Benin, so long as such
Indebtedness remains non-recourse to the Borrower and its
Subsidiaries (other than Titan Africa, Inc.) and the
Borrower and its Subsidiaries (other than Titan Africa,
Inc.) have no liability or obligations with respect to
such Indebtedness . . . . . . . . . . . . . . . . . . . $________
(l) The sum of ITEMS 1(j) and 1(K) . . . . . . . . . . . . $________
(m) TOTAL DEBT: ITEM 1(i) minus ITEM 1(l) . . . . . . . . . $________
2. EBITDA: SEE ITEM 1(i) OF ATTACHMENT 2 $________
<PAGE>
3. TOTAL DEBT TO EBITDA RATIO: The ratio of ITEM 1(m) to ITEM 2 ________:1.00
</TABLE>
<PAGE>
ATTACHMENT 2
(to__/__/__Compliance
Certificate)
EBITDA
for the four consecutive Fiscal Quarters
ending on ____ (the "Computation Date")
(the "Computation Period")
<TABLE>
<S> <C> <C>
1. EBITDA:
(a) the aggregate of all amounts which would be included as
net income on the consolidated financial statements of
the Borrower and its U.S. Subsidiaries for the
Computation Period, determined in accordance with GAAP $_______
(b) all amounts deducted by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing
either non-cash or non-recurring losses, including fees,
costs, charges and other expenses incurred by the
Borrower and its U.S. Subsidiaries in connection with
any discontinued operation, acquisition, reorganization,
consolidation, restructuring or changes in accounting
treatment under GAAP . . . . . . . . . . . . . . . . . $_______
(c) the amount deducted by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing
amortization, as determined in accordance with GAAP . . $_______
(d) the amount deducted, in determining Net Income, of all
federal, state and local income taxes (whether paid in
cash or deferred) of the Borrower and its U.S.
Subsidiaries, . . . . . . . . . . . . . . . . . . . . . $_______
(e) the amount deducted, in determining Net Income, of
Interest Expense of the Borrower and its U.S.
Subsidiaries . . . . . . . . . . . . . . . . . . . . . $_______
<PAGE>
(f) the amount deducted, in determining Net Income,
representing depreciation of assets of the Borrower and
its U.S. Subsidiaries, as determined in accordance with
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . $_______
(g) the synergies set forth in SCHEDULE III to the Credit
Agreement for the periods described therein . . . . . .
(h) The sum of ITEMS 1(a) through 1(g) . . . . . . . . . . $_______
(i) all amounts added by the Borrower and its U.S.
Subsidiaries, in determining Net Income, representing
either non-cash or non-recurring gains, including as a
result of changes in accounting treatment under GAAP . $_______
(j) EBITDA: ITEM 1(h) minus ITEM 1(i) . . . . . . . . . . $_______
</TABLE>
<PAGE>
ATTACHMENT 3
(to __/__/__ Compliance
Certificate)
NET WORTH
for the ____ Fiscal Quarter,
ending on ________, ____
(the "Computation Date")
<TABLE>
<S> <C> <C>
1. NET WORTH: As of the Computation Date, on a consolidated basis
for the Borrower and its Restricted Subsidiaries
a. The sum of Capital Stock taken at par value, capital $________
surplus and retained earnings (or accumulated deficit)
of the Borrower on the Computation Date:
b. Treasury stock of the Borrower and, to the extent
included in ITEM 1(a), minority interests in Restricted $________
Subsidiaries of the Borrower at such date:
c. NET WORTH: ITEM 1(a) minus ITEM 1(b): $________
2. REQUIRED NET WORTH: As of the Computation Date, on a consolidated
basis for the Borrower and its Restricted Subsidiaries:
(a) (i) prior to the consummation of the ACS Acquisition:
$80,000,000
(ii) after the consummation of the ACS Acquisition:
$115,000,000
(b) 50% of the aggregate Net Income in excess of zero for the
period commencing on the Closing Date and ending on the
last day of the Fiscal Quarter ending on or immediately
prior to the Computation Date . . . . . . . . . . . . . . $_______
(c) the product of 80% TIMES the net increase to the
Borrower's shareholders' equity resulting from the initial
public offering of Cayenta after the Closing Date . . . . $_______
(d) the product of 80% TIMES the net cash proceeds derived
from the issuance of common stock by the Borrower after
the Closing Date . . . . . . . . . . . . . . . . . . . . $_______
<PAGE>
(e) subsequent to any spin-off of Cayenta, the portion of Net
Worth attributable to Cayenta immediately prior to such
spin-off . . . . . . . . . . . . . . . . . . . . . . . . $_______
(f) the net decrease to the Borrower's shareholders' equity
resulting from the deferred compensation charge related to
the employee stock options of Cayenta . . . . . . . . . . $_______
(g) Required Net Worth: The sum of ITEM(2)(a), ITEM 2(b), ITEM
2(c) and ITEM 2(d) minus ITEM 2(e) minus ITEM 2(f): . . $_______
</TABLE>
<PAGE>
ATTACHMENT 4
(to__/__/__Compliance
Certificate)
FIXED CHARGE COVERAGE RATIO
for the Fiscal Quarter,
ending on ____,____(the "Computation Date")
<TABLE>
<S> <C> <C>
1. Fixed Charge Coverage Ratio
a. EBITDA (see ITEM 1(i) of Attachment 2) . . . . . $_________
b. Capital Expenditures made during the four
consecutive Fiscal Quarters ending on the
Computation Date . . . . . . . . . . . . . . . . $_________
c. ITEM 1(a) minus ITEM 1(b)
d. Interest Expense paid in cash . . . . . . . . . . $_________
e. Scheduled principal payments of the Term Loans
after giving effect to any reductions in such
scheduled principal repayments attributable to
any optional or mandatory prepayments of the Term
Loans . . . . . . . . . . . . . . . . . . . . . . $_________
f. Restricted Payments . . . . . . . . . . . . . . . $_________
g. All federal, state and foreign income taxes
actually paid in cash by the Borrower and its
Restricted Subsidiaries (excluding any cash taxes
paid in connection with the sale of IPivot Inc.) $_________
h. The sum of ITEMS 1(d) through 1(g) . . . . . . . $_________
i. FIXED CHARGE COVERAGE RATIO: The ratio of ITEM
1(c) to ITEM 1(h): _________: to 1.00
</TABLE>
<PAGE>
ATTACHMENT 5
to (__/__/__Compliance
Certificate)
INTEREST COVERAGE RATIO
for the Fiscal Quarter
ending on _____,____
(the "Computation Date)
<TABLE>
<S> <C> <C>
1. Interest Coverage Ratio: for the Computation Date, on a
consolidated basis for the Borrower and the Restricted
Subsidiaries.
a. EBITDA (see ITEM 1(i) of Attachment 2) . . . . $________
b. Interest Expense paid in cash . . . . . . . . . $________
c. The ratio of ITEM 1(a) to ITEM 1(b) . . . . . . ________: to 1.00
</TABLE>
<PAGE>
EXHIBIT F-1
BORROWER PLEDGE AGREEMENT
This PLEDGE AGREEMENT (as amended, restated, supplemented, or otherwise
modified from time to time, this "PLEDGE AGREEMENT"), dated as of February 23,
2000, is made by THE TITAN CORPORATION, a Delaware corporation (the "PLEDGOR"),
in favor of CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as agent (the
"ADMINISTRATIVE AGENT") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented, or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among the Pledgor, the various
financial institutions as are or may become parties thereto (the "LENDERS"),
CSFB, as Lead Arranger and Administrative Agent for the Lenders, First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Borrower;
WHEREAS, as a condition precedent to the making of the Credit Extensions
(including the initial Credit Extension) under the Credit Agreement, the Pledgor
is required to execute and deliver this Pledge Agreement;
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, and in order to induce the Lenders
and the Issuers to make Credit Extensions (including the initial Credit
Extension) to the Pledgor pursuant to the Credit Agreement, the Pledgor agrees,
for the benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
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"CERTIFICATED INTERESTS" means, collectively, all Pledged Shares evidenced
by certificates.
"COLLATERAL" is defined in SECTION 2.1.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"DISTRIBUTIONS" means all stock dividends, liquidating dividends, shares of
stock resulting from (or in connection with the exercise of) stock splits,
reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Interests or other shares of
Capital Stock constituting Collateral, but shall not include Dividends.
"DIVIDENDS" means cash dividends and cash distributions with respect to any
Pledged Interests made in the ordinary course of business and not a liquidating
dividend.
"INTEREST RATE HEDGING AGREEMENTS" means interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect the Pledgor against fluctuations
in interest rates, entered into between the Pledgor and a Lender or an Affiliate
of a Lender, for the purpose of hedging interest rate risk with respect to the
Obligations.
"INTEREST RATE HEDGING OBLIGATIONS" means all liabilities of the Pledgor
under Interest Rate Hedging Agreements.
"LENDER" and "LENDERS" are defined in the FIRST RECITAL.
"LLC" means each limited liability company listed from time to time as a
Pledged Interest Issuer on ATTACHMENT 1 hereto.
"LLC INTEREST" means the entire ownership interest of the Pledgor in each
Pledged Interest Issuer that is an LLC listed on ATTACHMENT 1 hereto, including
such Pledgor's capital account, its gain, loss, deduction and credit of such
Pledged Interest Issuer, the Pledgor's interest in all distributions made or to
be made by such Pledged Interest Issuer to the Pledgor and all of the other
rights, titles and interests of the Pledgor as an owner or a member of such
Pledged Interest Issuer, whether set forth in the operating or membership
agreement of such Pledged Interest Issuer, by separate agreement or otherwise.
"PARTNERSHIP" means each general partnership or limited partnership listed
from time to time as a Pledged Interest Issuer on ATTACHMENT 1 hereto.
"PARTNERSHIP INTEREST" means the entire ownership interest of the Pledgor
in each Pledged Interest Issuer that is a Partnership listed on ATTACHMENT 1
hereto, including the Pledgor's capital account, its gain, loss, deduction and
credit of such Pledged Interest Issuer, the Pledgor's interest
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<PAGE>
in all distributions made or to be made by such Pledged Interest Issuer to
the Pledgor and all of the other rights, titles and interests of the Pledgor
as an owner, a general partner or a limited partner of such Pledged Interest
Issuer, whether set forth in the partnership agreement of such Pledged
Interest Issuer, by separate agreement or otherwise.
"PLEDGE AGREEMENT" is defined in the PREAMBLE.
"PLEDGED INTEREST ISSUERS" means each Person identified in ATTACHMENT 1
hereto as the issuer of the Pledged Interests (including the maker of each
Pledged Note) identified opposite the name of such Person and each Person whose
ownership, equity or other similar interests, including shares of Capital Stock,
Partnership Interests and LLC Interests, are, or are required to be, pledged
hereunder and under the Credit Agreement from time to time.
"PLEDGED INTERESTS" means (i) all Pledged Shares and (ii) all Pledged
Notes.
"PLEDGED NOTES" means all promissory notes of any Pledged Interest Issuer
identified on Attachment 1 hereto, and any promissory notes issued to Pledgor in
the future, as such promissory notes are amended, restated, supplemented or
otherwise modified from time to time, in accordance with SECTION 4.1.6, together
with any promissory note of any Pledged Interest Issuer taken in extension or
renewal thereof or substitution therefor.
"PLEDGED SHARES" means (a) all ownership, equity or other similar
interests, including shares of Capital Stock, Partnership Interests and LLC
Interests, of any Pledged Interest Issuer listed on Attachment 1 hereto and any
shares of Capital Stock, Partnership Interests and LLC Interests of any Pledged
Interest Issuer obtained in the future by the Pledgor, (b) the certificates
representing all such ownership, equity or similar interests and (c) all
securities convertible into, and all warrants, options or other rights to
acquire, such ownership, equity or similar interets; but excluding all shares of
voting stock of each class of any Foreign Subsidiary in excess of 65% of the
total issued and outstanding shares of the voting stock of each such class.
"PLEDGOR" is defined in the PREAMBLE.
"SECURED OBLIGATIONS" is defined in SECTION 2.2.
"SECURITIES ACT" is defined in SECTION 6.2.
"TERMINATION DATE" means the date on which all Obligations have been
indefeasibly paid in full, all Commitments have been fully terminated and all
Letters of Credit have been canceled or otherwise terminated.
"U.C.C." means the Uniform Commercial Code, as in effect from time to time
in the State of New York; PROVIDED, that if by reason of mandatory provisions of
law or the exercise of remedies, the perfection or the effect of perfection or
non-perfection of the Lien granted in any
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<PAGE>
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than New York, "U.C.C." means the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection or the
exercise of remedies.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which meanings
are provided in the U.C.C. are used in this Pledge Agreement with such meanings.
ARTICLE II
PLEDGE
SECTION 2.1. GRANT OF SECURITY INTEREST. The Pledgor hereby pledges,
hypothecates, assigns, charges, mortgages, delivers and transfers to the
Administrative Agent, for its benefit and the ratable benefit of each of the
Secured Parties, and the Pledgor hereby grants to the Administrative Agent, for
the ratable benefit of the Secured Parties, to secure the Secured Obligations, a
continuing security interest in, all of the following property (the
"COLLATERAL"):
(a) all Pledged Interests;
(b) all right, title and interest of the Pledgor, whether now existing
or hereafter arising or acquired, in, to and under any partnership
agreement, limited liability company agreement or similar agreement which
governs the rights and obligations of the holder of ownership, equity or
similar interests in a Pledged Interest Issuer;
(c) all Dividends, Distributions, interest and without duplication,
other payments and rights with respect to any Pledged Interest; and
(d) all proceeds of any of the foregoing.
SECTION 2.2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures the
payment in full of all Obligations of the Pledgor now or hereafter existing
under the Credit Agreement, each other Loan Document and each Interest Rate
Hedging Agreement, whether for principal, interest, costs, fees, indemnities,
expenses, Interest Rate Hedging Obligations or otherwise (including all
Obligations of the Pledgor now or hereafter existing under this Pledge Agreement
and each other Loan Document to which such Pledgor is or may become a party),
with all such Obligations being referred to as the "SECURED OBLIGATIONS".
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<PAGE>
SECTION 2.3. PLEDGE AND TRANSFER OF PLEDGED INTERESTS. Any Certificated
Interests representing or evidencing any Collateral shall be delivered to and
held by or on behalf of the Administrative Agent pursuant hereto, shall be in
suitable form for transfer by delivery, and shall be accompanied by all
necessary instruments of transfer or assignment, duly executed in blank by the
Pledgor or, if any Collateral is in the form of uncertificated securities,
confirmation and evidence satisfactory to the Administrative Agent that the
Pledgor has taken all actions requested by the Administrative Agent to provide
for the transfer to and perfection by the Administrative Agent of the security
interests in such uncertificated securities for the benefit of the Secured
Parties in accordance with the U.C.C. and any other applicable law.
SECTION 2.4. DIVIDENDS ON PLEDGED INTERESTS. In the event that any
Dividend or other payment is to be paid on any Pledged Interests (including any
payment of any principal or interest on any Pledged Note) at a time when no
Default has occurred and is continuing or would result therefrom, such Dividend
or payment may be paid directly to the Pledgor. If any such Default has
occurred and is continuing, then any such Dividend or payment shall be paid
directly to the Administrative Agent for the benefit of the Secured Parties.
SECTION 2.5. CONTINUING SECURITY INTEREST. This Pledge Agreement shall
create a continuing security interest in the Collateral and shall
(a) remain in full force and effect until the Termination Date;
(b) be binding upon the Pledgor and its successors, transferees and
assigns; and
(c) inure, together with the rights and remedies of the Administrative
Agent hereunder, to the benefit of the Administrative Agent and each other
Secured Party.
Without limiting CLAUSE (c), any Lender may assign or otherwise transfer (in
whole or in part) any Note or Loan held by it to any other Person or entity, and
such other Person or entity shall thereupon become vested with all the rights
and benefits in respect thereof granted to such Lender under any Loan Document
(including this Pledge Agreement) or otherwise, subject, however, to any
contrary provisions in such assignment or transfer, and to the provisions of
Section 11.11 and Article X of the Credit Agreement.
Upon (i) the sale, transfer or other disposition of Collateral in accordance
with the Credit Agreement or (ii) the occurrence of the Termination Date, the
security interests granted herein shall automatically terminate with respect to
(x) such Collateral (in the case of clause (i)) or (y) all Collateral (in the
case of clause (ii)), and at such time the Administrative Agent will, at the
Pledgor's sole expense, deliver to the applicable Pledgor, without any
representations, warranties or recourse of any kind whatsoever, all certificates
and instruments previously delivered to the Administrative Agent representing or
evidencing all Pledged Interests, together with all other Collateral held by the
Administrative Agent hereunder, and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such termination.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES, ETC. In order to induce the
Secured Parties to enter into the Credit Agreement and to make Credit Extensions
thereunder, the Pledgor represents and warrants to each Secured Party as set
forth in this Article.
SECTION 3.1.1. OWNERSHIP, NO LIENS, ETC. The Pledgor is the legal and
beneficial owner of, and has good and marketable title to (and has full right
and authority to pledge and assign) its Collateral, free and clear of all Liens,
options and other charges, except any Lien granted pursuant hereto in favor of
the Secured Parties.
SECTION 3.1.2. VALID SECURITY INTEREST. The execution and delivery of this
Pledge Agreement, together with (a)(i) in the case of Collateral in the form of
a Certificated Interest, the delivery of such Collateral to the Administrative
Agent together with undated stock powers executed in blank by the Pledgor, (ii)
in the case of Collateral in the form of an uncertificated security, the
registration with the Pledged Interest Issuer of such uncertificated security,
or (iii) in the case of Collateral in the form of Pledged Notes, delivery of
such Collateral and an ALLONGE to such Collateral to the Administrative Agent,
or (b) in the case of other than Certificated Interests, the filing of U.C.C.
financing statements in the filing offices listed on ATTACHMENT 2 hereto, is
effective to create a valid, perfected, first priority security interest in such
Collateral and all proceeds thereof, securing the Secured Obligations. No
further action is necessary to perfect or protect such security interest in the
Collateral and the proceeds thereof, subject to Section 9-306 of the U.C.C.
SECTION 3.1.3. AS TO PLEDGED INTERESTS. In the case of
(a) any Pledged Interests (other than Pledged Notes) constituting
Collateral,
(i) all of such Pledged Interests are duly authorized, and
validly issued, fully paid, and non-assessable, and constitute that
percentage of the issued and outstanding shares of Capital Stock,
Partnership Interests, LLC Interests and other ownership interest of
each Pledged Interest Issuer set forth on ATTACHMENT 1 hereto; and
(ii)the Pledgor has delivered to the Administrative Agent true
and complete copies of the partnership, membership, operating or
ownership agreements, as applicable, for each Pledged Interest Issuer
that is an LLC or a Partnership, which agreements are currently in
full force and effect and have not been amended or modified except as
disclosed to the Administrative Agent in writing; and
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<PAGE>
(b) each Pledged Note, all of such Pledged Notes have been duly
authorized, executed, endorsed, issued and delivered, and are the legal,
valid and binding obligation of the issuers thereof, and are not in
default.
SECTION 3.1.4. LOCATION OF PLEDGOR. The jurisdictions in which the
Pledgor is located for purposes of Sections 9-103 and 9-104 of the U.C.C. are
set forth in ATTACHMENT 2 hereto.
SECTION 3.1.5. NATURE OF PLEDGED INTERESTS. No LLC Interests or
Partnership Interests are Certificated Interests.
ARTICLE IV
COVENANTS
SECTION 4.1. COVENANTS. The Pledgor covenants and agrees that, at all
times prior to the Termination Date, it will perform, comply with and be bound
by the obligations set forth in this Article.
SECTION 4.1.1. PROTECT COLLATERAL; FURTHER ASSURANCES, ETC. The Pledgor
covenants and agrees that it will not sell, assign, transfer, pledge, or
encumber in any other manner the Collateral (except in favor of the
Administrative Agent hereunder). The Pledgor will warrant and defend the right
and title herein granted unto the Administrative Agent in and to the Collateral
(and all right, title, and interest represented by the Collateral) against the
claims and demands of all other Persons. The Pledgor agrees that from time to
time, at the expense of the Pledgor, it will promptly execute and deliver all
further instruments, and take all further action, that may be necessary or
desirable, or that the Administrative Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Administrative Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. The Pledgor will not,
without thirty (30) days' prior written notice to the Administrative Agent, (i)
change its name or structure so as to make any financing or other statement
filed pursuant to this Pledge Agreement become seriously misleading or (ii)
change the jurisdiction in which it is located to other than those specified in
SECTION 3.1.4. The Pledgor will pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional
Indebtedness owed to the Pledgor pursuant to any note with an Obligor. The
Pledgor further covenants and agrees as follows:
(a) If the Pledgor shall become entitled to receive or shall receive
any stock or other certificate (including any certificate representing a
Dividend or a Distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any portion of the
Collateral (or otherwise in respect thereof), the Pledgor shall accept the
same as the agent of the Administrative Agent, hold the same in trust for
the Administrative Agent and deliver the
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<PAGE>
same forthwith to the Administrative Agent in the exact form received,
duly endorsed (in blank) by the Pledgor to the Administrative Agent, if
required, together with an undated stock power or other necessary
instrument of transfer covering such certificate duly executed in blank
by the Pledgor, to be held by the Administrative Agent, subject to the
terms of this Pledge Agreement, as additional security for the Secured
Obligations. In addition, any sums paid upon or in respect of the
Collateral upon the liquidation or dissolution of any Pledged Interest
Issuer shall be held by the Administrative Agent as additional security
for the Secured Obligations. If any sums of money or property so paid or
distributed in respect of any Collateral shall be received by the Pledgor,
then the Pledgor shall, until such money or property is paid or delivered
to the Administrative Agent, hold such money or property in trust for the
Administrative Agent (on behalf of the Secured Parties), segregated from
other funds of the Pledgor, as additional collateral securing the Secured
Obligations.
(b) Except as otherwise expressly permitted by the Credit Agreement,
without the prior written consent of the Administrative Agent, the Pledgor
will not (i) consent to any material modification, extension or alteration
of the terms of any partnership, membership or operating agreement of the
LLCs or the Partnerships or (ii) accept a surrender of any partnership,
membership or operating agreement of any of the LLCs or the Partnerships,
as applicable, or waive any breach of or default under any such agreement
by any other party thereto.
(c) The Pledgor will advise the Administrative Agent promptly, in
reasonable detail (i) of any Lien or claim made or asserted against any
material part of the Collateral, (ii) of any material change in the
composition of the Collateral, and (iii) of the occurrence of any other
event relating specifically to the Pledgor or its assets which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the security interests created hereunder.
SECTION 4.1.2. REGISTRATION OF PLEDGED INTERESTS, ETC. Concurrently with
the execution and delivery of this Pledge Agreement, the Pledgor shall execute
and deliver to the applicable Pledged Interest Issuer instructions to register,
substantially in the form of EXHIBIT A hereto, and cause each Pledged Interest
Issuer to execute and deliver to the Administrative Agent the Initial
Transaction Statement, substantially in the form of EXHIBIT B hereto, confirming
that each Pledged Interest Issuer (in which the Pledgor owns a Pledged Interest
(other than in the case of a Certificated Interest or a Pledged Note)) has
registered the pledge by the Pledgor effected by this Pledge Agreement on its
books. In addition, the Pledgor agrees that it shall cause each issuer of
Certificated Interests to execute and deliver to the Administrative Agent an
acknowledgment in a form satisfactory to the Administrative Agent.
SECTION 4.1.3. STOCK POWERS, ETC. The Pledgor agrees that all
Certificated Interests constituting Collateral delivered by the Pledgor pursuant
to this Pledge Agreement will be accompanied by duly executed undated blank
stock powers, or other equivalent instruments of
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transfer acceptable to the Administrative Agent, as are necessary under all
applicable laws to perfect the Lien in favor of the Secured Parties on such
Collateral. The Pledgor will, from time to time upon the request of the
Administrative Agent, promptly deliver to the Administrative Agent such stock
powers, instruments, and similar documents, satisfactory in form and substance
to the Administrative Agent, with respect to the Collateral as the
Administrative Agent may reasonably request and will, from time to time upon the
request of the Administrative Agent after the occurrence, and during the
continuance, of any Event of Default, promptly transfer any Pledged Interests or
other shares of Capital Stock or other ownership interests constituting
Collateral into the name of any nominee designated by the Administrative Agent.
SECTION 4.1.4. CONTINUOUS PLEDGE. The Pledgor will, at all times, keep
pledged to the Administrative Agent pursuant hereto all Pledged Interests and
all other shares of Capital Stock or other ownership interests constituting
Collateral, all Dividends and Distributions with respect thereto (provided that
if no Default described in Section 9.1(i) of the Credit Agreement or Event of
Default shall have occurred or be continuing, such Dividends and Distributions
may be used for working capital or other purposes), all Pledged Notes, all
interest, principal and other proceeds received by the Administrative Agent with
respect to the Pledged Notes, and all other Collateral and other securities,
instruments, proceeds, and rights from time to time received by or distributable
to the Pledgor in respect of any Collateral and will not permit any Pledged
Interest Issuer to issue any Capital Stock or other ownership interests or any
options, warrants or other rights to subscribe for or purchase Capital Stock
(other than as permitted by the Credit Agreement) which shall not have been
immediately duly pledged hereunder on a first priority perfected basis.
SECTION 4.1.5. VOTING RIGHTS; DIVIDENDS, ETC. The Pledgor agrees:
(a) after any Default of the nature referred to in Section 9.1(i) of
the Credit Agreement or any Event of Default shall have occurred and be
continuing, promptly upon receipt of notice thereof by the Pledgor and
without any request therefor by the Administrative Agent, such Pledgor will
deliver (properly endorsed where required hereby or requested by the
Administrative Agent) to the Administrative Agent all Dividends,
Distributions, all other cash payments, and all proceeds of the Collateral,
all of which shall be held by the Administrative Agent for the benefit of
the Secured Parties as additional Collateral for use in accordance with
SECTION 6.4; and
(b) after any Event of Default shall have occurred and be continuing
and the Administrative Agent has notified the Pledgor of the
Administrative Agent's intention to exercise its voting power under this
Section:
(i) the Administrative Agent may exercise (to the exclusion of
the Pledgor) the voting power and all other incidental rights of
ownership with respect to any Pledged Interests or other shares of
Capital Stock or other ownership interests constituting Collateral and
the Pledgor hereby grants the
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Administrative Agent an irrevocable proxy, exercisable under such
circumstances, to vote the Pledged Interests and such other
Collateral; and
(ii) promptly to deliver to the Administrative Agent such
additional proxies and other documents requested by the Administrative
Agent as may be necessary to allow the Administrative Agent to
exercise such voting power.
All Dividends, Distributions, cash payments and proceeds which may at any time
and from time to time be held by the Pledgor but which the Pledgor is then
obligated to deliver to the Administrative Agent, shall, until delivery to the
Administrative Agent, be held by the Pledgor separate and apart from its other
property in trust for the Secured Parties. The Administrative Agent agrees that
unless an Event of Default shall have occurred and be continuing and the
Administrative Agent shall have given the notice referred to in CLAUSE (b), the
Pledgor shall have the exclusive voting power with respect to any shares of
Capital Stock or other ownership interests (including any of the Pledged
Interests) constituting Collateral and the Administrative Agent shall, upon the
written request of the Pledgor, promptly deliver such proxies and other
documents, if any, as shall be reasonably requested by the Pledgor which are
necessary to allow the Pledgor to exercise voting power with respect to any such
share of Capital Stock or other ownership interests (including any of the
Pledged Interests) constituting Collateral; PROVIDED, HOWEVER, that no vote
shall be cast, or consent, waiver, or ratification given, or action taken by the
Pledgor that would impair any Collateral or be inconsistent with or violate any
provision of the Credit Agreement, any other Loan Document or any Interest Rate
Hedging Agreement.
SECTION 4.1.6. ADDITIONAL UNDERTAKINGS. The Pledgor will not, without the
prior written consent of the Administrative Agent, take or omit to take any
action the taking or the omission of which could result in any impairment or
alteration of any instrument constituting Collateral. In furtherance of the
foregoing, the Pledgor agrees that it will not, without the prior written
consent of the Administrative Agent which consent shall not be unreasonably
withheld:
(a) enter into any agreement amending, supplementing, or waiving any
provision of any Pledged Note (including any underlying instrument pursuant
to which such Pledged Note is issued) or compromising or releasing or
extending the time for payment of any obligation of the maker thereof; or
(b) take or omit to take any action the taking or the omission of
which would result in any impairment or alteration of any obligation of the
maker of any Pledged Note or other instrument constituting Collateral.
SECTION 4.1.7. PLEDGOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding,
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(a) the Pledgor shall remain liable to perform all of its duties and
obligations as an owner of the Pledged Interests, to the same extent as if
this Pledge Agreement had not been executed;
(b) the exercise by the Administrative Agent or any other Secured
Party of any of its rights hereunder shall not release the Pledgor from any
of its duties or obligations as owner of the Pledged Interests; and
(c) neither the Administrative Agent nor any other Secured Party
shall have any obligation or liability as an owner of any Pledged Interest
as applicable, by reason of this Pledge Agreement.
ARTICLE V
THE AGENT
SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor
hereby irrevocably appoints the Administrative Agent as the Pledgor's
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time in the Administrative
Agent's discretion, after the occurrence and during the continuance of a Default
of the nature referred to in Section 9.1(i) of the Credit Agreement or any other
Event of Default, to take any action and to execute any instrument which such
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Pledge Agreement, including without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with CLAUSE (a); and
(c) to file any claims or take any action or institute any proceedings
which such Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
such Administrative Agent with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If the Pledgor fails to
perform any agreement contained herein, the Administrative Agent may perform, or
cause performance of,
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such agreement, and the reasonable expenses of the Administrative Agent incurred
in connection therewith shall be payable by the Pledgor pursuant to SECTION 6.4.
SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. The powers conferred on
the Administrative Agent hereunder are solely to protect its interests (on
behalf of the Secured Parties) in the Collateral and shall not impose any duty
on it to exercise any such powers. Except for reasonable care of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Administrative Agent shall have no duty as to any Collateral or
responsibility for
(a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Interests, whether or not the Administrative Agent has or is deemed to have
knowledge of such matters, or
(b) taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. Other than the exercise of reasonable care
in the custody and preservation of the Collateral, the Administrative Agent
shall have no duty with respect thereto. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Administrative Agent accords its own
property. The Administrative Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any agent or bailee selected by the
Administrative Agent in good faith.
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a)The Administrative Agent may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the U.C.C. (whether or not the U.C.C. applies to the affected
Collateral) and also may, without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or
private sale, at the Administrative Agent's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the
Administrative Agent may deem commercially reasonable. The Pledgor agrees
that, to the extent notice of sale shall be required by law, at least ten
days' prior notice to the Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification.
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The Administrative Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The
Administrative Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was
so adjourned.
(b) The Administrative Agent may
(i) transfer all or any part of the Collateral into the name of
the Administrative Agent or its nominee, with or without disclosing
that such Collateral is subject to the Lien hereunder,
(ii) notify the parties obligated on any of the Collateral to
make payment to the Administrative Agent of any amount due or to
become due thereunder,
(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof,
or compromise or extend or renew for any period (whether or not longer
than the original period) any obligations of any nature of any party
with respect thereto,
(iv) endorse any checks, drafts, or other writings in the
Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
(vi) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, stock powers and other instruments of
conveyance or transfer with respect to all or any of the Collateral,
(vii) accelerate any Pledged Note which may be accelerated in
accordance with its terms and take any other action to collect upon
any Pledged Note (including, without limitation, to make any demand
for payment thereon), and
(viii) to vote all or any part of the Pledged Interests (whether
or not transferred into the name of the Administrative Agent) and give
all consents, waivers and ratifications in respect of the Collateral
(including, without limitation, under all operating agreements,
partnership agreements or other agreements relating to the Collateral)
and otherwise act with respect thereto as if it were the outright
owner thereof.
SECTION 6.2. SECURITIES LAWS. If the Administrative Agent shall determine
to exercise its right to sell all or any of the Collateral pursuant to SECTION
6.1, the Pledgor agrees that, upon request of the Administrative Agent, the
Pledgor will, at the Pledgor's own expense:
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(a) execute and deliver, and cause each issuer of the Collateral
contemplated to be sold and the directors and officers thereof to execute
and deliver, all such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
the Administrative Agent, advisable to register such Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"SECURITIES ACT") and comparable legislation in other jurisdictions, and to
cause the registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Administrative Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto and comparable legislation, rules and
regulations in other jurisdictions;
(b) use its best efforts to qualify the Collateral under the state
securities or "Blue Sky" laws and to obtain all necessary governmental
approvals for the sale of the Collateral, as requested by the
Administrative Agent;
(c) cause each such Pledged Interest Issuer to make available to its
security holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act and
comparable legislation in other jurisdictions; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid and
binding and in compliance with applicable law.
The Pledgor further acknowledges the impossibility of ascertaining the amount of
damages that would be suffered by the Administrative Agent and the Secured
Parties by reason of the failure by the Pledgor to perform any of the covenants
contained in this Section and, consequently, agrees that, if the Pledgor shall
fail to perform any of such covenants, the Pledgor shall pay, as liquidated
damages and not as a penalty, an amount equal to the value (as determined by the
Administrative Agent) of the Collateral on the date the Administrative Agent
shall demand compliance with this Section. Notwithstanding the provisions of
this Section 6.2, the Administrative Agent shall not be obligated to register
any of the Collateral under the Securities Act in connection with the exercise
of remedies hereunder and may elect, in its sole discretion, to sell Collateral
or any part thereof by private sale in such manner and under such circumstances
as the Administrative Agent may deem necessary or advisable in order that such
sale be effected without such registration.
SECTION 6.3. COMPLIANCE WITH RESTRICTIONS. The Pledgor agrees that in any
sale of any of the Collateral whenever an Event of Default shall have occurred
and be continuing, the Administrative Agent is hereby authorized to comply with
any limitation or restriction in connection with such sale as it may be advised
by counsel is necessary in order to avoid any
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violation of applicable law (including compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to Persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral), or in order to obtain
any required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Administrative
Agent or any other Secured Party be liable or accountable to the Pledgor for any
discount allowed by the reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
SECTION 6.4. APPLICATION OF PROCEEDS. All cash proceeds received by the
Administrative Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral may, in the discretion of
the Administrative Agent, be held by the Administrative Agent as additional
collateral security for, or then or at any time thereafter be applied in whole
or in part by the Administrative Agent against all or any part of the Secured
Obligations as follows:
(i) first, to the payment of all Obligations owing to the
Administrative Agent pursuant to Section 11.3 of the Credit Agreement
and SECTION 6.5;
(ii) second, after payment in full of the amounts specified in
CLAUSE (i), to the ratable payment of all other Obligations owing to
the Secured Parties, with such amounts applied first to fees and
expenses, then to accrued and unpaid interest, then to the outstanding
principal amount of the Loans, then to Letter of Credit Outstandings
and then to Interest Rate Hedging Obligations; and
(iii) third, after payment in full of the amounts specified in
CLAUSES (i) and (ii), and following the Termination Date, to the
Pledgor or any other Person lawfully entitled to receive such surplus.
SECTION 6.5. INDEMNITY AND EXPENSES. The Pledgor hereby agrees to
indemnify and hold harmless the Administrative Agent and the Secured Parties
from and against any and all claims, losses, and liabilities arising out of or
resulting from this Pledge Agreement (including enforcement of this Pledge
Agreement), except claims, losses, or liabilities resulting from the
Administrative Agent's or a Secured Party's gross negligence or wilful
misconduct. Upon demand, the Pledgor agrees that it will pay to the
Administrative Agent the amount of any and all reasonable expenses, including
the reasonable fees and disbursements of its counsel and of any experts, which
the Administrative Agent or any other Secured Party may incur in connection
with:
15
<PAGE>
(a) the administration of this Pledge Agreement, the Credit Agreement
and any other Loan Document;
(b) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the
Administrative Agent hereunder; or
(d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
The provisions of this SECTION 6.5 shall survive the Termination Date.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof, including Article XI thereof.
SECTION 7.2. PROTECTION OF COLLATERAL. The Administrative Agent may from
time to time, at its option, perform any act which the Pledgor agrees hereunder
to perform and which the Pledgor shall fail to perform after being requested in
writing so to perform (it being understood that no such request need be given
after the occurrence and during the continuance of an Event of Default) and the
Administrative Agent may from time to time take any other action which the
Administrative Agent reasonably deems necessary for the maintenance,
preservation or protection of any of the Collateral or of its security interest
therein.
SECTION 7.3. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT.
This Pledge Agreement shall be binding upon the Pledgor and its successors,
transferees and assigns and shall inure to the benefit of and be enforceable by
each Secured Party and their respective successors, transferees and assigns;
PROVIDED, HOWEVER, that the Pledgor may not assign any of its obligations
hereunder without the prior written consent of all Lenders.
SECTION 7.4. AMENDMENTS, ETC. No amendment to or waiver of any provision
of this Pledge Agreement, nor consent to any departure by the Pledgor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent (on behalf of the Lenders or the Required Lenders,
as the case may be) and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 7.5. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and, mailed or
telecopied or delivered to
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the Pledgor, at the address specified in the Credit Agreement. All such notices
and other communications, when mailed and properly addressed with postage
prepaid or if properly addressed and sent by pre-paid courier service, shall be
deemed given when received; any such notice or communication, if transmitted by
telecopier, shall be deemed given when transmitted and electronically confirmed.
SECTION 7.6. NO WAIVER; REMEDIES. No failure on the part of any Secured
Party to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 7.7. CAPTIONS. Section captions used in this Pledge Agreement are
for convenience of reference only, and shall not affect the construction of this
Pledge Agreement.
SECTION 7.8. SEVERABILITY. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION 7.9. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS PLEDGE AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
SECTION 7.10. COUNTERPARTS. This Pledge Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
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IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
THE TITAN CORPORATION
By:
------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
ACKNOWLEDGED AND ACCEPTED:
CREDIT SUISSE FIRST BOSTON
as Administrative Agent
By:
--------------------------
Name: Thomas G. Muoio
Title: Vice President
By:
---------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT A
to Borrower
Pledge Agreement
INSTRUCTION TO REGISTER PLEDGE
___________ __, ____
[ ]
Attention: ________________
Ladies and Gentlemen:
The undersigned, a [member] [partner] [shareholder] of ___________, [a
___________ limited liability company] [a __________ corporation] [a ___________
partnership] (the "COMPANY"), hereby instructs the Company to register on the
books of the Company the pledge of the undersigned's [membership] [partnership]
interest in favor of Credit Suisse First Boston, as administrative agent (the
"ADMINISTRATIVE AGENT"), pursuant to the Borrower Pledge Agreement, dated as of
February 23, 2000, made by, among others, the undersigned in favor of the
Administrative Agent.
Very truly yours,
THE TITAN CORPORATION
By:______________________
Name:
Title:
cc: Credit Suisse First Boston
<PAGE>
EXHIBIT B
to Borrower
Pledge Agreement
INITIAL TRANSACTION STATEMENT
___________ __, ____
To: Credit Suisse First Boston
Attention:
This statement is to advise you that a pledge of the following
uncertificated securities has been registered in the name of Credit Suisse First
Boston, as Administrative Agent (the "ADMINISTRATIVE AGENT"), as follows:
1. Uncertificated Securities:
The entire [limited liability company] [partnership] interests of THE
TITAN CORPORATION in the undersigned [limited liability company]
[_____ partnership] [corporation].
2. Registered Owner:
THE TITAN CORPORATION
3. Pledged in favor of:
Credit Suisse First Boston,
as the Administrative Agent
4. There are no liens or restrictions of the undersigned [limited
liability company] [_______ partnership] [corporation] and no adverse
claims to which the uncertificated securities are or may be subject
known to the undersigned [limited liability company] [______
partnership] [corporation], other than in favor of Credit Suisse First
Boston, in its capacity as the Administrative Agent.
5. The pledge was registered on _______ __, ____.
<PAGE>
6. No transfer of the uncertificated securities shall be made without the
prior written consent of the Administrative Agent.
THIS STATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEE AS OF THE
TIME OF ITS ISSUANCE. DELIVERY OF THIS STATEMENT, OF ITSELF, CONFERS NO RIGHTS
ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT NOR A
SECURITY.
Very truly yours,
[NAME OF PLEDGED INTEREST ISSUER]
By:___________________________________
Name:
Title:
<PAGE>
ATTACHMENT 1
to Borrower
Pledge Agreement
PLEDGED INTERESTS
PLEDGED NOTES
LOCATION OF PLEDGOR (Section 3.1.4)
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
<PAGE>
EXHIBIT F-2
SUBSIDIARY PLEDGE AGREEMENT
This PLEDGE AGREEMENT (as amended, restated, supplemented, or otherwise
modified from time to time, the "PLEDGE AGREEMENT"), dated as of February 23,
2000 is made by each U.S. Subsidiary (as defined in the Credit Agreement
referred to below) of THE TITAN CORPORATION, a Delaware corporation, now or
after the date hereof (including pursuant to SECTION 7.6) a signatory hereto
(each, individually, a "PLEDGOR," and collectively, the "PLEDGORS"), in favor of
CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as Administrative Agent
(the "ADMINISTRATIVE AGENT") for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented, or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among THE TITAN CORPORATION, a
Delaware (the "BORROWER"), the various financial institutions as are or may
become parties thereto (the "LENDERS"), CSFB, as Lead Arranger and
Administrative Agent for the Lenders, First Union Securities, Inc., as
Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent, the
Lenders and the Issuers have extended Commitments to make Credit Extensions to
the Borrower;
WHEREAS, as a condition precedent to the making of the Credit Extensions
(including the initial Credit Extension) under the Credit Agreement, each
Pledgor is required to execute and deliver this Pledge Agreement;
WHEREAS, each Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of each Pledgor to execute this Pledge
Agreement inasmuch as such Pledgor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrower by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, and in order to induce the Lenders
and the Issuers to make Credit Extensions (including the initial Credit
Extension) to the Borrower pursuant to the Credit Agreement, each Pledgor
jointly and severally agrees, for the benefit of each Secured Party, as follows:
1
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ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
"CERTIFICATED INTERESTS" means, collectively, all Pledged Shares evidenced
by certificates.
"COLLATERAL" is defined in SECTION 2.1.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"DISTRIBUTIONS" means all stock dividends, liquidating dividends, shares of
stock resulting from (or in connection with the exercise of) stock splits,
reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Interests or other shares of
Capital Stock constituting Collateral, but shall not include Dividends.
"DIVIDENDS" means cash dividends and cash distributions with respect to any
Pledged Interests made in the ordinary course of business and not a liquidating
dividend.
"INTEREST RATE HEDGING AGREEMENTS" means interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect a Pledgor against fluctuations in
interest rates, entered into between such Pledgor and a Lender or an Affiliate
of a Lender, for the purpose of hedging interest rate risk with respect to the
Obligations.
"INTEREST RATE HEDGING OBLIGATIONS" means all liabilities of the Pledgors
under Interest Rate Hedging Agreements.
"LENDER" and "LENDERS" are defined in the FIRST RECITAL.
"LLC" means each limited liability company listed from time to time as a
Pledged Interest Issuer on ATTACHMENT 1 hereto.
"LLC INTEREST" means the entire ownership interest of any Pledgor in each
Pledged Interest Issuer that is a LLC listed on ATTACHMENT 1 hereto, including
such Pledgor's capital account, its gain, loss, deduction and credit of such
Pledged Interest Issuer, his interest in all distributions made or to be made by
such Pledged Interest Issuer to such Pledgor and all of the other rights, titles
and interests of such Pledgor as an owner or a member of such Pledged Interest
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Issuer, whether set forth in the operating or membership agreement of such
Pledged Interest Issuer, by separate agreement or otherwise.
"PARTNERSHIP" means each general partnership or limited partnership listed
from time to time as a Pledged Interest Issuer on ATTACHMENT 1 hereto.
"PARTNERSHIP INTEREST" means the entire ownership interest of the Pledgor
in each Pledged Interest Issuer that is a Partnership listed on ATTACHMENT 1
hereto, including the Pledgor's capital account, its gain, loss, deduction and
credit of such Pledged Interest Issuer, the Pledgor's interest in all
distributions made or to be made by such Pledged Interest Issuer to the Pledgor
and all of the other rights, titles and interests of the Pledgor as an owner, a
general partner or a limited partner of such Pledged Interest Issuer, whether
set forth in the partnership agreement of such Pledged Interest Issuer, by
separate agreement or otherwise.
"PLEDGE AGREEMENT" is defined in the PREAMBLE.
"PLEDGED INTEREST ISSUERS" means each Person identified in ATTACHMENT 1
hereto as the issuer of the Pledged Interests (including the maker of each
Pledged Note) identified opposite the name of such Person and each Person whose
ownership, equity or other similar interests, including shares of Capital Stock,
Partnership Interests and LLC Interests, are , or are required to be pledged
hereunder and under the Credit Agreement from time to time.
"PLEDGED INTERESTS" means (i) all Pledged Shares and (ii) all Pledged
Notes.
"PLEDGED NOTES" means all promissory notes of any Pledged Interest Issuer,
identified on Attachment 1 hereto, and any promissory notes issued to any
Pledgor in the future, as such promissory notes are amended, restated,
supplemented or otherwise modified from time to time, in accordance with SECTION
4.1.6, together with any promissory note any Pledged Interest Issuer taken in
extension or renewal thereof or substitution therefor.
"PLEDGED SHARES" means (a) all ownership, equity or other similar
interests, including shares of Capital Stock, Partnership Interests and LLC
Interests, of any Pledged Interest Issuer listed on Attachment 1 hereto and any
shares of Capital Stock, Partnership Interests and LLC Interests of any Pledged
Interest Issuer obtained in the future by any Pledgor, (b) the certificates
representing all such ownership, equity or similar interests and (c) all
securities convertible into, and all warrants, options or other rights to
acquire, such ownership, equity or similar interets; but excluding all shares of
voting stock of each class of any Foreign Subsidiary in excess of 65% of the
total issued and outstanding shares of the voting stock of each such class.
"PLEDGOR" is defined in the PREAMBLE.
"SECURED OBLIGATIONS" is defined in SECTION 2.2.
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"SECURITIES ACT" is defined in SECTION 6.2.
"TERMINATION DATE" means the date on which all Obligations have been
indefeasibly paid in full, all Commitments have been fully terminated and all
Letters of Credit have been canceled or otherwise terminated.
"U.C.C." means the Uniform Commercial Code, as in effect from time to time
in the State of New York; PROVIDED, that if by reason of mandatory provisions of
law or the exercise of remedies, the perfection or the effect of perfection or
non-perfection of the Lien granted in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than New York, "U.C.C."
means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection or the exercise of remedies.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which meanings
are provided in the U.C.C. are used in this Pledge Agreement with such meanings.
ARTICLE II
PLEDGE
SECTION 2.1. GRANT OF SECURITY INTEREST. Each Pledgor hereby pledges,
hypothecates, assigns, charges, mortgages, delivers and transfers to the
Administrative Agent, for its benefit and the ratable benefit of each of the
Secured Parties, and each Pledgor hereby grants to the Administrative Agent, for
the ratable benefit of the Secured Parties, to secure the Secured Obligations, a
continuing security interest in, all of the following property (the
"COLLATERAL"):
(a) all Pledged Interests;
(b) all right, title and interest of such Pledgor, whether now
existing or hereafter arising or acquired, in, to and under any partnership
agreement, limited liability company agreement or similar agreement which
governs the rights and obligations of the holder of ownership, equity or
similar interests in a Pledged Interest Issuer;
(c) all Dividends, Distributions, interest and without duplication,
other payments and rights with respect to any Pledged Interest; and
(d) all proceeds of any of the foregoing.
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SECTION 2.2. SECURITY FOR OBLIGATIONS. This Pledge Agreement secures the
payment in full of (i) all Obligations of the Borrower now or hereafter existing
under the Credit Agreement, each other Loan Document to which the Borrower is or
may become a party, and each Interest Rate Hedging Agreement, whether for
principal, interest, costs, fees, expenses, Interest Rate Hedging Obligations or
otherwise, and (ii) all Obligations of each Pledgor now or hereafter existing
under the Credit Agreement and each other Loan Document and each Interest Rate
Hedging Agreement, whether for principal, interest, costs, fees, indemnities,
expenses, Interest Rate Hedging Obligations or otherwise (including all
Obligations of each Pledgor now or hereafter existing under this Pledge
Agreement and each other Loan Document to which such Pledgor is or may become a
party), with all such Obligations being referred to as the "SECURED
OBLIGATIONS".
SECTION 2.3. PLEDGE AND TRANSFER OF PLEDGED INTERESTS. Any Certificated
Interests representing or evidencing any Collateral shall be delivered to and
held by or on behalf of the Administrative Agent pursuant hereto, shall be in
suitable form for transfer by delivery, and shall be accompanied by all
necessary instruments of transfer or assignment, duly executed in blank by the
applicable Pledgor or, if any Collateral is in the form of uncertificated
securities, confirmation and evidence satisfactory to the Administrative Agent
that the applicable Pledgor has taken all actions requested by the
Administrative Agent to provide for the transfer to and perfection by the
Administrative Agent of the security interests in such uncertificated securities
for the benefit of the Secured Parties in accordance with the U.C.C. and any
other applicable law.
SECTION 2.4. DIVIDENDS ON PLEDGED INTERESTS. In the event that any
Dividend or other payment is to be paid on any Pledged Interests (including any
payment of any principal or interest on any Pledged Note) at a time when no
Default has occurred and is continuing or would result therefrom, such Dividend
or payment may be paid directly to the applicable Pledgor. If any such Default
or Event of Default has occurred and is continuing, then any such Dividend or
payment shall be paid directly to the Administrative Agent for the benefit of
the Secured Parties.
SECTION 2.5. CONTINUING SECURITY INTEREST. This Pledge Agreement shall
create a continuing security interest in the Collateral and shall
(a) remain in full force and effect until the Termination Date;
(b) be binding upon each Pledgor and its successors, transferees and
assigns; and
(c) inure, together with the rights and remedies of the Administrative
Agent hereunder, to the benefit of the Administrative Agent and each other
Secured Party.
Without limiting CLAUSE (c), any Lender may assign or otherwise transfer (in
whole or in part) any Note or Loan held by it to any other Person or entity, and
such other Person or entity shall thereupon become vested with all the rights
and benefits in respect thereof granted to such Lender under any Loan Document
(including this Pledge Agreement) or otherwise, subject,
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however, to any contrary provisions in such assignment or transfer,
and to the provisions of Section 11.11 and Article X of the Credit Agreement.
Upon (i) the sale, transfer or other disposition of Collateral in accordance
with the Credit Agreement, (ii) the issuance of shares in connection with the
Initial public offering of Cayenta pursuant to the terms of the applicable
underwriting agreement and the delivery of a certificate to the Administrative
Agent stating that no Default has occurred and is continuing or would result
from the initial public offering or (iii) the occurrence of the Termination
Date, the security interests granted herein shall automatically terminate with
respect to (x) such Collateral (in the case of clause (i)), (y) any Collateral
owned by any member of the Cayenta Group (in the case of clause (ii)) or (z) all
Collateral (in the case of clause (iii)), and at such time the Administrative
Agent will, at each Pledgor's sole expense, deliver to the applicable Pledgor,
without any representations, warranties or recourse of any kind whatsoever, all
certificates and instruments previously delivered to the Administrative Agent
representing or evidencing all Pledged Interests, together with all other
Collateral held by the Administrative Agent hereunder, and execute and deliver
to the applicable Pledgor such documents as a Pledgor shall reasonably request
to evidence such termination.
SECTION 2.6. SECURITY INTEREST ABSOLUTE. All rights of the Administrative
Agent and the security interests granted to the Administrative Agent hereunder,
and all obligations of each Pledgor hereunder, shall be joint and several and
shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit Agreement or
any other Loan Document;
(b) the failure of any Secured Party
(i) to assert any claim or demand or to enforce any right or
remedy against any Obligor or any other Person under the provisions of
the Credit Agreement, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any other guarantor
of, or collateral securing, any Secured Obligations;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligation;
(d) any reduction, limitation, impairment or termination of any
Secured Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and each
Pledgor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any Secured Obligations or
otherwise;
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(e) any amendment to, rescission, waiver, or other modification of, or
any consent to departure from, any of the terms of the Credit Agreement or
any other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection of
any collateral (including the Collateral), or any amendment to or waiver or
release of or addition to or consent to departure from any guaranty, for
any of the Secured Obligations; or
(g) any other circumstances which might otherwise constitute a defense
available to, or a legal or equitable discharge of, any Obligor, any surety
or any guarantor.
SECTION 2.7. POSTPONEMENT OF SUBROGATION, ETC. Each Pledgor agrees that
it will not exercise any rights which it may acquire by reason of any payment
made hereunder, whether by way of subrogation, reimbursement or otherwise, until
following the Termination Date. Any amount paid prior to the Termination Date
shall be held in trust for the benefit of the Secured Parties and shall
immediately be paid to the Administrative Agent for the benefit of the Secured
Parties and credited and applied against the Secured Obligations, whether
matured or unmatured, in accordance with the terms of the Credit Agreement;
PROVIDED, HOWEVER, that if
(a) any Pledgor has made payment to the Secured Parties of all or any
part of the Secured Obligations; and
(b) the Termination Date has occurred;
then each Secured Party agrees that, at such Pledgor's request, the
Administrative Agent, on behalf of the Secured Parties, will execute and deliver
to such Pledgor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
such Pledgor of an interest in the Secured Obligations resulting from such
payment by such Pledgor. In furtherance of the foregoing, at all times prior to
the Termination Date, each Pledgor shall refrain from taking any action or
commencing any proceeding against any Borrower or any other Obligor (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in respect of payments made under this Pledge
Agreement to any Secured Party. Notwithstanding the foregoing, to the extent
necessary to toll the statute of limitations, such Pledgor may take such action
required to preserve any rights it has by way of rights of subrogation as
consented to by the Administrative Agent in its reasonable discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES, ETC. In order to induce the
Secured Parties to enter into the Credit Agreement and to make Credit Extensions
thereunder, each Pledgor represents and warrants to each Secured Party as set
forth in this Article.
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SECTION 3.1.1. OWNERSHIP, NO LIENS, ETC. Each Pledgor is the legal and
beneficial owner of, and has good and marketable title to (and has full right
and authority to pledge and assign) its Collateral, free and clear of all Liens,
options and other charges, except any Lien granted pursuant hereto in favor of
the Secured Parties.
SECTION 3.1.2. VALID SECURITY INTEREST. The execution and delivery of this
Pledge Agreement, together with (a)(i) in the case of Collateral in the form of
a Certificated Interest, the delivery of such Collateral to the Administrative
Agent together with undated stock powers executed in blank by the Pledgor, (ii)
in the case of Collateral in the form of an uncertificated security, the
registration with the Pledged Interest Issuer of such uncertificated security,
or (iii) in the case of Collateral in the form of Pledged Notes, delivery of
such Collateral and an allonge to such Collateral to the Administrative Agent,
or (b) in the case of other than Certificated Interests, the filing of U.C.C.
financing statements in the filing offices listed on Attachment 2 hereto, is
effective to create a valid, perfected, first priority security interest in such
Collateral and all proceeds thereof, securing the Secured Obligations. No
further action is necessary to perfect or protect such security interest in the
Collateral and the proceeds thereof, subject to Section 9-306 of the U.C.C.
SECTION 3.1.3. AS TO PLEDGED INTERESTS. In the case of
(a) any Pledged Interests (other than Pledged Notes) constituting
Collateral,
(i) all of such Pledged Interests are duly authorized, and
validly issued, fully paid, and non-assessable, and constitute that
percentage of the issued and outstanding shares of Capital Stock,
Partnership Interests, LLC Interests and other ownership interest of
each Pledged Interest Issuer set forth on Attachment 1 hereto; and
(ii)the Pledgor has delivered to the Administrative Agent true
and complete copies of the partnership, membership, operating or
ownership agreements, as applicable, for each Pledged Interest Issuer
that is an LLC or a Partnership, which agreements are currently in
full force and effect and have not been amended or modified except as
disclosed to the Administrative Agent in writing; and
(b) in the case of each Pledged Note, all of such Pledged Notes have
been duly authorized, executed, endorsed, issued and delivered, and are the
legal, valid and binding obligation of the issuers thereof, and are not in
default.
SECTION 3.1.4. LOCATION OF PLEDGOR. The jurisdictions in which the
Pledgor is located for purposes of Sections 9-103 and 9-104 of the U.C.C. are
set forth in ATTACHMENT 2 hereto.
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SECTION 3.1.5. NATURE OF PLEDGED INTERESTS. No LLC Interests or
Partnership Interests are Certificated Interests.
ARTICLE IV
COVENANTS
SECTION 4.1. COVENANTS. Each Pledgor covenants and agrees that, at all
times prior to the Termination Date, it will perform, comply with and be bound
by the obligations set forth in this Article.
SECTION 4.1.1. PROTECT COLLATERAL; FURTHER ASSURANCES, ETC. Each Pledgor
covenants and agrees that it will not sell, assign, transfer, pledge, or
encumber in any other manner the Collateral (except in favor of the
Administrative Agent hereunder). Each Pledgor will warrant and defend the right
and title herein granted unto the Administrative Agent in and to the Collateral
(and all right, title, and interest represented by the Collateral) against the
claims and demands of all other Persons. Each Pledgor agrees that from time to
time, at the expense of such Pledgor, it will promptly execute and deliver all
further instruments, and take all further action, that may be necessary or
desirable, or that the Administrative Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Administrative Agent to exercise and enforce its rights
and remedies hereunder with respect to any Collateral. The Pledgor will not,
without thirty (30) days' prior written notice to the Administrative Agent, (i)
change its name or structure so as to make any financing or other statement
filed pursuant to this Pledge Agreement become seriously misleading or (ii)
change the jurisdiction in which it is located to other than those specified in
SECTION 3.1.4. Each Pledgor will pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional
Indebtedness owed to such Pledgor pursuant to any note with an Obligor. Each
Pledgor further covenants and agrees as follows:
(a) If any Pledgor shall become entitled to receive or shall receive
any stock or other certificate (including any certificate representing a
Dividend or a Distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any portion of the
Collateral (or otherwise in respect thereof), such Pledgor shall accept the
same as the agent of the Administrative Agent, hold the same in trust for
the Administrative Agent and deliver the same forthwith to the
Administrative Agent in the exact form received, duly endorsed (in blank)
by such Pledgor to the Administrative Agent, if required, together with an
undated stock power or other necessary instrument of transfer covering such
certificate duly executed in blank by such Pledgor, to be held by the
Administrative Agent, subject to the terms of this Pledge Agreement, as
additional security for the Secured Obligations. In addition, any sums
paid upon or in respect of the Collateral upon the liquidation or
dissolution of any Pledged Interest Issuer shall be held by the
Administrative Agent as additional security for the Secured Obligations.
If any sums of money or property so paid
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or distributed in respect of any Collateral shall be received by any
Pledgor, then such Pledgor shall, until such money or property is paid
or delivered to the Administrative Agent, hold such money or property in
trust for the Administrative Agent (on behalf of the Secured Parties),
segregated from other funds of such Pledgor, as additional collateral
securing the Secured Obligations.
(b) Except as otherwise expressly permitted by the Credit Agreement,
without the prior written consent of the Administrative Agent, no Pledgor
will (i) consent to any material modification, extension or alteration of
the terms of any membership or operating agreement of the LLCs or the
Partnerships or (ii) accept a surrender of any membership or operating
agreement of any of the LLCs or the Partnerships, as applicable, or waive
any breach of or default under any such agreement by any other party
thereto.
(c) Each Pledgor will advise the Administrative Agent promptly, in
reasonable detail (i) of any Lien or claim made or asserted against any
material part of the Collateral, (ii) of any material change in the
composition of the Collateral, and (iii) of the occurrence of any other
event relating specifically to such Pledgor or its assets which could
reasonably be expected to have a material adverse effect on the aggregate
value of the Collateral or on the security interests created hereunder.
SECTION 4.1.2. REGISTRATION OF PLEDGED INTERESTS, ETC. Concurrently with
the execution and delivery of this Pledge Agreement, each Pledgor shall execute
and deliver to the applicable Pledged Interest Issuer instructions to register,
substantially in the form of EXHIBIT A hereto, and cause each Pledged Interest
Issuer to execute and deliver to the Administrative Agent the Initial
Transaction Statement, substantially in the form of EXHIBIT B hereto, confirming
that each Pledged Interest Issuer (in which such Pledgor owns a Pledged Interest
(other than in the case of a Certificated Interest or a Pledged Note)) has
registered the pledge by such Pledgor effected by this Pledge Agreement on its
books. In addition, the Pledgor agrees that it shall cause each issuer of
Certificated Interests to execute and deliver to the Administrative Agent an
acknowledgment in a form satisfactory to the Administrative Agent.
SECTION 4.1.3. STOCK POWERS, ETC. Each Pledgor agrees that all
Certificated Interests constituting Collateral delivered by such Pledgor
pursuant to this Pledge Agreement will be accompanied by duly executed undated
blank stock powers, or other equivalent instruments of transfer acceptable to
the Administrative Agent, as is necessary under all applicable laws to perfect
the Lien in favor of the Secured Parties on such Collateral. Each Pledgor will,
from time to time upon the request of the Administrative Agent, promptly deliver
to the Administrative Agent such stock powers, instruments, and similar
documents, satisfactory in form and substance to the Administrative Agent, with
respect to the Collateral as the Administrative Agent may reasonably request and
will, from time to time upon the request of the Administrative Agent after the
occurrence, and during the continuance, of any Event of Default, promptly
transfer any Pledged Interests or other shares of Capital Stock or other
ownership interests constituting Collateral into the name of any nominee
designated by the Administrative Agent.
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SECTION 4.1.4. CONTINUOUS PLEDGE. Each Pledgor will, at all times, keep
pledged to the Administrative Agent pursuant hereto all Pledged Interests and
all other shares of Capital Stock or other ownership interests constituting
Collateral, all Dividends and Distributions with respect thereto (provided that
if no Default described in Section 9.1(i) of the Credit Agreement or Event of
Default shall have occurred or be continuing, such Dividends and Distributions
may be used for working capital or other purposes), all Pledged Notes, all
interest, principal and other proceeds received by the Administrative Agent with
respect to the Pledged Notes, and all other Collateral and other securities,
instruments, proceeds, and rights from time to time received by or distributable
to such Pledgor in respect of any Collateral and will not permit any Pledged
Interest Issuer to issue any Capital Stock or other ownership interests or any
options, warrants or other rights to subscribe for or purchase Capital Stock
(other than as permitted by the Credit Agreement) which shall not have been
immediately duly pledged hereunder on a first priority perfected basis.
SECTION 4.1.5. VOTING RIGHTS; DIVIDENDS, ETC. Each Pledgor agrees:
(a) after any Default of the nature referred to in Section 9.1(i) of
the Credit Agreement or an Event of Default shall have occurred and be
continuing, promptly upon receipt of notice thereof by such Pledgor and
without any request therefor by the Administrative Agent, such Pledgor will
deliver (properly endorsed where required hereby or requested by the
Administrative Agent) to the Administrative Agent all Dividends,
Distributions, all other cash payments, and all proceeds of the Collateral,
all of which shall be held by the Administrative Agent for the benefit of
the Secured Parties as additional Collateral for use in accordance with
SECTION 6.4; and
(b) after any Event of Default shall have occurred and be continuing
and the Administrative Agent has notified any Pledgor of the Administrative
Agent's intention to exercise its voting power under this Section.
(i) the Administrative Agent may exercise (to the exclusion of
each Pledgor) the voting power and all other incidental rights of
ownership with respect to any Pledged Interests or other shares of
Capital Stock or other ownership interests constituting Collateral and
each Pledgor hereby grants the Administrative Agent an irrevocable
proxy, exercisable under such circumstances, to vote the Pledged
Interests and such other Collateral; and
(ii) promptly to deliver to the Administrative Agent such
additional proxies and other documents requested by the Administrative
Agent as may be necessary to allow the Administrative Agent to
exercise such voting power.
All Dividends, Distributions, cash payments and proceeds which may at any time
and from time to time be held by any Pledgor but which such Pledgor is then
obligated to deliver to the Administrative Agent, shall, until delivery to the
Administrative Agent, be held by such Pledgor
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separate and apart from its other property in trust for the Secured Parties.
The Administrative Agent agrees that unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given the
notice referred to in CLAUSE (b), such Pledgor shall have the exclusive
voting power with respect to any shares of Capital Stock or other ownership
interests (including any of the Pledged Interests) constituting Collateral
and the Administrative Agent shall, upon the written request of such Pledgor,
promptly deliver such proxies and other documents, if any, as shall be
reasonably requested by such Pledgor which are necessary to allow such
Pledgor to exercise voting power with respect to any such share of Capital
Stock or other ownership interests (including any of the Pledged Interests)
constituting Collateral; PROVIDED, HOWEVER, that no vote shall be cast, or
consent, waiver, or ratification given, or action taken by any Pledgor that
would impair any Collateral or be inconsistent with or violate any provision
of the Credit Agreement, any other Loan Document or any Interest Rate Hedging
Agreement.
SECTION 4.1.6. ADDITIONAL UNDERTAKINGS. No Pledgor will, without the
prior written consent of the Administrative Agent, take or omit to take any
action the taking or the omission of which could result in any impairment or
alteration of any instrument constituting Collateral. In furtherance of the
foregoing, each Pledgor agrees that it will not, without the prior written
consent of the Administrative Agent (which consent shall not be unreasonably
withheld):
(a) enter into any agreement amending, supplementing, or waiving any
provision of any Pledged Note (including any underlying instrument pursuant
to which such Pledged Note is issued) or compromising or releasing or
extending the time for payment of any obligation of the maker thereof; or
(b) take or omit to take any action the taking or the omission of
which would result in any impairment or alteration of any obligation of the
maker of any Pledged Note or other instrument constituting Collateral.
SECTION 4.1.7. PLEDGOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding,
(a) each Pledgor shall remain liable to perform all of its duties and
obligations as an owner of the Pledged Interests, to the same extent as if
this Pledge Agreement had not been executed;
(b) the exercise by the Administrative Agent or any other Secured
Party of any of its rights hereunder shall not release any Pledgor from any
of its duties or obligations as owner of the Pledged Interests; and
(c) neither the Administrative Agent nor any other Secured Party
shall have any obligation or liability as an owner of any Pledged Interest
as applicable, by reason of this Pledge Agreement.
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ARTICLE V
THE Administrative Agent
SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Each Pledgor
hereby irrevocably appoints the Administrative Agent as such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, from time to time in the
Administrative Agent's discretion, after the occurrence and during the
continuance of a Default of the nature referred to in Section 9.1(i) of the
Credit Agreement or any other Event of Default, to take any action and to
execute any instrument which such Administrative Agent may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, including without
limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with CLAUSE (a); and
(c) to file any claims or take any action or institute any proceedings
which such Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
such Administrative Agent with respect to any of the Collateral.
Each Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If any Pledgor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Administrative Agent incurred in connection therewith shall be jointly and
severally payable by the Pledgors pursuant to SECTION 6.4.
SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. The powers conferred on the
Administrative Agent hereunder are solely to protect its interests (on behalf of
the Secured Parties) in the Collateral and shall not impose any duty on it to
exercise any such powers. Except for reasonable care of any Collateral in their
possession and the accounting for moneys actually received by it hereunder, the
Administrative Agent shall have no duty as to any Collateral or responsibility
for
(a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Interests, whether or not the Administrative Agent has or are deemed to
have knowledge of such matters, or
13
<PAGE>
(b) taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. Other than the exercise of reasonable care
in the custody and preservation of the Collateral, the Administrative Agent
shall have no duty with respect thereto. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Administrative Agent accords its own
property. The Administrative Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any agent or bailee selected by the
Administrative Agent in good faith.
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a)The Administrative Agent may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the U.C.C. (whether or not the U.C.C. applies to the affected
Collateral) and also may, without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or
private sale, at the Administrative Agent's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the
Administrative Agent may deem commercially reasonable. Each Pledgor agrees
that, to the extent notice of sale shall be required by law, at least ten
days' prior notice to any Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. The Administrative Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned.
(b) The Administrative Agent may
(i) transfer all or any part of the Collateral into the name of
the Administrative Agent or its nominee, with or without disclosing
that such Collateral is subject to the Lien hereunder,
(ii) notify the parties obligated on any of the Collateral to
make payment to the Administrative Agent of any amount due or to
become due thereunder,
14
<PAGE>
(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof,
or compromise or extend or renew for any period (whether or not longer
than the original period) any obligations of any nature of any party
with respect thereto,
(iv) endorse any checks, drafts, or other writings in any
Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
(vi) execute (in the name, place and stead of any Pledgor)
endorsements, assignments, stock powers and other instruments of
conveyance or transfer with respect to all or any of the Collateral,
(vii) accelerate any Pledged Note which may be accelerated in
accordance with its terms and take any other action to collect upon
any Pledged Note (including, without limitation, to make any demand
for payment thereon), and
(viii) to vote all or any part of the Pledged Interests (whether
or not transferred into the name of the Administrative Agent) and give
all consents, waivers and ratifications in respect of the Collateral
(including, without limitation, under all operating agreements,
partnership agreements or other agreements relating to the Collateral)
and otherwise act with respect thereto as if it were the outright
owner thereof.
SECTION 6.2. SECURITIES LAWS. If the Administrative Agent shall determine
to exercise its right to sell all or any of the Collateral pursuant to SECTION
6.1, each Pledgor agrees that, upon request of either Administrative Agent, such
Pledgor will, at such Pledgor's own expense:
(a) execute and deliver, and cause each issuer of the Collateral
contemplated to be sold and the directors and officers thereof to execute
and deliver, all such instruments and documents, and do or cause to be done
all such other acts and things, as may be necessary or, in the opinion of
the Administrative Agent, advisable to register such Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"SECURITIES ACT"), and comparable legislation in other jurisdictions, and
to cause the registration statement relating thereto to become effective
and to remain effective for such period as prospectuses are required by law
to be furnished, and to make all amendments and supplements thereto and to
the related prospectus which, in the opinion of the Administrative Agent,
are necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto and comparable legislation, rules and
regulations in other jurisdictions;
15
<PAGE>
(b) use its best efforts to qualify the Collateral under the state
securities or "Blue Sky" laws and to obtain all necessary governmental
approvals for the sale of the Collateral, as requested by the
Administrative Agent;
(c) cause each such Pledged Interest Issuer to make available to its
security holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act and
comparable legislation in other jurisdictions; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Collateral or any part thereof valid and
binding and in compliance with applicable law.
Each Pledgor further acknowledges the impossibility of ascertaining the amount
of damages that would be suffered by the Administrative Agent and the Secured
Parties by reason of the failure by such Pledgor to perform any of the covenants
contained in this Section and, consequently, jointly and severally, agrees that,
if any Pledgor shall fail to perform any of such covenants, the Pledgors shall
pay, as liquidated damages and not as a penalty, an amount equal to the value
(as determined by the Administrative Agent) of the Collateral on the date the
Administrative Agent shall demand compliance with this Section. Notwithstanding
the provisions of this Section 6.2, the Administrative Agent shall not be
obligated to register any of the Collateral under the Securities Act in
connection with the exercise of remedies hereunder and may elect, in its sole
discretion, to sell Collateral or any part thereof by private sale in such
manner and under such circumstances as the Administrative Agent may deem
necessary or advisable in order that such sale be effected without such
registration.
SECTION 6.3. COMPLIANCE WITH RESTRICTIONS. Each Pledgor agrees that in
any sale of any of the Collateral whenever an Event of Default shall have
occurred and be continuing, the Administrative Agent are hereby authorized to
comply with any limitation or restriction in connection with such sale as it may
be advised by counsel is necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to Persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any governmental regulatory authority or official,
and each Pledgor further agrees that such compliance shall not result in such
sale being considered or deemed not to have been made in a commercially
reasonable manner, nor shall the Administrative Agent or any other Secured Party
be liable or accountable to any Pledgor for any discount allowed by the reason
of the fact that such Collateral is sold in compliance with any such limitation
or restriction.
SECTION 6.4. APPLICATION OF PROCEEDS. All cash proceeds received by the
Administrative Agent in respect of any sale of, collection from, or other
realization upon, all or
16
<PAGE>
any part of the Collateral may, in the discretion of the Administrative
Agent, be held by the Administrative Agent as additional collateral security
for, or then or at any time thereafter be applied in whole or in part by the
Administrative Agent against all or any part of the Secured Obligations as
follows:
(i) first, to the payment of all Obligations owing to the
Administrative Agent pursuant to Section 11.3 of the Credit Agreement
and SECTION 6.5;
(ii) second, after payment in full of the amounts specified in
CLAUSE (i), to the ratable payment of all other Obligations owing to
the Secured Parties, with such amounts applied first to fees and
expenses, then to accrued and unpaid interest, then to the outstanding
principal amount of the Loans, then to Letter of Credit Outstandings
and then to Interest Rate Hedging Obligations; and
(iii) third, after payment in full of the amounts specified in
CLAUSES (i) and (ii), and following the Termination Date, to the
Pledgors or any other Person lawfully entitled to receive such
surplus.
SECTION 6.5. INDEMNITY AND EXPENSES. Each Pledgor hereby jointly and
severally agrees to indemnify and hold harmless the Administrative Agent and the
Secured Parties from and against any and all claims, losses, and liabilities
arising out of or resulting from this Pledge Agreement (including enforcement of
this Pledge Agreement), except claims, losses, or liabilities resulting from the
Administrative Agent's or a Secured Party's gross negligence or wilful
misconduct. Upon demand, each Pledgor jointly and severally agrees that it will
pay to the Administrative Agent the amount of any and all reasonable expenses,
including the reasonable fees and disbursements of its counsel and of any
experts, which the Administrative Agent or any other Secured Party may incur in
connection with:
(a) the administration of this Pledge Agreement, the Credit Agreement
and any other Loan Document;
(b) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the
Administrative Agent hereunder; or
(d) the failure by any Pledgor to perform or observe any of the
provisions hereof.
The provisions of this SECTION 6.5 shall survive the Termination Date.
17
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof, including Article XI thereof.
SECTION 7.2. PROTECTION OF COLLATERAL. The Administrative Agent may from
time to time, at their option, perform any act which any Pledgor agrees
hereunder to perform and which such Pledgor shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of an Event of
Default) and the Administrative Agent may from time to time take any other
action which the Administrative Agent reasonably deems necessary for the
maintenance, preservation or protection of any of the Collateral or of their
security interest therein.
SECTION 7.3. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS; ASSIGNMENT.
This Pledge Agreement shall be jointly and several binding upon each Pledgor and
its successors, transferees and assigns and shall inure to the benefit of and be
enforceable by each Secured Party and their respective successors, transferees
and assigns; PROVIDED, HOWEVER, that no Pledgor may assign any of its
obligations hereunder without the prior written consent of all Lenders.
SECTION 7.4. AMENDMENTS, ETC. No amendment to or waiver of any provision
of this Pledge Agreement, nor consent to any departure by any Pledgor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent (on behalf of the Lenders or the Required Lenders,
as the case may be) and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 7.5. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and, mailed or
telecopied or delivered to each Pledgor, in care of the Borrower at the address
specified in the Credit Agreement. All such notices and other communications,
when mailed and properly addressed with postage prepaid or if properly addressed
and sent by pre-paid courier service, shall be deemed given when received; any
such notice or communication, if transmitted by telecopier, shall be deemed
given when transmitted and electronically confirmed.
SECTION 7.6. ADDITIONAL SUBSIDIARY PLEDGORS. Upon the execution and
delivery by any other Person of an instrument in the form of Annex I hereto,
such Person shall become a "Pledgor" hereunder with the same force and effect as
if originally named as a "Pledgor" herein. The execution and delivery of any
such instrument shall not require the consent of any other Pledgor hereunder.
The rights and obligations of each Pledgor hereunder shall remain in full force
and effect notwithstanding the addition of any new Pledgor as a party to this
Pledge Agreement.
18
<PAGE>
SECTION 7.7. NO WAIVER; REMEDIES. No failure on the part of any Secured
Party to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right . The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 7.8. CAPTIONS. Section captions used in this Pledge Agreement are
for convenience of reference only, and shall not affect the construction of this
Pledge Agreement.
SECTION 7.9. SEVERABILITY. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION 7.10. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS PLEDGE AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). THIS PLEDGE AGREEMENT
AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 7.12. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES
OR ANY PLEDGOR SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF
NEW YORK, NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND.
EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
19
<PAGE>
EACH PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
NEW YORK. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PLEDGOR HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO
JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, SUCH PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
SECTION 7.13. WAIVER OF JURY TRIAL. EACH PLEDGOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE SECURED PARTIES OR SUCH PLEDGOR. EACH PLEDGOR ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING
INTO THE CREDIT AGREEMENT.
SECTION 7.14. COUNTERPARTS. This Pledge Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
20
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Assist Cornerstone Technologies, Inc.
Atlantic Aerospace Electronics Corporation
Cayenta Operating Company
Cayenta, Inc.
DBA Systems, Inc.
Delfin Systems
Diversified Control Systems, Inc.
Eldyne, Inc.
Horizons Technology, Inc.
J.B. Systems, Inc.
Linkabit Wireless, Inc.
Mergeco, Inc.
Pulse Sciences, Inc.
System Resources Corporation
Titan Food Pasteurization Corp.
Titan Medical Sterilization Corp.
Titan Scan Corp.
Titan Systems Corporation
Titan Unidyne Corporation
Titan Wireless, Inc.
Tomotherapeutics, Inc.
Validity Corporation
VisiCom Laboratories, Inc.
Microlithics Corporation
Microlithics Corporation
All By:
-----------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
S-1
<PAGE>
CREDIT SUISSE FIRST BOSTON, as Administrative Agent
By:
-------------------------------
Name: Thomas G. Muoio
Title: Vice President
By:
------------------------
Name:
Title:
S-2
<PAGE>
ANNEX I to
the Subsidiary Pledge Agreement
SUPPLEMENT, dated as of ________________, ____ (this "SUPPLEMENT"), to the
Subsidiary Pledge Agreement, dated as of ___________ __, 20__ (together with all
amendments, supplements, restatements and other modifications, if any, from time
to time thereafter made thereto, the "PLEDGE AGREEMENT"), among the initial
signatories thereto and each other Person (such capitalized term, and other
terms used in this Supplement, to have the meanings set forth in Article I of
the Pledge Agreement) which from time to time thereafter became a party thereto
pursuant to Section 7.6 thereof (each, individually, a "PLEDGOR", and,
collectively, the "PLEDGORS"), in favor of the Secured Parties (as defined in
the Pledge Agreement).
W I T N E S S E T H:
WHEREAS, pursuant to the provisions of Section 7.6 of the Pledge Agreement,
the undersigned is becoming a Pledgor under the Pledge Agreement; and
WHEREAS, the undersigned Pledgor desires to become a "Pledgor" under the
Pledge Agreement in order to induce the Secured Parties to continue to extend
Credit Extensions under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
consideration (the receipt and sufficiency of which is hereby acknowledged), the
undersigned agrees, for the benefit of each Secured Party, as follows.
SECTION 1. In accordance with the terms of the Pledge Agreement, by its
signature below the undersigned hereby irrevocably agrees to become a Pledgor
under the Pledge Agreement with the same force and effect as if it were an
original signatory thereto and the undersigned Pledgor, hereby (a) agrees to be
bound by and comply with all of the terms and provisions of the Pledge Agreement
applicable to it as a Pledgor and (b) represents and warrants that the
representations and warranties made by it as a Pledgor thereunder are true and
correct as of the date hereof. In furtherance of the foregoing, each reference
to a "Pledgor" in the Pledge Agreement shall be deemed to include the
undersigned Pledgor.
SECTION 2. The undersigned Pledgor hereby represents and warrants that
this Supplement has been duly authorized, executed and delivered by it and that
this Supplement and the Pledge Agreement constitute the legal, valid and binding
obligation of the undersigned Pledgor, enforceable against it in accordance with
its terms.
SECTION 3. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect in accordance with its terms.
<PAGE>
SECTION 4. In the event any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
SECTION 5. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF ADDITIONAL SUBSIDIARY PLEDGOR]
By:
----------------------------------
Name:
Title:
ACCEPTED BY:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:
------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
to SUBSIDIARY
Pledge Agreement
INSTRUCTION TO REGISTER PLEDGE
___________ __, ____
[ ]
Attention: ________________
Ladies and Gentlemen:
The undersigned, a [member] [partner] [shareholder] of ___________, a
[___________ limited liability company] [a ________ partnership] [a __________
corporation] (the "COMPANY"), hereby instructs the Company to register on the
books of the Company the pledge of the undersigned's [membership] [partnership]
interest in favor of Credit Suisse First Boston, as administrative agent (the
"ADMINISTRATIVE AGENT"), pursuant to the Subsidiary Pledge Agreement, dated as
of February 23, 2000, made by, among others, the undersigned in favor of the
Administrative Agent.
Very truly yours,
[NAME OF PLEDGOR]
By:______________________
Name:
Title:
cc: Credit Suisse First Boston
<PAGE>
EXHIBIT B
to SUBSIDIARY
Pledge Agreement
INITIAL TRANSACTION STATEMENT
___________ __, ____
To: Credit Suisse First Boston
Attention:
This statement is to advise you that a pledge of the following
uncertificated securities has been registered in the name of Credit Suisse First
Boston, as Administrative Agent (the "ADMINISTRATIVE AGENT"), as follows:
1. Uncertificated Securities:
The entire [limited liability company] [partnership] interests of
[NAME OF PLEDGOR] in the undersigned [limited liability company]
[________ partnership] [corporation].
2. Registered Owner:
[NAME OF PLEDGOR]
3. Pledged in favor of:
Credit Suisse First Boston,
as the Administrative Agent
4. There are no liens or restrictions of the undersigned [limited
liability company] [________ partnership] [corporation] and no adverse
claims to which the uncertificated securities are or may be subject
known to the undersigned [limited liability company] [________
partnership] [corporation], other than in favor of Credit Suisse First
Boston, in its capacity as the Administrative Agent.
5. The pledge was registered on _______ __, ____.
<PAGE>
6. No transfer of the uncertificated securities shall be made without the
prior written consent of the Administrative Agent.
THIS STATEMENT IS MERELY A RECORD OF THE RIGHTS OF THE ADDRESSEE AS OF THE
TIME OF ITS ISSUANCE. DELIVERY OF THIS STATEMENT, OF ITSELF, CONFERS NO RIGHTS
ON THE RECIPIENT. THIS STATEMENT IS NEITHER A NEGOTIABLE INSTRUMENT NOR A
SECURITY.
Very truly yours,
[NAME OF PLEDGED INTEREST ISSUER]
By:___________________________________
Name:
Title:
<PAGE>
ATTACHMENT 1
to SUBSIDIARY
Pledge Agreement
<PAGE>
EXHIBIT G-1
BORROWER SECURITY AGREEMENT
This SECURITY AGREEMENT (as amended, restated, supplemented or
otherwise modified from time to time, this "SECURITY AGREEMENT"), dated as of
February 23, 2000, is made by THE TITAN CORPORATION, a Delaware corporation (the
"GRANTOR") in favor of CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as
administrative agent (the "ADMINISTRATIVE AGENT") for each of the Secured
Parties.
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Grantor, the various financial
institutions as are or may become parties thereto (the "LENDERS"), the
Administrative Agent, First Union Securities, Inc., as Syndication Agent, and
The Bank of Nova Scotia, as Documentation Agent, the Lenders and the Issuers
have extended Commitments to make Credit Extensions to the Grantor;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Security Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Security Agreement;
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, and in order to induce the Lenders
and the Issuers to make Credit Extensions (including the initial Credit
Extension) to the Grantor pursuant to the Credit Agreement, the Grantor agrees,
for the benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
<PAGE>
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
"CHATTEL PAPER" has the meaning provided in the U.C.C.
"COLLATERAL" is defined in SECTION 2.1.
"COLLATERAL ACCOUNT" is defined in CLAUSE (b) of SECTION 4.1.2(b).
"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:
(a) all computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card readers,
tape drives, hard and soft disk drives, cables, electrical supply hardware,
generators, power equalizers, accessories and all peripheral devices and
other related computer hardware;
(b) all software programs (including both source code, object code and
all related applications and data files), whether now owned, licensed or
leased or hereafter acquired by the Grantor, designed for use on the
computers and electronic data processing hardware described in CLAUSE (a)
above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams, manuals,
guides and specifications) with respect to such hardware, software and
firmware described in the preceding CLAUSES (a) through (c); and
(e) all rights with respect to all of the foregoing, including any and
all copyrights, licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement
rights, renewal rights and indemnifications and any substitutions,
replacements, additions or model conversions of any of the foregoing.
"CONTRACTS" means all agreements between the Grantor and one or more
additional parties.
"CONTRACT RIGHTS" means all rights of the Grantor (including, without
limitation, all rights to payment) under each Contract.
"COPYRIGHT COLLATERAL" means all copyrights (including all copyrights
for semi-conductor chip product mask works) of the Grantor, whether statutory or
common law, registered or unregistered, now or hereafter in force throughout the
world including all of the Grantor's right, title and interest in and to all
copyrights registered in the United States Copyright Office or anywhere else in
the world and also including the copyrights referred to in ITEM A of SCHEDULE
2
<PAGE>
IV attached hereto, and all applications for registration thereof, whether
pending or in preparation, all copyright licenses, including each copyright
license referred to in ITEM B of SCHEDULE IV attached hereto, the right to
sue for past, present and future infringements of any thereof, all rights
corresponding thereto throughout the world, all extensions and renewals of
any thereof and all proceeds of the foregoing, including licenses, royalties,
income, payments, claims, damages and proceeds of suit.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"DEPOSIT ACCOUNTS" has the meaning provided in the U.C.C. and, in any
event, includes, without limitation, any demand, time, savings, passbook or like
account maintained with a depositary institution, including those Deposit
Accounts set forth in ITEM G of SCHEDULE I hereto.
"DOCUMENTS" has the meaning provided in the U.C.C.
"EQUIPMENT" has the meaning provided in the U.C.C. and, in any event,
includes, without limitation, all equipment in all of its forms of the Grantor,
wherever located, including all parts thereof and all accessions, additions,
attachments, improvements, substitutions and replacements thereto and therefor
and all accessories related thereto.
"GENERAL INTANGIBLES" has the meaning provided in the U.C.C. and, in
any event, includes, without limitation, with respect to the Grantor, all
contracts, agreements, instruments and indentures in any form, and portions
thereof, to which the Grantor is a party or under which the Grantor has any
right, title or interest or to which the Grantor or any property of the Grantor
is subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of the Grantor
to receive moneys due and to become due to it thereunder or in connection
therewith, (ii) all rights of the Grantor to damages arising thereunder and
(iii) all rights of the Grantor to perform and to exercise all remedies
thereunder.
"GOODS" has the meaning provided in the U.C.C.
"GRANTOR" is defined in the PREAMBLE.
"INSTRUMENT" has the meaning provided in the U.C.C.
"INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"INTEREST RATE HEDGING AGREEMENTS" means interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and all other agreements or arrangements designed to protect the Grantor against
fluctuations in interest rates, entered into between the
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Grantor and a Lender or an Affiliate of a Lender, for the purpose of hedging
interest rate risk with respect to the Obligations.
"INTEREST RATE HEDGING OBLIGATIONS" means all liabilities of the
Grantor under Interest Rate Hedging Agreements.
"INVENTORY" has the meaning provided in the U.C.C. and, in any event,
includes, without limitation, all inventory in all of its forms of the Grantor,
wherever located, including
(i) all raw materials and work in process therefor, finished
goods thereof, and materials used or consumed in the manufacture or
production thereof,
(ii) all goods in which the Grantor has an interest in mass or a
joint or other interest or right of any kind (including goods in which
the Grantor has an interest or right as consignee), and
(iii) all goods which are returned to or repossessed by the
Grantor, and all accessions thereto, products thereof and documents
therefor.
"INVESTMENT PROPERTY"has the meaning provided in the U.C.C.
"LENDER" and "LENDERS" are defined in the FIRST RECITAL.
"PATENT COLLATERAL" means:
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world and including each patent and patent application
referred to in ITEM A of SCHEDULE II attached hereto;
(b) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
CLAUSE (A);
(c) all patent licenses, including each patent license referred to in
ITEM B of SCHEDULE II attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, including any patent or patent application
referred to in ITEM A of SCHEDULE II attached hereto, and for breach or
enforcement of any patent license, including any patent license referred to
in ITEM B of SCHEDULE II attached hereto, and all rights corresponding
thereto throughout the world.
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"RECEIVABLES" means "accounts" (as such term is defined in the
U.C.C.), including but not limited to rights to payments for goods sold or
leased or services rendered, whether now existing or hereafter arising,
including, without limitation, rights evidenced by an account, note, contract,
security agreement, chattel paper, or other evidence of indebtedness or
security, together with (a) all security pledged, assigned, hypothecated or
granted to or held by the Grantor to secure the foregoing, (b) all of the
Grantor's right, title and interest in and to any goods, the sale of which gave
rise thereto, (c) all guarantees, endorsements and indemnifications on, or of,
any of the foregoing, (d) all powers of attorney for the execution of any
evidence of indebtedness or security or other writing in connection therewith,
(e) all books, records, ledger cards, and invoices relating thereto, (f) all
evidences of the filing of financing statements and other statements and the
registration of other instruments in connection therewith and amendments
thereto, notices to other creditors or secured parties, and certificates from
filing or other registration officers, (g) all credit information, reports and
memoranda relating thereto and (h) all other writings related in any way to the
foregoing.
"SECURED OBLIGATIONS" is defined in SECTION 2.2.
"SECURITIES ACCOUNT" has the meaning provided in the U.C.C., including
without limitation those Securities Accounts listed in ITEM H of SCHEDULE I
hereto.
"SECURITY AGREEMENT" is defined in the PREAMBLE.
"TERMINATION DATE" means the date on which all Obligations have
indefeasibly been paid in full in cash, all Commitments have been fully
terminated and all Letters of Credit have been canceled or otherwise terminated.
"TRADEMARK COLLATERAL" means:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (all of the
foregoing items in this CLAUSE (a) being collectively called a
"TRADEMARK"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and recordings
thereof and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country, including those referred to in ITEM A of SCHEDULE III
attached hereto;
(b) all Trademark licenses, including each Trademark license referred
to in ITEM B of SCHEDULE III attached hereto;
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(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (A) and (B);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, CLAUSES (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark registration
or Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in ITEM A and ITEM B of SCHEDULE III attached
hereto, or for any injury to the goodwill associated with the use of any
such Trademark or for breach or enforcement of any Trademark license.
"TRADE SECRETS COLLATERAL" means all common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of the Grantor (all of the foregoing being collectively called a "TRADE
SECRET"), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses,
including each Trade Secret license referred to in SCHEDULE V attached hereto,
and including the right to sue for and to enjoin and to collect damages for the
actual or threatened misappropriation of any Trade Secret and for the breach or
enforcement of any such Trade Secret license.
"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or
in the Credit Agreement or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Security Agreement,
including its preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY. The Grantor hereby assigns and
pledges to the Administrative Agent for its benefit and the ratable benefit of
each of the Secured Parties, and hereby grants to the Administrative Agent for
the ratable benefit of each of the Secured Parties, to secure the Secured
Obligations, a security interest in all of the following, whether now or
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hereafter existing or acquired by the Grantor (the "COLLATERAL"):
(a) the Collateral Account;
(b) all Computer Hardware and Software Collateral;
(c) all Contracts, together with any Contract Rights arising
thereunder;
(d) all Deposit Accounts;
(e) all Equipment;
(f) all Intellectual Property Collateral;
(g) all Inventory;
(h) all Investment Property;
(i) all Receivables;
(j) all Securities Accounts;
(k) all other Goods, Chattel Paper, Documents, Instruments, and
General Intangibles (including tax refunds) of the Grantor now or
hereafter existing,
(l) all books, records, writings, data bases, information and other
property relating to, used or useful in connection with, evidencing,
embodying, incorporating or referring to, any of the foregoing in this
SECTION 2.1;
(m) all of the Grantor's other property and rights of every kind and
description and interests therein; and
(n) all products, offspring, rents, issues, profits, returns, income
and proceeds of and from any and all of the foregoing Collateral (including
proceeds which constitute property of the types described in CLAUSES (a)
through (m) and, to the extent not otherwise included, all payments under
insurance which the Grantor is entitled to receive (whether or not the
Administrative Agent is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and the Grantor shall not be deemed to have granted a
security interest in, any of the Grantor's rights or interests in any license,
contract or agreement to which the Grantor is a party or any of its rights
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or interests thereunder to the extent, but only to the extent, that such a
grant would, under the express terms of such license, contract or agreement
or otherwise, result in a breach of the terms of, or constitute a default
under such license, contract or agreement (other than to the extent that any
such term would be rendered ineffective pursuant to Section 9-318(4) of the
Uniform Commercial Code of any relevant jurisdiction or any other applicable
law (including the Bankruptcy Code) or principles of equity); PROVIDED, that
immediately upon the ineffectiveness, waiver, lapse or termination of any
such provision, the Collateral shall include, and the Grantor shall have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
SECTION 2.2. SECURITY FOR OBLIGATIONS. This Security Agreement
secures the payment of all Obligations of the Grantor now or hereafter existing
under the Credit Agreement, each other Loan Document and each Interest Rate
Hedging Agreement, whether for principal, interest, costs, fees, expenses,
Interest Rate Hedging Obligations or otherwise, with all such obligations being
collectively referred to as the "SECURED OBLIGATIONS".
SECTION 2.3. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This
Security Agreement shall create a continuing security interest in the Collateral
and shall
(a) remain in full force and effect until the Termination Date;
(b) be binding upon the Grantor and its successors, transferees and
assigns; and
(c) inure, together with the rights and remedies of the Administrative
Agent hereunder, to the benefit of the Administrative Agent and each other
Secured Party.
Without limiting the generality of the foregoing CLAUSE (c), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all the rights and benefits in respect thereof
granted to such Lender under any Loan Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of Section 11.11 and Article X of
the Credit Agreement. Upon (i) the sale, transfer or other disposition of
Collateral in accordance with the Credit Agreement or (ii) the occurrence of the
Termination Date, the security interests granted herein shall automatically
terminate with respect to (x) such Collateral (in the case of clause (i)) or (y)
all Collateral (in the case of clause (ii)), and at such time the Administrative
Agent will, at the Grantor's sole expense, execute and deliver to the Grantor
(without any representations, warranties or recourse to the Administrative
Agent), such documents as the Grantor shall reasonably request to evidence such
termination.
SECTION 2.4. GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding
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(a) the Grantor shall remain liable under the contracts and agreements
included in the Collateral to the extent set forth therein, and shall
perform all of its duties and obligations under such contracts and
agreements to the same extent as if this Security Agreement had not been
executed;
(b) the exercise by the Administrative Agent of any of its rights
hereunder shall not release the Grantor from any of its duties or
obligations under any such contracts or agreements included in the
Collateral; and
(c) neither the Administrative Agent nor any other Secured Party shall
have any obligation or liability under any such contracts or agreements
included in the Collateral by reason of this Security Agreement, nor shall
the Administrative Agent or any other Secured Party be obligated to perform
any of the obligations or duties of the Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Grantor represents and
warrants to each Secured Party as set forth in this Section.
SECTION 3.1.1. LOCATION OF COLLATERAL, ETC. All of the Equipment and
Inventory of the Grantor is located at the places specified in ITEM A and ITEM
B, respectively, of SCHEDULE I hereto. None of the Equipment and Inventory has,
within the four months preceding the date of this Security Agreement, been
located at any place other than the places specified in ITEM A and ITEM B,
respectively, of SCHEDULE I hereto except as set forth in a footnote thereto.
The place(s) of business and chief executive office of the Grantor and the
office(s) where the Grantor keeps its records concerning the Receivables, and
all originals of all Chattel Paper which evidence Receivables, are located at
the address set forth in ITEM C of SCHEDULE I hereto. The Grantor has no trade
names other than those set forth in ITEM D of SCHEDULE I hereto. During the
four months preceding the date hereof, the Grantor has not been known by any
legal name different from the one set forth on the signature page hereto, nor
has the Grantor been the subject of any merger or other corporate
reorganization, except as set forth in ITEM E of SCHEDULE I hereto. If the
Collateral includes any Inventory located in the State of California, the
Grantor is not a "retail merchant" within the meaning of Section 9102 of the
Uniform Commercial Code - Secured Transactions of the State of California. All
Receivables evidenced by a promissory note or other Instrument, negotiable
Document or Chattel Paper have been duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Administrative Agent and delivered and pledged to the
Administrative Agent pursuant to SECTION 4.1.7.
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SECTION 3.1.2. OWNERSHIP, NO LIENS, ETC. The Grantor owns its Collateral
free and clear of any Lien, security interest, charge or encumbrance except for
the security interest created by this Security Agreement and except as permitted
by the Credit Agreement. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the
Administrative Agent relating to this Security Agreement or as have been filed
in connection with Liens permitted pursuant to Section 8.3 of the Credit
Agreement.
SECTION 3.1.3. POSSESSION AND CONTROL. The Grantor has exclusive
possession and control of its Equipment and Inventory.
SECTION 3.1.4. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER. The
Grantor has, contemporaneously herewith, delivered to the Administrative Agent
possession of all originals of all negotiable Documents, Instruments and Chattel
Paper currently owned or held by the Grantor (duly endorsed in blank, if
requested by the Administrative Agent).
SECTION 3.1.5. INTELLECTUAL PROPERTY COLLATERAL. With respect to any
Intellectual Property Collateral the loss, impairment or infringement of which
might have a Material Adverse Effect:
(a) such Intellectual Property Collateral is subsisting and has not
been adjudged invalid or unenforceable, in whole or in part;
(b) such Intellectual Property Collateral is valid and enforceable;
(c) the Grantor has made all necessary filings and recordations to
protect its interest in such Intellectual Property Collateral, including
recordations of all of its interests in the Patent Collateral and Trademark
Collateral in the United States Patent and Trademark Office and in
corresponding offices throughout the world and its claims to the Copyright
Collateral in the United States Copyright Office and in corresponding
offices throughout the world;
(d) other than as previously disclosed to the Administrative Agent,
the Grantor is the exclusive owner of the entire and unencumbered right,
title and interest in and to such Intellectual Property Collateral and no
claim has been made that the use of such Intellectual Property Collateral
does or may violate the asserted rights of any third party; and
(e) the Grantor has performed and will continue to perform all acts
and has paid and will continue to pay all required fees and taxes to
maintain each and every item of Intellectual Property Collateral in full
force and effect throughout the world, as applicable, unless the Grantor
(i) has reasonably and in good faith determined that any of the
Intellectual Property Collateral is of negligible economic value to the
Grantor, or (ii)
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has a valid business purpose to do otherwise.
The Grantor owns directly or is entitled to use by license or otherwise, all
patents, Trademarks, Trade Secrets, copyrights, mask works, licenses,
technology, know-how, processes and rights with respect to any of the foregoing
used in, necessary for or of importance to the conduct of the Grantor's
business.
SECTION 3.1.6. VALIDITY, PRIORITY, ETC. Assuming the proper filing of one
or more financing statements identifying the Collateral with the proper local,
state and/or federal authorities, the security interests in the Collateral
granted to the Administrative Agent hereunder constitute valid and continuing
first priority perfected security interests in the Collateral, securing payment
of the Secured Obligations, to the extent such security interests may be
perfected by the filing of financing statements (except to the extent that any
Lien permitted under the Credit Agreement is prior to the liens granted to the
Administrative Agent hereunder).
SECTION 3.1.7. AUTHORIZATION, APPROVAL, ETC. Except as have been obtained
or made and are in full force and effect, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required either
(a) for the grant by the Grantor of the security interest granted
hereby or for the execution, delivery and performance of this Security
Agreement by the Grantor; or
(b) for the perfection of or the exercise by the Administrative Agent
of its rights and remedies hereunder.
SECTION 3.1.8. COMPLIANCE WITH LAWS. The Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which might have a Material Adverse Effect or
which might materially adversely affect the value of the Collateral or the worth
of the Collateral as collateral security.
ARTICLE IV
COVENANTS
SECTION 4.1. CERTAIN COVENANTS. The Grantor covenants and agrees that
until the Termination Date has occurred, the Grantor will perform, comply with
and be bound by the obligations set forth in this Article.
SECTION 4.1.1. AS TO EQUIPMENT AND INVENTORY. The Grantor hereby agrees
that it shall
(a) keep all the Equipment and Inventory (other than Inventory sold in
the
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ordinary course of business, or except as otherwise provided in the
Credit Agreement or any of the other Loan Documents) at the places therefor
specified in SECTION 3.1.1 or, upon 30 days' prior written notice to the
Administrative Agent, at such other places in a jurisdiction where all
representations and warranties set forth in ARTICLE III shall be true and
correct, and all action required pursuant to the FIRST SENTENCE of SECTION
4.1.7 shall have been taken with respect to the Equipment and Inventory
(collectively, "SPECIFIED LOCATIONS"); PROVIDED, HOWEVER, that the Grantor
may move and/or maintain certain items of Equipment at locations other than
at Specified Locations so long as the value of Collateral of this type of
the Grantor and similar Collateral (as defined in the Subsidiary Security
Agreement) of the Guarantors, shall not exceed $2,000,000 at any time;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual or good business
practice; and forthwith, or in the case of any loss or damage to any of the
Equipment, as quickly as practicable after the occurrence thereof, make or
cause to be made all repairs, replacements, and other improvements in
connection therewith which are necessary or desirable to such end; and
promptly furnish to the Administrative Agent a statement respecting any
material loss or damage to any of the Equipment; and
(c) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Equipment and
Inventory, except to the extent the validity thereof is being contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been set aside.
SECTION 4.1.2. AS TO RECEIVABLES AND CONTRACTS.
(a) The Grantor shall keep its place(s) of business and chief
executive office and the office(s) where it keeps its records concerning
the Receivables, and all originals of all Chattel Paper which evidences
Receivables, located at the address(es) set forth in ITEM C of SCHEDULE I
hereto, or, upon 30 days' prior written notice to the Administrative Agent,
at such other locations in a jurisdiction where all actions required by the
first sentence of SECTION 4.1.7 shall have been taken with respect to the
Receivables; not change its name except upon 30 days' prior written notice
to the Administrative Agent; hold and preserve such records and Chattel
Paper; and permit representatives of the Administrative Agent at any time
during normal business hours to inspect (upon reasonable prior written
notice so long as no Event of Default shall have occurred or be continuing)
and make abstracts from such records and Chattel Paper. In addition, the
Grantor shall give the Administrative Agent a supplement to SCHEDULE I
hereto on each date a Compliance Certificate is required to be delivered to
the Administrative Agent under the Credit Agreement, which shall set forth
any changes to the information set forth in SECTION 3.1.1.
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(b) Upon written notice by the Administrative Agent to the Grantor
pursuant to this clause, all proceeds of Collateral received by the Grantor
shall be delivered in kind to the Administrative Agent for deposit to a
deposit account (the "COLLATERAL ACCOUNT") of the Grantor maintained with
the Administrative Agent, and the Grantor shall not commingle any such
proceeds, and shall hold separate and apart from all other property, all
such proceeds in express trust for the benefit of the Administrative Agent
until delivery thereof is made to the Administrative Agent. The
Administrative Agent will not give the notice referred to in the preceding
sentence unless there shall have occurred and be continuing a Default of
the nature set forth in Section 9.1(i) of the Credit Agreement or an Event
of Default.
(c) The Administrative Agent shall have the right to apply any amount
in the Collateral Account to the payment of any Secured Obligations which
are due and payable or payable upon demand, or to the payment of any
Secured Obligations at any time that an Event of Default shall exist.
(d) The Grantor will not enter into any government contract which
prohibits assignment to the Administrative Agent of all payments due or to
become due under each of such contractions, other than contracts for which
the government has determined that a prohibition on assignment of claims is
in the government's interest.
(e)The Grantor shall not cause the aggregate value of Receivables or
Contracts or Contract Rights and the value of similar Receivables and
Contracts (as defined in the Subsidiary Security Agreement) as to which a
Lien in favor of the Administrative Agent cannot be granted hereunder
pursuant to the final paragraph of SECTION 2.1, or pursuant to the
Subsidiary Security Agreement, to exceed $5,000,000 at any time.
SECTION 4.1.3. AS TO COLLATERAL.
(a) Until the occurrence and continuance of a Default of the nature
set forth in Section 9.1(i) of the Credit Agreement or an Event of Default,
and such time as the Administrative Agent shall notify the Grantor of the
revocation of such power and authority the Grantor (i) may in the ordinary
course of its business (except as otherwise permitted under the Credit
Agreement), at its own expense, sell, lease or furnish under the contracts
of service any of the Inventory normally held by the Grantor for such
purpose, and use and consume, in the ordinary course of its business
(except as otherwise permitted under the Credit Agreement), any raw
materials, work in process or materials normally held by the Grantor for
such purpose,(ii) will, at its own expense, endeavor to collect, as and
when due, all amounts due with respect to any of the Collateral, including
the taking of such action with respect to such collection as the
Administrative Agent may reasonably request following the occurrence of a
Default of the nature set forth in Section 9.1(i) of the Credit Agreement
or an Event of Default or, in the absence of such request, as the Grantor
may deem advisable, and (iii) may grant, in the ordinary course of business
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(except as otherwise permitted under the Credit Agreement), to any party
obligated on any of the Collateral, any rebate, refund or allowance to
which such party may be lawfully entitled, and may accept, in connection
therewith, the return of goods, the sale or lease of which shall have given
rise to such Collateral. The Administrative Agent, however, may, at any
time following a Default of the nature set forth in Section 9.1(i) of the
Credit Agreement or an Event of Default, whether before or after any
revocation of such power and authority or the maturity of any of the
Secured Obligations, notify any parties obligated on any of the Collateral
to make payment to the Administrative Agent of any amounts due or to become
due thereunder and enforce collection of any of the Collateral by suit or
otherwise and surrender, release, or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than
the original period) any indebtedness thereunder or evidenced thereby.
Upon request of the Administrative Agent following a Default of the nature
set forth in Section 9.1(i) of the Credit Agreement or an Event of Default,
the Grantor will, at its own expense, notify any parties obligated on any
of the Collateral to make payment to the Administrative Agent of any
amounts due or to become due thereunder.
(b) The Administrative Agent is authorized to endorse, in the name of
the Grantor, any item, howsoever received by the Administrative Agent,
representing any payment on or other proceeds of any of the Collateral.
SECTION 4.1.4. AS TO INTELLECTUAL PROPERTY COLLATERAL. The Grantor
covenants and agrees to comply with the following provisions as such provisions
relate to any Intellectual Property Collateral of the Grantor:
(a)The Grantor shall not do any act, or omit to do any act, whereby
any of the Patent Collateral may lapse or become abandoned or dedicated to
the public or unenforceable, unless the Grantor shall either (i) reasonably
and in good faith determine that any of the Patent Collateral is of
negligible economic value to the Grantor, or (ii) have a valid business
purpose to do otherwise.
(b)The Grantor shall not, and the Grantor shall not permit any of its
licensees to:
(i) fail to continue to use any of the Trademark Collateral in
order to maintain all of the Trademark Collateral in full force free
from any claim of abandonment for non-use,
(ii) fail to maintain as in the past the quality of products and
services offered under all of the Trademark Collateral,
(iii) fail to employ all of the Trademark Collateral registered
with any Federal or state or foreign authority with an appropriate
notice of such registration,
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(iv) adopt or use any other Trademark which is confusingly
similar or a colorable imitation of any of the Trademark Collateral,
(v) use any of the Trademark Collateral registered with any
Federal or state or foreign authority except for the uses for which
registration or application for registration of all of the Trademark
Collateral has been made, and
(vi) do or permit any act or knowingly omit to do any act whereby
any of the Trademark Collateral may lapse or become invalid or
unenforceable,
unless the Grantor shall either (i) reasonably and in good faith determine
that any of the Trademark Collateral is of negligible economic value to the
Grantor, or (ii) have a valid business purpose to do otherwise.
(c) The Grantor shall not do or permit any act or knowingly omit to do
any act whereby any of the Copyright Collateral or any of the Trade Secrets
Collateral may lapse or become invalid or unenforceable or placed in the
public domain except upon expiration of the end of an unrenewable term of a
registration thereof, unless the Grantor shall either (i) reasonably and
in good faith determine that any of the Copyright Collateral or any of the
Trade Secrets Collateral is of negligible economic value to the Grantor, or
(ii) have a valid business purpose to do otherwise.
(d) The Grantor shall notify the Administrative Agent immediately if
it knows, or has reason to know, that any application or registration
relating to any material item of the Intellectual Property Collateral may
become abandoned or dedicated to the public or placed in the public domain
or invalid or unenforceable, or of any adverse determination or development
(including the institution of, or any such determination or development in,
any proceeding in the United States Patent and Trademark Office, the United
States Copyright Office or any foreign counterpart thereof or any court)
regarding the Grantor's ownership of any of the Intellectual Property
Collateral, its right to register the same or to keep and maintain and
enforce the same.
(e) In no event shall the Grantor or any of its agents, employees,
designees or licensees file an application for the registration of any
Intellectual Property Collateral with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, unless
it promptly upon such filing informs the Administrative Agent, and upon
request of the Administrative Agent, executes and delivers any and all
agreements, instruments, documents and papers as the Administrative Agent
may reasonably request to evidence the Administrative Agent's security
interest in such Intellectual Property Collateral and the goodwill and
general intangibles of the Grantor relating thereto or represented thereby.
15
<PAGE>
(f) The Grantor shall take all necessary steps, including in any
proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, to maintain and pursue any
application (and to obtain the relevant registration) filed with respect
to, and to maintain any registration of, the Intellectual Property
Collateral, including the filing of applications for renewal, affidavits of
use, affidavits of incontestability and opposition, interference and
cancellation proceedings and the payment of fees and taxes (except to the
extent that dedication, abandonment or invalidation is permitted under the
foregoing CLAUSES (a), (b) and (c)).
(g) The Grantor shall, contemporaneously herewith, execute and deliver
to the Administrative Agent a Patent Security Agreement, a Trademark
Security Agreement and a Copyright Security Agreement in the forms of
EXHIBIT A, EXHIBIT B and EXHIBIT C hereto, respectively, and shall execute
and deliver to the Administrative Agent any other document required to
acknowledge or register or perfect the Administrative Agent's interest in
any part of the Intellectual Property Collateral.
SECTION 4.1.5. INSURANCE. The Grantor will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
business and properties (including the Equipment and Inventory) against such
casualties and contingencies and of such types and in such amounts as is
required pursuant to the Credit Agreement and will, upon the request of the
Administrative Agent, furnish a certificate of a reputable insurance broker
setting forth the nature and extent of all insurance maintained by the Grantor
in accordance with this Section. Without limiting the foregoing, the Grantor
further agrees as follows:
(a) Each policy for property insurance shall show the Administrative
Agent as loss payee.
(b) Each policy for liability insurance shall show the Administrative
Agent as an additional insured.
(c) Each insurance policy shall provide that at least 30 days' prior
written notice of cancellation or of lapse shall be given to the
Administrative Agent by the insured (or at least 10 days' prior written
notice of cancellation shall be given with respect to failure to pay the
premium).
(d) The Grantor shall, if so requested by the Administrative Agent,
deliver to the Administrative Agent a copy of each insurance policy.
16
<PAGE>
SECTION 4.1.6. TRANSFERS AND OTHER LIENS. The Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit
Agreement; or
(b) create or suffer to exist any Lien or other charge or encumbrance
upon or with respect to any of the Collateral to secure Indebtedness of any
Person or entity, except for the security interest created by this Security
Agreement and except as permitted by the Credit Agreement.
SECTION 4.1.7. FURTHER ASSURANCES, ETC. The Grantor agrees that, from
time to time at its own expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable (provided that it is reasonable), or that the
Administrative Agent may reasonably request, in order to perfect, preserve and
protect any security interest granted or purported to be granted hereby or to
enable the Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, the Grantor will
(a) mark conspicuously each Document (evidencing title) included in
the Inventory, each Chattel Paper included in the Receivables and each
Contract and, at the request of the Administrative Agent, upon the
occurrence and during the continuance of an Event of Default each of its
records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Administrative Agent, indicating that such Document,
Chattel Paper, Contract or Collateral is subject to the security interest
granted hereby;
(b) if any Receivable shall be evidenced by a promissory note or other
Instrument, negotiable Document or Chattel Paper, deliver and pledge to the
Administrative Agent hereunder such promissory note, instrument, negotiable
Document or Chattel Paper duly endorsed and accompanied by duly executed
Instruments of transfer or assignment, all in form and substance
satisfactory to the Administrative Agent;
(c) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be
necessary or desirable (provided that it is reasonable), or as the
Administrative Agent may reasonably request, in order to perfect and
preserve the security interests and other rights granted or purported to be
granted to the Administrative Agent hereby;
(d) promptly execute and file any of notice or other required form
under or pursuant to the federal assignment of claims statute, 31 U.S.C.
Section 3727, any successor or amended version thereof or any regulation
promulgated under or pursuant to any version thereof, as the Administrative
Agent may reasonably request; and
(e) furnish to the Administrative Agent, from time to time at the
Administrative
17
<PAGE>
Agent's request, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in
reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
the Grantor hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of the Grantor where permitted
by law. A carbon, photographic or other reproduction of this Security Agreement
or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
ARTICLE V
THE ADMINISTRATIVE AGENT
SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. The
Grantor hereby irrevocably appoints the Administrative Agent the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor
and in the name of the Grantor or otherwise, from time to time in the
Administrative Agent's discretion, following the occurrence and continuation
of a Default of the nature set forth in Section 9.1(i) of the Credit
Agreement or an Event of Default, to take any action and to execute any
instrument which the Administrative Agent may deem necessary or advisable to
accomplish the purposes of this Security Agreement, including:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other Instruments,
Documents and Chattel Paper, in connection with CLAUSE (a) above;
(c) to file any claims or take any action or institute any proceedings
which the Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Administrative Agent with respect to any of the Collateral; and
(d) to perform the affirmative obligations of the Grantor hereunder
(including all obligations of the Grantor pursuant to SECTION 4.1.7).
The Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If any Grantor fails to
perform any
18
<PAGE>
agreement contained herein, the Administrative Agent may itself perform, or
cause performance of, such agreement, and the expenses of the Administrative
Agent incurred in connection therewith shall be payable by the Grantor
pursuant to SECTION 6.2.
SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. In addition to, and not in
limitation of, SECTION 2.4, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. Other than the exercise of reasonable care
in the custody and preservation of the Collateral, the Administrative Agent
shall have no duty with respect thereto. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Administrative Agent accords its own
property. The Administrative Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any agent or bailee selected by the
Administrative Agent in good faith.
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
on default under the U.C.C. (whether or not the U.C.C. applies to the
affected Collateral) and also may
(i) require the Grantor to, and the Grantor hereby agrees that it
will, at its expense and upon request of the Administrative Agent
forthwith, assemble all or part of the Collateral as directed by the
Administrative Agent and make it available to the Administrative Agent
at a place to be designated by the Administrative Agent which is
reasonably convenient to both parties,
(ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Administrative Agent's offices or
elsewhere, for cash, on credit or for future
19
<PAGE>
delivery, and upon such other terms as the Administrative Agent may
deem commercially reasonable. The Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten days'
prior notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Administrative Agent shall
not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Administrative Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which
it was so adjourned,
(iii) withdraw all monies, securities and Instruments in the
Collateral Account for application to the Obligations, and
(iv) license or sublicense, whether on an exclusive or
nonexclusive basis, any Trademark Collateral, Patent Collateral or
Copyright Collateral included in the Intellectual Property Collateral
for such term and on such conditions and in such manner as the
Administrative Agent shall in its sole judgment determine (taking into
account such provisions as may be necessary to protect and preserve
the validity or enforceability of such Trademark Collateral, Patent
Collateral or Copyright Collateral included in the Intellectual
Property Collateral).
(b) All cash proceeds received by the Administrative Agent in respect
of any sale of, collection from, or other realization upon all or any part
of the Collateral may, in the discretion of the Administrative Agent, be
held by the Administrative Agent as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the
Administrative Agent pursuant to SECTION 6.2) in whole or in part by the
Administrative Agent for the ratable benefit of the Secured Parties
against, all or any part of the Secured Obligations in such order as the
Administrative Agent shall elect. Any surplus of such cash or cash
proceeds held by the Administrative Agent and remaining after payment in
full in cash of all the Secured Obligations shall be paid over to the
applicable Grantor or to whomsoever may be lawfully entitled to receive
such surplus.
SECTION 6.2. INDEMNITY AND EXPENSES.
(a) The Grantor agrees to indemnify the Administrative Agent and the
other Secured Parties from and against any and all claims, losses and
liabilities arising out of or resulting from this Security Agreement
(including enforcement of this Security Agreement), except claims, losses
or liabilities resulting from the gross negligence or wilful misconduct of
the Administrative Agent or the other Secured Parties.
(b) The Grantor will upon demand pay to the Administrative Agent and
the other
20
<PAGE>
Secured Parties the amount of any and all reasonable expenses, including
the reasonable fees and disbursements of its counsel and of any experts
and agents, which the Administrative Agent may incur in connection with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral,
and
(iii) the exercise or enforcement of any of the rights of the
Administrative Agent or the Secured Parties hereunder, or
(iv) the failure by any Grantor to perform or observe any of the
provisions hereof.
The provisions of this SECTION 6.2 shall survive the Termination Date.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof including Article XI thereof.
SECTION 7.2. AMENDMENTS; ETC. No amendment to or waiver of any provision
of this Security Agreement nor consent to any departure by any Grantor here
from, shall in any event be effective unless the same shall be in writing and
signed by the Administrative Agent (on behalf of the Lenders or the Required
Lenders, as the case may be), and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 7.3. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and, if to any
Grantor, mailed or telecopied or delivered to it, addressed to it at the address
specified in the Credit Agreement, if to either Administrative Agent, mailed or
telecopied or delivered to it, addressed to it at the address of such
Administrative Agent specified in the Credit Agreement. All such notices and
other communications, when mailed and properly addressed with postage prepaid or
if properly addressed and sent by pre-paid courier service, shall be deemed
given when received; any such notice or communication, if transmitted by
telecopier, shall be deemed given when transmitted and electronically confirmed.
21
<PAGE>
SECTION 7.4. CAPTIONS. Section captions used in this Security Agreement
are for convenience of reference only, and shall not affect the construction of
this Security Agreement.
SECTION 7.5. SEVERABILITY. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
SECTION 7.6. COUNTERPARTS. This Security Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed an
original and all of which shall constitute together but one and the same
agreement.
SECTION 7.7. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SECURITY
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS
SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
22
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
THE TITAN CORPORATION, as Grantor
By
---------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By
---------------------------------
Name: Thomas G. Muoio
Title: Vice President
By
---------------------------------
Name:
Title:
S-1
<PAGE>
SCHEDULE I
to Security Agreement
Item A. LOCATION OF EQUIPMENT
<TABLE>
<CAPTION>
DESCRIPTION LOCATION
<S> <C>
</TABLE>
Item B. LOCATION OF INVENTORY
<TABLE>
<CAPTION>
DESCRIPTION LOCATION
<S> <C>
</TABLE>
Item C. LOCATION OF LOCK BOXES
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<C> <C> <C>
</TABLE>
Item D. PLACE(S) OF BUSINESS AND CHIEF EXECUTIVE OFFICE
Item E. TRADE NAMES
Item F. MERGER OR OTHER CORPORATE REORGANIZATION
Item G. LOCATION OF DEPOSIT ACCOUNTS
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<S> <C> <C>
</TABLE>
Item H. LOCATION OF SECURITIES ACCOUNTS
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<S> <C> <C>
</TABLE>
<PAGE>
SCHEDULE II
to Security Agreement
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
*COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PATENT APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE III
to Security Agreement
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK SERIAL NO. FILING DATE
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED PRODUCTS/
*COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE IV
to Security Agreement
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
<TABLE>
<CAPTION>
*COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S)
TITLE
<S> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. COPYRIGHT/MASK WORK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE V
to Security Agreement
TRADE SECRET OR KNOW-HOW LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT A
to Security Agreement
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "AGREEMENT"), dated as of February 23,
2000, is made between THE TITAN CORPORATION, a Delaware corporation (the
"GRANTOR"), and CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as
Administrative Agent (the "ADMINISTRATIVE AGENT") for each of the Secured
Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Grantor, the various financial
institutions as are or may become parties thereto (the "LENDERS"), CSFB, as
Administrative Agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered a Borrower Security Agreement, dated as of February 23, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"SECURITY AGREEMENT";
WHEREAS, as a condition precedent to the making of the Credit Extensions
(including the initial Credit Extension) under the Credit Agreement, the Grantor
is required to execute and deliver this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders and the Issuers to make
Credit Extensions (including the initial Credit Extension) to the Grantor
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt
A-1
<PAGE>
and sufficiency of which are hereby acknowledged, to secure all of the
Secured Obligations, the Grantor does hereby mortgage, pledge and hypothecate
to the Administrative Agent, and grant to the Administrative Agent a security
interest in, for its benefit and the benefit of each Secured Party, all of
the following property (the "PATENT COLLATERAL"), whether now owned or
hereafter acquired or existing by it:
(a) all letters patent and applications for letters patent throughout
the world, including all patent applications in preparation for filing
anywhere in the world and including each patent and patent application
referred to in ITEM A of ATTACHMENT 1 attached hereto;
(b) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and reexaminations of any of the items described in
CLAUSE (a);
(c) all patent licenses, including each patent license referred to in
ITEM B of ATTACHMENT 1 attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right
to sue third parties for past, present or future infringements of any
patent or patent application, including any patent or patent application
referred to in ITEM A of ATTACHMENT 1 attached hereto, and for breach or
enforcement of any patent license, including any patent license referred to
in ITEM B of ATTACHMENT 1 attached hereto, and all rights corresponding
thereto throughout the world.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Patent Collateral with the United States Patent
and Trademark Office and corresponding offices in other countries of the world.
The security interest granted hereby has been granted as a supplement to, and
not in limitation of, the security interest granted to the Administrative Agent
for its benefit and the benefit of each Secured Party under the Security
Agreement. The Security Agreement (and all rights and remedies of the
Administrative Agent and each Secured Party thereunder) shall remain in full
force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all Instruments and other Documents as may be necessary or proper to
release the lien on and security interest in the Patent Collateral which has
been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby
further acknowledge and affirm that the rights and remedies of the
Administrative Agent with respect to the security interest in the Patent
Collateral granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which (including the remedies provided for therein)
are incorporated by reference herein as if fully set forth herein.
A-2
<PAGE>
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
A-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE TITAN CORPORATION
By
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
A-4
<PAGE>
ATTACHMENT 1
to Patent Security Agreement
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
*COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PATENT APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT B
to Security Agreement
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "AGREEMENT"), dated as of February
23, 2000, is made between THE TITAN CORPORATION, a Delaware corporation (the
"GRANTOR"), and CREDIT SUISSE FIRST BOSTON ("CSFB"), as Administrative Agent
(the "ADMINISTRATIVE AGENT") for each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Grantor, the various financial
institutions as are or may become parties thereto (the "LENDERS"), CSFB, as
Administrative Agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered a Borrower Security Agreement, dated as of February 23, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"SECURITY AGREEMENT";
WHEREAS, as a condition precedent to the making of the Credit Extensions
(including the initial Credit Extension) under the Credit Agreement, the Grantor
is required to execute and deliver this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders and the Issuers to make
Credit Extensions (including the initial Credit Extension) to the Grantor
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
B-1
<PAGE>
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
to secure all of the Secured Obligations, the Grantor does hereby mortgage,
pledge and hypothecate to the Administrative Agent, and grant to the
Administrative Agent a security interest in, for its benefit and the benefit
of each Secured Party, all of the following property (the "TRADEMARK
COLLATERAL"), whether now owned or hereafter acquired or existing by it:
(a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source of business
identifiers, prints and labels on which any of the foregoing have appeared
or appear, designs and general intangibles of a like nature (all of the
foregoing items in this CLAUSE (a) being collectively called a
"TRADEMARK"), now existing anywhere in the world or hereafter adopted or
acquired, whether currently in use or not, all registrations and recordings
thereof and all applications in connection therewith, whether pending or in
preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any
office or agency of the United States of America or any State thereof or
any foreign country, including those referred to in ITEM A of ATTACHMENT 1
attached hereto;
(b) all Trademark licenses, including each Trademark license referred
to in ITEM B of ATTACHMENT 1 attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (a) and (b);
(d) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, CLAUSES (a) and (b); and
(e) all proceeds of, and rights associated with, the foregoing,
including any claim by the Grantor against third parties for past, present
or future infringement or dilution of any Trademark, Trademark registration
or Trademark license, including any Trademark, Trademark registration or
Trademark license referred to in ITEM A and ITEM B of ATTACHMENT 1 attached
hereto, or for any injury to the goodwill associated with the use of any
such Trademark or for breach or enforcement of any Trademark license.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Trademark Collateral with the United States
Patent and Trademark Office and corresponding offices in other countries of the
world. The security interest granted hereby has been granted as a supplement
to, and not in limitation of, the security interest granted to the
Administrative Agent for its benefit and the benefit of each Secured Party under
the Security Agreement. The Security
B-2
<PAGE>
Agreement (and all rights and remedies of the Administrative Agent and each
Secured Party thereunder) shall remain in full force and effect in accordance
with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all Instruments and other Documents as may be necessary or proper to
release the lien on and security interest in the Trademark Collateral which has
been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby
further acknowledge and affirm that the rights and remedies of the
Administrative Agent with respect to the security interest in the Trademark
Collateral granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which (including the remedies provided for therein)
are incorporated by reference herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE TITAN CORPORATION
By
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
B-4
<PAGE>
ATTACHMENT 1
to Trademark
Security Agreement
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK SERIAL NO. FILING DATE
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED PRODUCTS/
*COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT C
to Security Agreement
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of February
23, 2000, is made between THE TITAN CORPORATION, a Delaware corporation (the
"GRANTOR"), and CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as
Administrative Agent (the "ADMINISTRATIVE AGENT") for each of the Secured
Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among the Grantor, the various financial
institutions as are or may become parties thereto (the "LENDERS"), CSFB, as
Administrative Agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Grantor;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed
and delivered a Borrower Security Agreement, dated as of February 23, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"SECURITY AGREEMENT";
WHEREAS, as a condition precedent to the making of the Credit Extensions
(including the initial Credit Extension) under the Credit Agreement, the Grantor
is required to execute and deliver this Agreement; and
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders and the Issuers to make
Credit Extensions (including the initial Credit Extension) to the Grantor
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
to secure all of the Secured Obligations, the
C-1
<PAGE>
Grantor does hereby mortgage, pledge and hypothecate to the Administrative
Agent, and grant to the Administrative Agent a security interest in, for its
benefit and the benefit of each Secured Party, all of the following property
(the "COPYRIGHT COLLATERAL"), whether now owned or hereafter acquired or
existing by it, being all copyrights (including all copyrights for
semi-conductor chip product mask works) of the Grantor, whether statutory or
common law, registered or unregistered, now or hereafter in force throughout
the world including all of the Grantor's right, title and interest in and to
all copyrights registered in the United States Copyright Office or anywhere
else in the world and also including the copyrights referred to in ITEM A of
ATTACHMENT 1 attached hereto, and all applications for registration thereof,
whether pending or in preparation, all copyright licenses, including each
copyright license referred to in ITEM B of ATTACHMENT 1 attached hereto, the
right to sue for past, present and future infringements of any thereof, all
rights corresponding thereto throughout the world, all extensions and
renewals of any thereof and all proceeds of the foregoing, including
licenses, royalties, income, payments, claims, damages and proceeds of suit.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Copyright Collateral with the United States
Copyright Office and corresponding offices in other countries of the world. The
security interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to the Administrative Agent for its
benefit and the benefit of each Secured Party under the Security Agreement. The
Security Agreement (and all rights and remedies of the Administrative Agent and
each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all Instruments and other Documents as may be necessary or proper to
release the lien on and security interest in the Copyright Collateral which has
been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with
respect to the security interest in the Copyright Collateral granted hereby
are more fully set forth in the Security Agreement, the terms and provisions
of which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
C-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
THE TITAN CORPORATION
By
----------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
C-3
<PAGE>
ATTACHMENT 1
to Copyright
Security Agreement
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
<TABLE>
<CAPTION>
*COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S)
TITLE
<S> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. COPYRIGHT/MASK WORK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT G-2
SUBSIDIARY SECURITY AGREEMENT
This SECURITY AGREEMENT (as amended, restated, supplemented, or
otherwise modified from time to time, this "SECURITY AGREEMENT"), dated as of
February 23, 2000, is made by each Subsidiary (as defined in the Credit
Agreement referred to below) of the Borrower (as defined below), now or after
the date hereof (including pursuant to SECTION 7.4) a signatory hereto (each,
individually, a "GRANTOR," and collectively, the "GRANTORS"), in favor of CREDIT
SUISSE FIRST ("CSFB"), as administrative agent (together with any successor(s)
thereto in such capacity, the "ADMINISTRATIVE AGENT") for each of the Secured
Parties.
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), the various financial institutions as are or may
become parties thereto (the "LENDERS"), the Administrative Agent and First Union
Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Borrower;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
each Grantor is required to execute and deliver this Security Agreement;
WHEREAS, each Grantor is a Subsidiary of the Borrower;
WHEREAS, each Grantor has duly authorized the execution, delivery and
performance of this Security Agreement; and
WHEREAS, it is in the best interests of each Grantor to execute this
Security Agreement inasmuch as such Grantor will derive substantial direct and
indirect benefits from the Credit Extensions made from time to time to the
Borrower by the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, and in order to induce the Lenders
and the Issuers to make Credit Extensions (including the initial Credit
Extension) to the Borrower pursuant to the Credit
1
<PAGE>
Agreement, each Grantor jointly and severally agrees, for the benefit of each
Secured Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Security Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"ADMINISTRATIVE AGENT" is defined in the PREAMBLE.
"BORROWER" is defined in the FIRST RECITAL.
"CHATTEL PAPER" has the meaning provided in the U.C.C.
"COLLATERAL" is defined in SECTION 2.1.
"COLLATERAL ACCOUNT" is defined in CLAUSE (b) of SECTION 4.1.2(b).
"CONTRACTS" means all agreements between any Grantor and one or more
additional parties.
"CONTRACT RIGHTS" means all rights of any Grantor (including, without
limitation, all rights to payment) under each Contract.
"COMPUTER HARDWARE AND SOFTWARE COLLATERAL" means:
(a) all computer and other electronic data processing
hardware, integrated computer systems, central processing units, memory
units, display terminals, printers, features, computer elements, card
readers, tape drives, hard and soft disk drives, cables, electrical
supply hardware, generators, power equalizers, accessories and all
peripheral devices and other related computer hardware;
(b) all software programs (including both source code, object
code and all related applications and data files), whether now owned,
licensed or leased or hereafter acquired by any Grantor, designed for
use on the computers and electronic data processing hardware described
in CLAUSE (a) above;
(c) all firmware associated therewith;
2
<PAGE>
(d) all documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware,
software and firmware described in the preceding CLAUSES (a) through
(c); and
(e) all rights with respect to all of the foregoing, including
any and all copyrights, licenses, options, warranties, service
contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of
the foregoing.
"COPYRIGHT COLLATERAL" means all copyrights (including all copyrights
for semi-conductor chip product mask works) of each Grantor, whether statutory
or common law, registered or unregistered, now or hereafter in force throughout
the world including all of such Grantor's right, title and interest in and to
all copyrights registered in the United States Copyright Office or anywhere else
in the world and also including the copyrights referred to in ITEM A of SCHEDULE
IV attached hereto, and all applications for registration thereof, whether
pending or in preparation, all copyright licenses, including each copyright
license referred to in ITEM B of SCHEDULE IV attached hereto, the right to sue
for past, present and future infringements of any thereof, all rights
corresponding thereto throughout the world, all extensions and renewals of any
thereof and all proceeds of the foregoing, including licenses, royalties,
income, payments, claims, damages and proceeds of suit.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"DEPOSIT ACCOUNTS" has the meaning provided in the U.C.C. and, in any
event, includes, without limitation, any demand, time, savings, passbook or like
account maintained with a depositary institution, including those Deposit
Accounts set forth in ITEM G of SCHEDULE I hereto.
"DOCUMENTS" has the meaning provided in the U.C.C.
"EQUIPMENT" has the meaning provided in the U.C.C. and, in any event,
includes, without limitation, all equipment in all of its forms of the Grantors,
wherever located, including all parts thereof and all accessions, additions,
attachments, improvements, substitutions and replacements thereto and therefor
and all accessories related thereto.
"GENERAL INTANGIBLES" has the meaning provided in the U.C.C. and, in
any event, includes, without limitation, with respect to the Grantors, all
contracts, agreements, instruments and indentures in any form, and portions
thereof, to which any Grantor is a party or under which any Grantor has any
right, title or interest or to which any Grantor or any property of any Grantor
is subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of any Grantor
to receive moneys due and to become due to it thereunder or in connection
therewith, (ii) all rights of any Grantor to damages arising thereunder and
(iii) all rights of any Grantor to perform and to exercise all remedies
thereunder.
3
<PAGE>
"GOODS" has the meaning provided in the U.C.C.
"GRANTOR" and "GRANTORS" are defined in the PREAMBLE.
"INSTRUMENT" has the meaning provided in the U.C.C.
"INTELLECTUAL PROPERTY COLLATERAL" means, collectively, the Computer
Hardware and Software Collateral, the Copyright Collateral, the Patent
Collateral, the Trademark Collateral and the Trade Secrets Collateral.
"INTEREST RATE HEDGING AGREEMENTS" means interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect the Grantors against fluctuations
in interest rates, entered into between any Grantor and a Lender or an Affiliate
of a Lender, for the purpose of hedging interest rate risk with respect to the
Obligations.
"INTEREST RATE HEDGING OBLIGATIONS" means all liabilities of the
Grantors under Interest Rate Hedging Agreements.
"INVENTORY" has the meaning provided in the U.C.C. and, in any event,
includes, without limitation, all inventory in all of its forms of the Grantors,
wherever located, including
(i) all raw materials and work in process therefor,
finished goods thereof, and materials used or consumed in the
manufacture or production thereof,
(ii) all goods in which any Grantor has an interest
in mass or a joint or other interest or right of any kind
(including goods in which such Grantor has an interest or
right as consignee), and
(iii) all goods which are returned to or repossessed
by any Grantor, and all accessions thereto, products thereof
and documents therefor.
"INVESTMENT PROPERTY" has the meaning provided in the U.C.C.
"LENDERS" is defined in the FIRST RECITAL.
"PATENT COLLATERAL" means:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in ITEM A of SCHEDULE II attached hereto;
4
<PAGE>
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in CLAUSE (a);
(c) all patent licenses, including each patent license
referred to in ITEM B of SCHEDULE II attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in ITEM A of SCHEDULE II attached hereto, and
for breach or enforcement of any patent license, including any patent
license referred to in ITEM B of SCHEDULE II attached hereto, and all
rights corresponding thereto throughout the world.
"RECEIVABLES" means "accounts" (as such term is defined in the U.C.C.),
including but not limited to rights to payments for goods sold or leased or
services rendered, whether now existing or hereafter arising, including, without
limitation, rights evidenced by an account, note, contract, security agreement,
chattel paper, or other evidence of indebtedness or security, together with (a)
all security pledged, assigned, hypothecated or granted to or held by any
Grantor to secure the foregoing, (b) all of any Grantor's right, title and
interest in and to any goods, the sale of which gave rise thereto, (c) all
guarantees, endorsements and indemnifications on, or of, any of the foregoing,
(d) all powers of attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith, (e) all books, records,
ledger cards, and invoices relating thereto, (f) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other registration
officers, (g) all credit information, reports and memoranda relating thereto and
(h) all other writings related in any way to the foregoing.
"RELATED CONTRACTS" is defined in CLAUSE (c) of SECTION 2.1.
"SECURED OBLIGATIONS" is defined in SECTION 2.2.
"SECURITIES ACCOUNT" has the meaning provided in the U.C.C., including
without limitation those Securities Accounts listed in ITEM H of SCHEDULE I
hereto.
"SECURITY AGREEMENT" is defined in the PREAMBLE.
"TERMINATION DATE" means the date on which all Obligations have
indefeasibly been paid in full in cash, all Commitments have been fully
terminated and the Letter of Credit has been canceled or otherwise terminated.
5
<PAGE>
"TRADEMARK COLLATERAL" means:
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service
marks, certification marks, collective marks, logos, other source of
business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of a like
nature (all of the foregoing items in this CLAUSE (a) being
collectively called a "TRADEMARK"), now existing anywhere in the world
or hereafter adopted or acquired, whether currently in use or not, all
registrations and recordings thereof and all applications in connection
therewith, whether pending or in preparation for filing, including
registrations, recordings and applications in the United States Patent
and Trademark Office or in any office or agency of the United States of
America or any State thereof or any foreign country, including those
referred to in ITEM A of SCHEDULE III attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in ITEM B of SCHEDULE III attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (a) and (b);
(d) all of the goodwill of the business connected with the use
of, and symbolized by the items described in, CLAUSES (a) and (b); and
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by any Grantor against third parties for
past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in ITEM A and
ITEM B of SCHEDULE III attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license.
"TRADE SECRETS COLLATERAL" means all common law and statutory trade
secrets and all other confidential or proprietary or useful information and all
know-how obtained by or used in or contemplated at any time for use in the
business of any Grantor (all of the foregoing being collectively called a "TRADE
SECRET"), whether or not such Trade Secret has been reduced to a writing or
other tangible form, including all documents and things embodying, incorporating
or referring in any way to such Trade Secret, all Trade Secret licenses,
including each Trade Secret license referred to in SCHEDULE V attached hereto,
and including the right to sue for and to enjoin and to collect damages for the
actual or threatened misappropriation of any Trade Secret and for the breach or
enforcement of any such Trade Secret license.
"U.C.C." means the Uniform Commercial Code, as in effect from time to
time in the State of New York.
6
<PAGE>
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Security Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or in
the Credit Agreement or the context otherwise requires, terms for which meanings
are provided in the U.C.C. are used in this Security Agreement, including its
preamble and recitals, with such meanings.
ARTICLE II
SECURITY INTEREST
SECTION 2.1. GRANT OF SECURITY. Each Grantor hereby assigns and pledges
to the Administrative Agent for its benefit and the ratable benefit of each of
the Secured Parties, and hereby grants to the Administrative Agent for the
ratable benefit of each of the Secured Parties, to secure the Secured
Obligations, a security interest in all of the following, whether now or
hereafter existing or acquired by such Grantor (the "COLLATERAL"):
(a) the Collateral Account;
(b) all Computer Hardware and Software Collateral;
(c) all Contracts, together with any Contract Rights arising
thereunder;
(d) all Deposit Accounts;
(e) all Equipment;
(f) all Intellectual Property Collateral;
(g) all Inventory;
(h) all Investment Property;
(i) all Receivables;
(j) all Securities Accounts;
(k) all other Goods, Chattel Paper, Documents, Instruments,
and General Intangibles of such Grantor;
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(l) all books, records, writings, data bases, information and
other property relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to, any of the
foregoing in this SECTION 2.1;
(m) all of such Grantor's other property and rights of every
kind and description and interests therein; and
(n) all products, offspring, rents, issues, profits, returns,
income and proceeds of and from any and all of the foregoing Collateral
(including proceeds which constitute property of the types described in
CLAUSES (a), (b), (c), (d), (e), (f), (g), (h) and (i) and, to the
extent not otherwise included, all payments under insurance which such
Grantor is entitled to receive (whether or not the Administrative Agent
is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any
of the foregoing Collateral).
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and no Grantor shall be deemed to have granted a security
interest in, any of such Grantor's rights or interests in any license, contract
or agreement to which such Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the express terms of such license, contract or agreement or otherwise, result in
a breach of the terms of, or constitute a default under such license, contract
or agreement (other than to the extent that any such term would be rendered
ineffective pursuant to Section 9-318(4) of the Uniform Commercial Code of any
relevant jurisdiction or any other applicable law (including the Bankruptcy
Code) or principles of equity); PROVIDED, that immediately upon the
ineffectiveness, waiver, lapse or termination of any such provision, the
Collateral shall include, and such Grantor shall have granted a security
interest in, all such rights and interests as if such provision had never been
in effect.
SECTION 2.2. SECURITY FOR OBLIGATIONS. This Security Agreement secures
the payment of (i) all Obligations of the Borrower now or hereafter existing
under the Credit Agreement, each other Loan Document to which the Borrower is or
may become a party, and each Interest Rate Hedging Agreement, whether for
principal, interest, costs, fees, expenses, Interest Rate Hedging Obligations or
otherwise, and (ii) all obligations of each Grantor and each other Obligor now
or hereafter existing under this Security Agreement and each other Loan Document
to which such Grantor or such other Obligor is or may become a party, and each
Interest Rate Hedging Agreement, with all such obligations of the Borrower and
such Grantor and such other Obligor being collectively referred to as the
"SECURED OBLIGATIONS".
SECTION 2.3. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This
Security Agreement shall create a continuing security interest in the
Collateral and shall
(a) remain in full force and effect until the Termination
Date;
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(b) be binding upon each Grantor and its successors,
transferees and assigns; and
(c) inure, together with the rights and remedies of the
Administrative Agent hereunder, to the benefit of the Administrative
Agent and each other Secured Party.
Without limiting the generality of the foregoing CLAUSE (c), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Credit Extension
held by it to any other Person or entity, and such other Person or entity shall
thereupon become vested with all the rights and benefits in respect thereof
granted to such Lender under any Loan Document (including this Security
Agreement) or otherwise, subject, however, to any contrary provisions in such
assignment or transfer, and to the provisions of Section 11.11 and Article X of
the Credit Agreement. Upon (i) the sale, transfer or other disposition of
Collateral in accordance with the Credit Agreement, (ii) the issuance of shares
in connection with the initial public offering of Cayenta pursuant to the terms
of the applicable underwriting agreement and the delivery of a certificate to
the Administrative Agent stating that no Default has occurred and is continuing
or would result from the initial public offering or (iii) the occurrence of the
Termination Date, the security interests granted herein shall automatically
terminate with respect to (x) such Collateral (in the case of clause (i)), (y)
any Collateral owned by any member of the Cayenta Group (in the case of clause
(ii)) or (z) all Collateral (in the case of clause (iii)), and at such time the
Administrative Agent will, at each Grantor's sole expense, execute and deliver
to the applicable Grantor (without any representations, warranties or recourse
to either Administrative Agent), such documents as such Grantor shall reasonably
request to evidence such termination.
SECTION 2.4. GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding
(a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein,
and shall perform all of its duties and obligations under such
contracts and agreements to the same extent as if this Security
Agreement had not been executed;
(b) the exercise by the Administrative Agent of any of its
rights hereunder shall not release any Grantor from any of its duties
or obligations under any such contracts or agreements included in the
Collateral; and
(c) neither Administrative Agent nor any other Secured Party
shall have any obligation or liability under any such contracts or
agreements included in the Collateral by reason of this Security
Agreement, nor shall the Administrative Agent or any other Secured
Party be obligated to perform any of the obligations or duties of any
Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
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SECTION 2.5. SECURITY INTEREST ABSOLUTE. All rights of the
Administrative Agent and the security interests granted to the Administrative
Agent hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit Agreement or
any other Loan Document;
(b) the failure of any Secured Party
(i) to assert any claim or demand or to enforce any right or
remedy against any Obligor or any other Person under the provisions of
the Credit Agreement, any other Loan Document or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor of, or collateral securing, any Secured Obligations;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other extension,
compromise or renewal of any Secured Obligation;
(d) any reduction, limitation, impairment or termination of any Secured
Obligations for any reason, including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to (and each Grantor hereby
waives any right to or claim of) any defense or setoff, counterclaim, recoupment
or termination whatsoever by reason of the invalidity, illegality, irregularity,
compromise, unenforceability of, or any other event or occurrence affecting, any
Secured Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other modification of, or
any consent to departure from, any of the terms of the Credit Agreement or any
other Loan Document;
(f) any addition, exchange, release, surrender or non-perfection of any
collateral (including the Collateral), or any amendment to or waiver or release
of or addition to or consent to departure from any guaranty, for any of the
Secured Obligations; or
(g) any other circumstances which might otherwise constitute a defense
available to, or a legal or equitable discharge of, any Obligor, any surety or
any guarantor.
SECTION 2.6. POSTPONEMENT OF SUBROGATION, ETC. Each Grantor agrees that
it will not exercise any rights which it may acquire by way of rights of
subrogation under this Security Agreement, by any payment made hereunder,
whether by way of subrogation, reimbursement or otherwise, until following the
Termination Date. Any amount paid to any Grantor on account of any such
subrogation rights prior to the Termination Date shall be held in trust for the
benefit of the Secured Parties and shall immediately be paid to the
Administrative Agent for the benefit of
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the Secured Parties and credited and applied against the Obligations, whether
matured or unmatured, in accordance with the terms of the Credit Agreement;
PROVIDED, HOWEVER, that if
(a) any Grantor has made payment to the Secured Parties of all
or any part of the Obligations; and
(b) the Termination Date has occurred;
then each Secured Party agrees that, at such Grantor's request, the
Administrative Agent, on behalf of the Secured Parties, will execute and deliver
to such Grantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
such Grantor of an interest in the Obligations resulting from such payment by
such Grantor. In furtherance of the foregoing, at all times prior to the
Termination Date, each Grantor shall refrain from taking any action or
commencing any proceeding against any Borrower or any other Obligor (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Security Agreement to any Secured Party. Notwithstanding the foregoing, to the
extent necessary to toll the statute of limitations, such Grantor may take such
action required to preserve any rights it has by way of rights of subrogation as
consented to by the Administrative Agent in its reasonable discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. Each Grantor represents
and warrants to each Secured Party (a) as to all matters contained in Article VI
of the Credit Agreement insofar as the representations and warranties contained
therein are applicable to such Grantor and its properties, each such
representation and warranty set forth in such Article (insofar as applicable as
aforesaid) and all other terms of the Credit Agreement to which reference is
made therein, together with all related definitions and ancillary provisions,
being hereby incorporated into this Security Agreement by reference as though
specifically set forth in this Section and (b) insofar as the representations
and warranties contained herein are applicable to such Grantor and its
properties, as set forth in this Article.
SECTION 3.1.1. LOCATION OF COLLATERAL, ETC. All of the Equipment and
Inventory of such Grantor is located at the places specified in ITEM A and ITEM
B, respectively, of SCHEDULE I hereto. None of the Equipment and Inventory has,
within the four months preceding the date of this Security Agreement, been
located at any place other than the places specified in ITEM A and ITEM B,
respectively, of SCHEDULE I hereto except as set forth in a footnote thereto.
The place(s) of business and chief executive office of such Grantor and the
office(s) where such Grantor keeps its records concerning the Receivables, and
all originals of all Chattel Paper which evidence Receivables, are located at
the address set forth in ITEM D of SCHEDULE I hereto. Such Grantor has
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no trade names other than those set forth in ITEM E of SCHEDULE I hereto. During
the four months preceding the date hereof, such Grantor has not been known by
any legal name different from the one set forth on the signature page hereto,
nor has such Grantor been the subject of any merger or other corporate
reorganization, except as set forth in ITEM F of SCHEDULE I hereto. If the
Collateral includes any Inventory located in the State of California, such
Grantor is not a "retail merchant" within the meaning of Section 9102 of the
Uniform Commercial Code - Secured Transactions of the State of California. All
Receivables evidenced by a promissory note or other Instrument, negotiable
Document or Chattel Paper have been duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Administrative Agent and delivered and pledged to the
Administrative Agent pursuant to SECTION 4.1.7
SECTION 3.1.2. OWNERSHIP, NO LIENS, ETC. Such Grantor owns its
Collateral free and clear of any Lien, security interest, charge or encumbrance
except for the security interest created by this Security Agreement and except
as permitted by the Credit Agreement. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor of the
Administrative Agent relating to this Security Agreement or as have been filed
in connection with Liens permitted pursuant to Section 7.2.3 of the Credit
Agreement.
SECTION 3.1.3. POSSESSION AND CONTROL. Such Grantor has exclusive
possession and control of its Equipment and Inventory.
SECTION 3.1.4. NEGOTIABLE DOCUMENTS, INSTRUMENTS AND CHATTEL PAPER.
Such Grantor has, contemporaneously herewith, delivered to the Administrative
Agent possession of all originals of all negotiable Documents, Instruments and
Chattel Paper currently owned or held by such Grantor (duly endorsed in blank,
if requested by the Administrative Agent).
SECTION 3.1.5. INTELLECTUAL PROPERTY COLLATERAL. With respect to any
Intellectual Property Collateral the loss, impairment or infringement of which
might have a Material Adverse Effect:
(a) such Intellectual Property Collateral is subsisting and
has not been adjudged invalid or unenforceable, in whole or in part;
(b) such Intellectual Property Collateral is valid and
enforceable;
(c) such Grantor has made all necessary filings and
recordations to protect its interest in such Intellectual Property
Collateral, including recordations of all of its interests in the
Patent Collateral and Trademark Collateral in the United States Patent
and Trademark Office and in corresponding offices throughout the world
and its claims to the Copyright Collateral in the United States
Copyright Office and in corresponding offices throughout the world;
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(d) other than as previously disclosed to the Administrative
Agent, such Grantor is the exclusive owner of the entire and
unencumbered right, title and interest in and to such Intellectual
Property Collateral and no claim has been made that the use of such
Intellectual Property Collateral does or may violate the asserted
rights of any third party; and
(e) such Grantor has performed and will continue to perform
all acts and has paid and will continue to pay all required fees and
taxes to maintain each and every item of Intellectual Property
Collateral in full force and effect throughout the world, as
applicable, unless such Grantor (i) has reasonably and in good faith
determined that any of the Intellectual Property Collateral is of
negligible economic value to such Grantor, or (i) has a valid business
purpose to do otherwise.
Such Grantor owns directly or is entitled to use by license or otherwise, all
patents, Trademarks, Trade Secrets, copyrights, mask works, licenses,
technology, know-how, processes and rights with respect to any of the foregoing
used in, necessary for or of importance to the conduct of such Grantor's
business.
SECTION 3.1.6. VALIDITY, PRIORITY, ETC. Assuming the proper filing of
one or more financing statements identifying the Collateral with the proper
local, state and/or federal authorities, the security interests in the
Collateral granted to the Administrative Agent hereunder constitute valid and
continuing first priority perfected security interests in the Collateral,
securing payment of the Secured Obligations, to the extent such security
interests may be perfected by the filing of financing statements (except to the
extent that any Lien permitted under the Credit Agreement is prior to the liens
granted to the Administrative Agent hereunder).
SECTION 3.1.7. AUTHORIZATION, APPROVAL, ETC. Except as have been
obtained or made and are in full force and effect, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required either
(a) for the grant by such Grantor of the security interest
granted hereby or for the execution, delivery and performance of this
Security Agreement by such Grantor; or
(b) for the perfection of or the exercise by the
Administrative Agent of its rights and remedies hereunder.
SECTION 3.1.8. COMPLIANCE WITH LAWS. Such Grantor is in compliance with
the requirements of all applicable laws (including the provisions of the Fair
Labor Standards Act), rules, regulations and orders of every governmental
authority, the non-compliance with which might have a Material Adverse Effect or
which might materially adversely affect the value of the Collateral or the worth
of the Collateral as collateral security.
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ARTICLE IV
COVENANTS
SECTION 4.1. CERTAIN COVENANTS. Each Grantor covenants and agrees that,
so long as any portion of the Secured Obligations shall remain unpaid, any
Letters of Credit shall be outstanding or any Lender or Issuer shall have any
outstanding Commitment, such Grantor will, unless the Required Lenders shall
otherwise consent in writing, perform, comply with and be bound by (a) all of
the agreements, covenants and obligations contained in Article VII of the Credit
Agreement which are applicable to such Grantor or its properties, each such
agreement, covenant and obligation contained in such Article and all other terms
of the Credit Agreement to which reference is made herein, together with all
related definitions and ancillary provisions, being hereby incorporated into
this Security Agreement by reference as though specifically set forth in this
Section and (b) the obligations set forth in this Article.
SECTION 4.1.1. AS TO EQUIPMENT AND INVENTORY. Such Grantor hereby
agrees that it shall
(a) keep all the Equipment and Inventory (other than Inventory
sold in the ordinary course of business, or except as otherwise
provided in the Credit Agreement or any of the other Loan Documents) at
the places therefor specified in SECTION 3.1.1 or, upon 30 days' prior
written notice to the Administrative Agent, at such other places in a
jurisdiction where all representations and warranties set forth in
ARTICLE III shall be true and correct, and all action required pursuant
to the FIRST SENTENCE of SECTION 4.1.7 shall have been taken with
respect to the Equipment and Inventory (collectively, "SPECIFIED
LOCATIONS"); PROVIDED, HOWEVER, that such Grantor may move and/or
maintain certain items of Equipment at locations other than at
Specified Locations, so long as the value of Collateral of this type of
such Grantor and each other Grantor and similar Collateral (as defined
in the Borrower Security Agreement) of the Borrower shall not exceed
$2,000,000 at any time;
(b) cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new, ordinary wear and
tear excepted, and in accordance with any manufacturer's manual or good
business practice; and forthwith, or in the case of any loss or damage
to any of the Equipment, as quickly as practicable after the occurrence
thereof, make or cause to be made all repairs, replacements, and other
improvements in connection therewith which are necessary or desirable
to such end; and promptly furnish to the Administrative Agent a
statement respecting any material loss or damage to any of the
Equipment; and
(c) pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against,
the Equipment and Inventory, except to the extent the
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validity thereof is being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
have been set aside.
SECTION 4.1.2. AS TO RECEIVABLES AND RELATED CONTRACTS.
(a) Such Grantor shall keep its place(s) of business and chief
executive office and the office(s) where it keeps its records
concerning the Receivables, and all originals of all Chattel Paper
which evidences Receivables, located at the address(es) set forth in
ITEM D of SCHEDULE I hereto, or, upon 30 days' prior written notice to
the Administrative Agent, at such other locations in a jurisdiction
where all actions required by the first sentence of SECTION 4.1.7 shall
have been taken with respect to the Receivables; not change its name
except upon 30 days' prior written notice to the Administrative Agent;
hold and preserve such records and Chattel Paper; and permit
representatives of the Administrative Agent at any time during normal
business hours to inspect (upon reasonable prior written notice so long
as no Event of Default shall have occurred and be continuing) and make
abstracts from such records and Chattel Paper. In addition, the Grantor
shall give the Administrative Agent a supplement to SCHEDULE I hereto
on each date a Compliance Certificate is required to be delivered to
the Administrative Agent under the Credit Agreement, which shall set
forth any changes to the information set forth in SECTION 3.1.1.
(b) Upon written notice by the Administrative Agent to such
Grantor pursuant to this clause, all proceeds of Collateral received by
such Grantor shall be delivered in kind to the Administrative Agent for
deposit to a deposit account (the "COLLATERAL ACCOUNT") of such Grantor
maintained with the Administrative Agent, and such Grantor shall not
commingle any such proceeds, and shall hold separate and apart from all
other property, all such proceeds in express trust for the benefit of
the Administrative Agent until delivery thereof is made to the
Administrative Agent. The Administrative Agent will not give the notice
referred to in the preceding sentence unless there shall have occurred
and be continuing a Default of the nature set forth in Section 9.1(i)
of the Credit Agreement or an Event of Default.
(c) The Administrative Agent shall have the right to apply any
amount in the Collateral Account to the payment of any Secured
Obligations which are due and payable or payable upon demand, or to the
payment of any Secured Obligations at any time that an Event of Default
shall exist.
(d) Such Grantor shall not enter into any government contract
which prohibits assignment ot the Administrative Agent of any payments
due or to become due thereunder or under any other government contract,
other than contracts for which the government has determined that a
prohibition on assignment of claims is in the government's interest.
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(e) Such Grantor shall not cause the aggregate value of
Receivables or Contracts or Contract Rights and the value of similar
Receivables and Contracts (as defined in the Borrower Security
Agreement) as to which a Lien in favor of the Administrative Agent
cannot be granted hereunder pursuant to the final paragraph of SECTION
2.1 (including Liens granted by other Grantors), or pursuant to the
Borrower Security Agreement to exceed $5,000,000 at any time.
SECTION 4.1.3. AS TO COLLATERAL.
(a) Until the occurrence and continuance of a Default of the
nature set forth in Section 9.1(i) of the Credit Agreement or an Event
of Default, and such time as the Administrative Agent shall notify such
Grantor of the revocation of such power and authority such Grantor (i)
may in the ordinary course of its business (except as otherwise
permitted under the Credit Agreement), at its own expense, sell, lease
or furnish under the contracts of service any of the Inventory normally
held by such Grantor for such purpose, and use and consume, in the
ordinary course of its business (except as otherwise permitted under
the Credit Agreement), any raw materials, work in process or materials
normally held by such Grantor for such purpose, (ii) will, at its own
expense, endeavor to collect, as and when due, all amounts due with
respect to any of the Collateral, including the taking of such action
with respect to such collection as the Administrative Agent may
reasonably request following the occurrence of a Default of the nature
set forth in Section 9.1(i) of the Credit Agreement or an Event of
Default or, in the absence of such request, as such Grantor may deem
advisable, and (iii) may grant, in the ordinary course of business
(except as otherwise permitted under the Credit Agreement), to any
party obligated on any of the Collateral, any rebate, refund or
allowance to which such party may be lawfully entitled, and may accept,
in connection therewith, the return of goods, the sale or lease of
which shall have given rise to such Collateral. The Administrative
Agent, however, may, at any time following a Default of the nature set
forth in Section 9.1(i) of the Credit Agreement or an Event of Default,
whether before or after any revocation of such power and authority or
the maturity of any of the Secured Obligations, notify any parties
obligated on any of the Collateral to make payment to the
Administrative Agent of any amounts due or to become due thereunder and
enforce collection of any of the Collateral by suit or otherwise and
surrender, release, or exchange all or any part thereof, or compromise
or extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder or evidenced thereby. Upon
request of the Administrative Agent following a Default of the nature
set forth in Section 9.1(i) of the Credit Agreement or an Event of
Default, such Grantor will, at its own expense, notify any parties
obligated on any of the Collateral to make payment to the
Administrative Agent of any amounts due or to become due thereunder.
(b) The Administrative Agent is authorized to endorse, in the
name of such Grantor, any item, howsoever received by the
Administrative Agent, representing any payment on or other proceeds of
any of the Collateral.
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SECTION 4.1.4. AS TO INTELLECTUAL PROPERTY COLLATERAL. Each Grantor
covenants and agrees to comply with the following provisions as such provisions
relate to any Intellectual Property Collateral of such Grantor that:
(a) Such Grantor shall not do any act, or omit to do any act,
whereby any of the Patent Collateral may lapse or become abandoned or
dedicated to the public or unenforceable, unless such Grantor shall
either (i) reasonably and in good faith determine that any of the
Patent Collateral is of negligible economic value to such Grantor, or
(ii) have a valid business purpose to do otherwise,.
(b) Such Grantor shall not, and such Grantor shall not permit
any of its licensees to:
(i) fail to continue to use any of the Trademark
Collateral in order to maintain all of the Trademark
Collateral in full force free from any claim of abandonment
for non-use,
(ii) fail to maintain as in the past the quality of
products and services offered under all of the Trademark
Collateral,
(iii) fail to employ all of the Trademark Collateral
registered with any Federal or state or foreign authority with
an appropriate notice of such registration,
(iv) adopt or use any other Trademark which is
confusingly similar or a colorable imitation of any of the
Trademark Collateral,
(v) use any of the Trademark Collateral registered
with any Federal or state or foreign authority except for the
uses for which registration or application for registration of
all of the Trademark Collateral has been made, and
(vi) do or permit any act or knowingly omit to do any
act whereby any of the Trademark Collateral may lapse or
become invalid or unenforceable,
unless such Grantor shall either (i) reasonably and in good faith
determine that any of the Trademark Collateral is of negligible
economic value to such Grantor, or (ii) have a valid business purpose
to do otherwise,
(c) Such Grantor shall not do or permit any act or knowingly
omit to do any act whereby any of the Copyright Collateral or any of
the Trade Secrets Collateral may lapse or become invalid or
unenforceable or placed in the public domain except upon expiration of
the end of an unrenewable term of a registration thereof, unless such
Grantor shall either (i) reasonably and in good faith determine that
any of the Copyright Collateral or any of the Trade Secrets Collateral
is of negligible economic value to such Grantor, or (ii) have a valid
business purpose to do otherwise.
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(d) Such Grantor shall notify the Administrative Agent
immediately if it knows, or has reason to know, that any application or
registration relating to any material item of the Intellectual Property
Collateral may become abandoned or dedicated to the public or placed in
the public domain or invalid or unenforceable, or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States
Patent and Trademark Office, the United States Copyright Office or any
foreign counterpart thereof or any court) regarding such Grantor's
ownership of any of the Intellectual Property Collateral, its right to
register the same or to keep and maintain and enforce the same.
(e) In no event shall such Grantor or any of its agents,
employees, designees or licensees file an application for the
registration of any Intellectual Property Collateral with the United
States Patent and Trademark Office, the United States Copyright Office
or any similar office or agency in any other country or any political
subdivision thereof, unless it promptly upon such filing informs the
Administrative Agent, and upon request of the Administrative Agent,
executes and delivers any and all agreements, instruments, documents
and papers as the Administrative Agent may reasonably request to
evidence the Administrative Agent's security interest in such
Intellectual Property Collateral and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby.
(f) Such Grantor shall take all necessary steps, including in
any proceeding before the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in
any other country or any political subdivision thereof, to maintain and
pursue any application (and to obtain the relevant registration) filed
with respect to, and to maintain any registration of, the Intellectual
Property Collateral, including the filing of applications for renewal,
affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings and the payment of fees and
taxes (except to the extent that dedication, abandonment or
invalidation is permitted under the foregoing CLAUSES (a), (b) and
(c)).
(g) Such Grantor shall, contemporaneously herewith, execute
and deliver to the Administrative Agent a Patent Security Agreement, a
Trademark Security Agreement and a Copyright Security Agreement in the
forms of EXHIBIT A, EXHIBIT B and EXHIBIT C hereto, respectively, and
shall execute and deliver to the Administrative Agent any other
document required to acknowledge or register or perfect the
Administrative Agent's interest in any part of the Intellectual
Property Collateral.
SECTION 4.1.5. INSURANCE. Such Grantor will maintain or cause to be
maintained with responsible insurance companies insurance with respect to its
business and properties (including the Equipment and Inventory) against such
casualties and contingencies and of such types and in such amounts as is
required pursuant to the Credit Agreement and will, upon the request of the
Administrative Agent, furnish a certificate of a reputable insurance broker
setting forth the nature
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and extent of all insurance maintained by such Grantor in accordance with this
Section. Without limiting the foregoing, such Grantor further agrees as follows:
(a) Each policy for property insurance shall show the
Administrative Agent as loss payee.
(b) Each policy for liability insurance shall show the
Administrative Agent as an additional insured.
(c) Each insurance policy shall provide that at least 30 days'
prior written notice of cancellation or of lapse shall be given to the
Administrative Agent by the insured (or at least 10 days' prior written
notice of cancellation shall be given with respect to failure to pay
the premium).
(d) Such Grantor shall, if so requested by the Administrative
Agent, deliver to the Administrative Agent a copy of each insurance
policy.
SECTION 4.1.6. TRANSFERS AND OTHER LIENS. Such Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except as permitted by the
Credit Agreement; or
(b) create or suffer to exist any Lien or other charge or
encumbrance upon or with respect to any of the Collateral to secure
Indebtedness of any Person or entity, except for the security interest
created by this Security Agreement and except as permitted by the
Credit Agreement.
SECTION 4.1.7. FURTHER ASSURANCES, ETC. Such Grantor agrees that, from
time to time at its own expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable (provided that it is reasonable), or that the
Administrative Agent may reasonably request, in order to perfect, preserve and
protect any security interest granted or purported to be granted hereby or to
enable the Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, such Grantor will
(a) mark conspicuously each Document (evidencing title)
included in the Inventory, each Chattel Paper included in the
Receivables and each Related Contract and, at the request of the
Administrative Agent, and upon the occurrence and during the
continuance of an Event of Default, each of its records pertaining to
the Collateral with a legend, in form and substance satisfactory to the
Administrative Agent, indicating that such Document, Chattel Paper,
Related Contract or Collateral is subject to the security interest
granted hereby;
19
<PAGE>
(b) if any Receivable shall be evidenced by a promissory note
or other Instrument, negotiable Document or Chattel Paper, deliver and
pledge to the Administrative Agent hereunder such promissory note,
Instrument, negotiable Document or Chattel Paper duly endorsed and
accompanied by duly executed Instruments of transfer or assignment, all
in form and substance satisfactory to the Administrative Agent;
(c) execute and file such financing or continuation
statements, or amendments thereto, and such other Instruments or
notices as may be necessary or desirable (provided that it is
reasonable), or as the Administrative Agent may reasonably request, in
order to perfect and preserve the security interests and other rights
granted or purported to be granted to the Administrative Agent hereby;
(d) promptly execute and file any notice or other required
form under or pursuant to the federal assignment of claims statute, 31
U.S.C. Section 3726, any successor or amended version thereof or any
regulation promulgated under or pursuant to any version thereof, as the
Administrative Agent may reasonably request; and
(e) furnish to the Administrative Agent, from time to time at
the Administrative Agent's request, statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as the Administrative Agent may
reasonably request, all in reasonable detail.
With respect to the foregoing and the grant of the security interest hereunder,
such Grantor hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of such Grantor where permitted
by law. A carbon, photographic or other reproduction of this Security Agreement
or any financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
ARTICLE V
THE AGENT
SECTION 5.1. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Each
Grantor hereby irrevocably appoints the Administrative Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of such Grantor or otherwise, from time to time in the
Administrative Agent's discretion, following the occurrence and continuation of
a Default of the nature set forth in Section 9.1(i) of the Credit Agreement or
an Event of Default, to take any action and to execute any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
of this Security Agreement, including:
20
<PAGE>
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
Instruments, Documents and Chattel Paper, in connection with CLAUSE (a)
above;
(c) to file any claims or take any action or institute any
proceedings which the Administrative Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Administrative Agent with respect to any of
the Collateral; and
(d) to perform the affirmative obligations of such Grantor
hereunder (including all obligations of such Grantor pursuant to
SECTION 4.1.7).
Such Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. ADMINISTRATIVE AGENT MAY PERFORM. If any Grantor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the expenses of the
Administrative Agent incurred in connection therewith shall be payable by such
Grantor pursuant to SECTION 6.2.
SECTION 5.3. ADMINISTRATIVE AGENT HAS NO DUTY. In addition to, and not
in limitation of, SECTION 2.4, the powers conferred on the Administrative Agent
hereunder are solely to protect its interest (on behalf of the Secured Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
SECTION 5.4. REASONABLE CARE. Other than the exercise of reasonable
care in the custody and preservation of the Collateral, the Administrative Agent
shall have no duty with respect thereto. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Administrative Agent accords its own
property. The Administrative Agent shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any agent or bailee selected by the
Administrative Agent in good faith.
21
<PAGE>
ARTICLE VI
REMEDIES
SECTION 6.1. CERTAIN REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the U.C.C.
applies to the affected Collateral) and also may
(i) require each Grantor to, and such Grantor hereby
agrees that it will, at its expense and upon request of the
Administrative Agent forthwith, assemble all or part of the
Collateral as directed by the Administrative Agent and make it
available to the Administrative Agent at a place to be
designated by the Administrative Agent which is reasonably
convenient to both parties, and
(ii) without notice except as specified below, sell
the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Administrative
Agent may deem commercially reasonable. Each Grantor agrees
that, to the extent notice of sale shall be required by law,
at least ten days' prior notice to such Grantor of the time
and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale
having been given. The Administrative Agent may adjourn any
public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was
so adjourned.
(iii) withdraw all monies, securities and Instruments
in the Collateral Account for application to the Obligations,
and
(iv) license or sublicense, whether on an exclusive
or nonexclusive basis, any Trademark Collateral, Patent
Collateral or Copyright Collateral included in the
Intellectual Property Collateral for such term and on such
conditions and in such manner as the Administrative Agent
shall in its sole judgment determine (taking into account such
provisions as may be necessary to protect and preserve the
validity or enforceability of such Trademark Collateral,
Patent Collateral or Copyright Collateral).
(b) All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the
22
<PAGE>
discretion of the Administrative Agent, be held by the Administrative
Agent as collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Administrative Agent
pursuant to SECTION 6.2) in whole or in part by the Administrative
Agent for the ratable benefit of the Secured Parties against, all or
any part of the Secured Obligations in such order as the Administrative
Agent shall elect. Any surplus of such cash or cash proceeds held by
the Administrative Agent and remaining after payment in full in cash of
all the Secured Obligations shall be paid over to the applicable
Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
SECTION 6.2. INDEMNITY AND EXPENSES.
(a) Each Grantor jointly and severally agrees to indemnify the
Administrative Agent and the other Secured Parties from and against any
and all claims, losses and liabilities arising out of or resulting from
this Security Agreement (including enforcement of this Security
Agreement), except claims, losses or liabilities resulting from the
gross negligence or wilful misconduct of the Administrative Agent or
the other Secured Parties.
(b) Each Grantor will upon demand pay to the Administrative
Agent and the other Secured Parties the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which the Administrative
Agent may incur in connection with
(i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon,
any of the Collateral, and
(iii) the exercise or enforcement of any of the
rights of the Administrative Agent or the Secured Parties
hereunder, or (iv) the failure by any Grantor to perform or
observe any of the provisions hereof.
The provisions of this SECTION 6.2 shall survive the Termination Date.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. LOAN DOCUMENT. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof including Article XI thereof.
23
<PAGE>
SECTION 7.2. AMENDMENTS; ETC. No amendment to or waiver of any
provision of this Security Agreement nor consent to any departure by any Grantor
here from, shall in any event be effective unless the same shall be in writing
and signed by the Administrative Agent (on behalf of the Lenders or the Required
Lenders, as the case may be), and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 7.3. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and, if to any
Grantor, mailed or telecopied or delivered to it, addressed to it, care of the
Borrower at the address for the Borrower specified in the Credit Agreement, if
to either Administrative Agent, mailed or telecopied or delivered to it,
addressed to it at the address of such Administrative Agent specified in the
Credit Agreement. All such notices and other communications, when mailed and
properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when received; any such notice
or communication, if transmitted by telecopier, shall be deemed given when
transmitted and electronically confirmed.
SECTION 7.4. ADDITIONAL SUBSIDIARY GRANTORS. Upon the execution and
delivery by any other Person of an instrument in the form of Annex I hereto,
such Person shall become a "Guarantor" hereunder with the same force and effect
as if originally named as a "Guarantor" herein. The execution and delivery of
any such instrument shall not require the consent of any other Guarantor
hereunder. The rights and obligations of each Guarantor hereunder shall remain
in full force and effect notwithstanding the addition of any new Guarantor as a
party to this Guaranty.
SECTION 7.5. CAPTIONS. Section captions used in this Security Agreement
are for convenience of reference only, and shall not affect the construction of
this Security Agreement.
SECTION 7.6. SEVERABILITY. Wherever possible each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Security Agreement.
SECTION 7.7. COUNTERPARTS. This Security Agreement may be executed by
the parties hereto in several counterparts, each of which shall be deemed an
original and all of which shall constitute together but one and the same
agreement.
SECTION 7.8. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS SECURITY
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK),
EXCEPT TO
24
<PAGE>
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS SECURITY
AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY
PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.
SECTION 7.9. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED
PARTIES OR ANY GRANTOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS
OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK LOCATED IN NEW YORK COUNTY IN THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT EITHER THE AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH
GRANTOR HEREBY IRREVOCABLY APPOINTS CSC UNITED STATES CORPORATION COMPANY (THE
"PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 375 HUDSON STREET, NEW
YORK, NEW YORK 10014, AS ITS AGENT TO RECEIVE, ON ITS BEHALF AND ON BEHALF OF
ITS PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY
BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SUCH GRANTOR IN CARE
OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND EACH GRANTOR
HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH
SERVICE ON ITS BEHALF. EACH GRANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK ADDRESSED TO SUCH GRANTOR, CARE OF THE BORROWER,
AT THE ADDRESS FOR NOTICES SPECIFIED IN THE CREDIT AGREEMENT. EACH GRANTOR
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH GRANTOR IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS BY
25
<PAGE>
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT SUCH GRANTOR HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH GRANTOR
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
SECURITY AGREEMENT.
SECTION 7.10. WAIVER OF JURY TRIAL. THE SECURED PARTIES AND EACH
GRANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS SECURITY AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE SECURED PARTIES OR EACH GRANTOR. EACH GRANTOR ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES
ENTERING INTO THE CREDIT AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
26
<PAGE>
IN WITNESS WHEREOF, each Grantor has caused this Security Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
Assist Cornerstone Technologies, Inc.
Atlantic Aerospace Electronics Corporation
Cayenta Operating Company
Cayenta, Inc.
DBA Systems, Inc.
Delfin Systems
Diversified Control Systems, Inc.
Eldyne, Inc.
Horizons Technology, Inc.
J.B. Systems, Inc.
Linkabit Wireless, Inc.
Mergeco, Inc.
Pulse Sciences, Inc.
System Resources Corporation
Titan Food Pasteurization Corp.
Titan Medical Sterilization Corp.
Titan Scan Corp.
Titan Systems Corporation
Titan Unidyne Corporation
Titan Wireless, Inc.
Tomotherapeutics, Inc.
Validity Corporation
VisiCom Laboratories, Inc.
Microlithics Corporation
All By:
----------------------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
S-1
<PAGE>
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By
---------------------------------------------------
Name: Thomas G. Muoio
Title: Vice President
By
---------------------------------------------------
Name:
Title:
S-2
<PAGE>
ANNEX I to
the Subsidiary Security Agreement
SUPPLEMENT, dated as of
________________, ____ (this "SUPPLEMENT"),
to the Subsidiary Security Agreement, dated
as of __________ __, 2000 (together with all
amendments, supplements, restatements and
other modifications, if any, from time to
time thereafter made thereto, the "SECURITY
AGREEMENT"), among the initial signatories
thereto and each other Person (such
capitalized term, and other terms used in
this Supplement, to have the meanings set
forth in Article I of the Security
Agreement) which from time to time
thereafter became a party thereto pursuant
to Section 7.4 thereof (each, individually,
a "GRANTOR", and, collectively, the
"GRANTORS"), in favor of the Secured
Parties.
W I T N E S S E T H:
WHEREAS, pursuant to the provisions of Section 7.4 of the Security
Agreement, the undersigned is becoming a Grantor under the Security Agreement;
and
WHEREAS, the undersigned Grantor desires to become a "Grantor" under
the Security Agreement in order to induce the Secured Parties to continue to
extend Credit Extensions under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
consideration (the receipt and sufficiency of which is hereby acknowledged), the
undersigned agrees, for the benefit of each Secured Party, as follows.
SECTION 1. In accordance with the terms of the Security Agreement, by
its signature below the undersigned hereby irrevocably agrees to become a
Grantor under the Security Agreement with the same force and effect as if it
were an original signatory thereto and the undersigned Grantor, hereby (a)
agrees to be bound by and comply with all of the terms and provisions of the
Security Agreement applicable to it as a Grantor and (b) represents and warrants
that the representations and warranties made by it as a Grantor thereunder are
true and correct as of the date hereof. In furtherance of the foregoing, each
reference to a "Grantor" in the Security Agreement shall be deemed to include
the undersigned Grantor.
SECTION 2. The undersigned Grantor hereby represents and warrants that
this Supplement has been duly authorized, executed and delivered by it and that
this Supplement and the Security Agreement constitute the legal, valid and
binding obligation of the undersigned Grantor, enforceable against it in
accordance with its terms.
<PAGE>
SECTION 3. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect in accordance with its terms.
SECTION 4. In the event any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired.
SECTION 5. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF ADDITIONAL SUBSIDIARY
GRANTOR]
By:
--------------------------------------
Name:
Title:
ACCEPTED BY:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to Security Agreement
([NAME OF GRANTOR])
Item A. LOCATION OF EQUIPMENT
<TABLE>
<CAPTION>
DESCRIPTION LOCATION
<S> <C>
</TABLE>
Item B. LOCATION OF INVENTORY
<TABLE>
<CAPTION>
DESCRIPTION LOCATION
<S> <C>
</TABLE>
Item C. LOCATION OF LOCK BOXES
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<C> <C> <C>
</TABLE>
Item D. PLACE(S) OF BUSINESS AND CHIEF EXECUTIVE OFFICE
Item E. TRADE NAMES
Item F. MERGER OR OTHER CORPORATE REORGANIZATION
Item G. LOCATION OF DEPOSIT ACCOUNTS
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<S> <C> <C>
</TABLE>
Item H. LOCATION OF SECURITIES ACCOUNTS
<TABLE>
<CAPTION>
CONTACT
BANK NAME AND ADDRESS ACCOUNT NUMBER PERSON
<S> <C> <C>
</TABLE>
<PAGE>
SCHEDULE II
to Security Agreement
([NAME OF GRANTOR])
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
*COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Patent Applications in Preparation
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE III
to Security Agreement
([NAME OF GRANTOR])
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK SERIAL NO. FILING DATE
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED PRODUCTS/
*COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE IV
to Security Agreement
([NAME OF GRANTOR])
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
<TABLE>
<CAPTION>
*COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S)
TITLE
<C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. COPYRIGHT/MASK WORK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
SCHEDULE V
to Security Agreement
([NAME OF GRANTOR])
TRADE SECRET OR KNOW-HOW LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT A
to Security Agreement
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "AGREEMENT"), dated as of February
23, 2000, is made between ___________________, a ____________ (the "GRANTOR"),
and CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as Administrative Agent
for each of the Secured Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented or otherwise modified from
time to time, the "CREDIT AGREEMENT"), among THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), the various financial institutions as are or may
become parties thereto (the "LENDERS"), CSFB, as Administrative Agent, First
Union Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Subsidiary Security Agreement, dated as of February 23,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "SECURITY AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Agreement inasmuch as the Grantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrower by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuers to
make Credit Extensions (including the initial Credit Extension) to the Borrower
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
A-1
<PAGE>
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Administrative Agent, and grant to the Administrative
Agent a security interest in, for its benefit and the benefit of each Secured
Party, all of the following property (the "PATENT COLLATERAL"), whether now
owned or hereafter acquired or existing by it:
(a) all letters patent and applications for letters patent
throughout the world, including all patent applications in preparation
for filing anywhere in the world and including each patent and patent
application referred to in ITEM A of ATTACHMENT 1 attached hereto;
(b) all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any
of the items described in CLAUSE (a);
(c) all patent licenses, including each patent license
referred to in ITEM B of ATTACHMENT 1 attached hereto; and
(d) all proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the
right to sue third parties for past, present or future infringements of
any patent or patent application, including any patent or patent
application referred to in ITEM A of ATTACHMENT 1 attached hereto, and
for breach or enforcement of any patent license, including any patent
license referred to in ITEM B of ATTACHMENT 1 attached hereto, and all
rights corresponding thereto throughout the world.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Patent Collateral with the United States Patent
and Trademark Office and corresponding offices in other countries of the world.
The security interest granted hereby has been granted as a supplement to, and
not in limitation of, the security interest granted to the Administrative Agent
for its benefit and the benefit of each Secured Party under the Security
Agreement. The Security Agreement (and all rights and remedies of the
Administrative Agent and each Secured Party thereunder) shall remain in full
force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all instruments and other documents as may be necessary or proper to
release the lien on and security interest in the Patent Collateral which has
been granted hereunder.
A-2
<PAGE>
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Patent Collateral granted hereby are more fully
set forth in the Security Agreement, the terms and provisions of which
(including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
A-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By
--------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By
--------------------------------------
Name:
Title:
By
--------------------------------------
Name:
Title:
A-4
<PAGE>
ATTACHMENT 1
to Patent Security Agreement
Item A. PATENTS
ISSUED PATENTS
<TABLE>
<CAPTION>
*COUNTRY PATENT NO. ISSUE DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PENDING PATENT APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
PATENT APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE INVENTOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. PATENT LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
A-5
<PAGE>
EXHIBIT B
to Security Agreement
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "AGREEMENT"), dated as of
February 23, 2000, is made between _____________________, a ___________
__________ (the "GRANTOR"), and CREDIT SUISSE FIRST BOSTON ("CSFB"), as
Administrative Agent (the "ADMINISTRATIVE AGENT") for each of the Secured
Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of February 23, 2000
(as amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among THE TITAN CORPORATION, a Delaware corporation, (the
"BORROWER"), the various financial institutions as are or may become parties
thereto (the "LENDERS"), CSFB, as Administrative Agent, First Union Securities,
Inc., as Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent,
the Lenders and the Issuers have extended Commitments to make Credit Extensions
to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Subsidiary Security Agreement, dated as of February 23,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "SECURITY AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Agreement inasmuch as the Grantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrower by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuers to
make Credit Extensions (including the initial Credit Extension) to the Borrower
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
B-1
<PAGE>
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Administrative Agent, and grant to the Administrative
Agent a security interest in, for its benefit and the benefit of each Secured
Party, all of the following property (the "TRADEMARK COLLATERAL"), whether now
owned or hereafter acquired or existing by it:
(a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service
marks, certification marks, collective marks, logos, other source of
business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of a like
nature (all of the foregoing items in this CLAUSE (A) being
collectively called a "TRADEMARK"), now existing anywhere in the world
or hereafter adopted or acquired, whether currently in use or not, all
registrations and recordings thereof and all applications in connection
therewith, whether pending or in preparation for filing, including
registrations, recordings and applications in the United States Patent
and Trademark Office or in any office or agency of the United States of
America or any State thereof or any foreign country, including those
referred to in ITEM A of ATTACHMENT 1 attached hereto;
(b) all Trademark licenses, including each Trademark license
referred to in ITEM B of ATTACHMENT 1 attached hereto;
(c) all reissues, extensions or renewals of any of the items
described in CLAUSES (A) and (B);
(d) all of the goodwill of the business connected with the use
of, and symbolized by the items described in, CLAUSES (A) and (B); and
(e) all proceeds of, and rights associated with, the
foregoing, including any claim by the Grantor against third parties for
past, present or future infringement or dilution of any Trademark,
Trademark registration or Trademark license, including any Trademark,
Trademark registration or Trademark license referred to in ITEM A and
ITEM B of ATTACHMENT 1 attached hereto, or for any injury to the
goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Trademark Collateral with the United States
Patent and Trademark Office and corresponding
B-2
<PAGE>
offices in other countries of the world. The security interest granted hereby
has been granted as a supplement to, and not in limitation of, the security
interest granted to the Administrative Agent for its benefit and the benefit of
each Secured Party under the Security Agreement. The Security Agreement (and all
rights and remedies of the Administrative Agent and each Secured Party
thereunder) shall remain in full force and effect in accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all instruments and other documents as may be necessary or proper to
release the lien on and security interest in the Trademark Collateral which has
been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Trademark Collateral granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which
(including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By
--------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By
--------------------------------------
Name:
Title:
By
--------------------------------------
Name:
Title:
B-4
<PAGE>
ATTACHMENT 1
to Trademark
Security Agreement
Item A. TRADEMARKS
REGISTERED TRADEMARKS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK REGISTRATION NO. REGISTRATION DATE
<S> <C> <C> <C>
</TABLE>
PENDING TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY TRADEMARK SERIAL NO. FILING DATE
<S> <C> <C> <C>
</TABLE>
TRADEMARK APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED PRODUCTS/
*COUNTRY TRADEMARK DOCKET NO. FILING DATE SERVICES
<S> <C> <C> <C> <C>
</TABLE>
Item B. TRADEMARK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION
TERRITORY TRADEMARK LICENSOR LICENSEE DATE DATE
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT C
to Security Agreement
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "AGREEMENT"), dated as of
February 23, 2000, is made between _____________________, a __________ (the
"GRANTOR"), and CREDIT SUISSE FIRST BOSTON ("CSFB"), in its capacity as
Administrative Agent (the "ADMINISTRATIVE AGENT") for each of the Secured
Parties;
W I T N E S S E T H :
WHEREAS, pursuant to a Credit Agreement, dated as of February 23, 2000
(as amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among THE TITAN CORPORATION, a Delaware corporation (the
"BORROWER"), the various financial institutions as are or may become parties
thereto (the "LENDERS"), CSFB, as Administrative Agent, First Union Securities,
Inc., as Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent,
the Lenders and the Issuers have extended Commitments to make Credit Extensions
to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has
executed and delivered a Subsidiary Security Agreement, dated as of February 23,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "SECURITY AGREEMENT");
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Grantor is required to execute and deliver this Agreement;
WHEREAS, the Grantor has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, it is in the best interests of the Grantor to execute this
Agreement inasmuch as the Grantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrower by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuers to
make Credit Extensions (including the initial Credit Extension) to the Borrower
pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each
Secured Party, as follows.
C-1
<PAGE>
SECTION 1. DEFINITIONS. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and
recitals, have the meanings provided (or incorporated by reference) in the
Security Agreement.
SECTION 2. GRANT OF SECURITY INTEREST. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
secure all of the Secured Obligations, the Grantor does hereby mortgage, pledge
and hypothecate to the Administrative Agent, and grant to the Administrative
Agent a security interest in, for its benefit and the benefit of each Secured
Party, all of the following property (the "COPYRIGHT COLLATERAL"), whether now
owned or hereafter acquired or existing by it, being all copyrights (including
all copyrights for semi-conductor chip product mask works) of the Grantor,
whether statutory or common law, registered or unregistered, now or hereafter in
force throughout the world including all of the Grantor's right, title and
interest in and to all copyrights registered in the United States Copyright
Office or anywhere else in the world and also including the copyrights referred
to in ITEM A of ATTACHMENT 1 attached hereto, and all applications for
registration thereof, whether pending or in preparation, all copyright licenses,
including each copyright license referred to in ITEM B of ATTACHMENT 1 attached
hereto, the right to sue for past, present and future infringements of any
thereof, all rights corresponding thereto throughout the world, all extensions
and renewals of any thereof and all proceeds of the foregoing, including
licenses, royalties, income, payments, claims, damages and proceeds of suit.
SECTION 3. SECURITY AGREEMENT. This Agreement has been executed and
delivered by the Grantor for the purpose of registering the security interest of
the Administrative Agent in the Copyright Collateral with the United States
Copyright Office and corresponding offices in other countries of the world. The
security interest granted hereby has been granted as a supplement to, and not in
limitation of, the security interest granted to the Administrative Agent for its
benefit and the benefit of each Secured Party under the Security Agreement. The
Security Agreement (and all rights and remedies of the Administrative Agent and
each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. RELEASE OF SECURITY INTEREST. Upon the Termination Date, the
Administrative Agent shall, at the Grantor's expense, execute and deliver to the
Grantor all instruments and other documents as may be necessary or proper to
release the lien on and security interest in the Copyright Collateral which has
been granted hereunder.
SECTION 5. ACKNOWLEDGMENT. The Grantor does hereby further acknowledge
and affirm that the rights and remedies of the Administrative Agent with respect
to the security interest in the Copyright Collateral granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which
(including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein.
SECTION 6. LOAN DOCUMENT, ETC. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be
C-2
<PAGE>
construed, administered and applied in accordance with the terms and provisions
of the Credit Agreement.
SECTION 7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
C-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF GRANTOR]
By
--------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By
--------------------------------------
Name:
Title:
By
--------------------------------------
Name:
Title:
C-4
<PAGE>
ATTACHMENT 1
to Copyright
Security Agreement
Item A. COPYRIGHTS/MASK WORKS
REGISTERED COPYRIGHTS/MASK WORKS
<TABLE>
<CAPTION>
*COUNTRY REGISTRATION NO. REGISTRATION DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK PENDING REGISTRATION APPLICATIONS
<TABLE>
<CAPTION>
*COUNTRY SERIAL NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
COPYRIGHT/MASK WORK REGISTRATION APPLICATIONS IN PREPARATION
<TABLE>
<CAPTION>
EXPECTED
*COUNTRY DOCKET NO. FILING DATE AUTHOR(S) TITLE
<S> <C> <C> <C> <C>
</TABLE>
Item B. COPYRIGHT/MASK WORK LICENSES
<TABLE>
<CAPTION>
*COUNTRY OR EFFECTIVE EXPIRATION SUBJECT
TERRITORY LICENSOR LICENSEE DATE DATE MATTER
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------
* List items related to the United States first for ease of recordation.
List items related to other countries next, grouped by country and in
alphabetical order by country name.
<PAGE>
EXHIBIT H
DESCRIPTION OF OPINION OF OBLIGORS' COUNSEL
The opinions of Morgan, Lewis & Bockius, LLP and Cooley Godward LLP, counsel to
the Obligors, which are called for by Section 5.1(n) of the Senior Secured
Credit Agreement dated as of February 23, 2000 (the "Credit Agreement"), among
The Titan Corporation, as Borrower, the Lenders from time to time party thereto,
Credit Suisse First Boston, as Administrative Agent, First Union Securities,
Inc., as Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent,
shall be dated the Closing Date and addressed to Credit Suisse First Boston, as
Administrative Agent, and the Lenders and shall be satisfactory in scope and
form to the Administrative Agent and its counsel. Capitalized terms not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The opinion shall be to the effect that:
1. Each Obligor is a corporation (or other entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or formation, has full power and authority and is duly
authorized to conduct the activities in which it is now engaged, and is
duly licensed or qualified and is in good standing as a foreign
corporation (or other entity) in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification
necessary.
2. Each Obligor has corporate (or other) power and authority and is duly
authorized to enter into and perform its obligations under the Loan
Documents.
3. The Loan Documents have been duly authorized, executed and delivered by
each Obligor and constitute the valid and binding contracts and
agreements of each Obligor, enforceable in accordance with their
respective terms, except as enforceability thereof may be limited by
(i) bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting the enforcement of creditors' rights generally, and (ii)
equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
4. No approval, consent or withholding of objection on the part of, or
filing, registration or qualification with, any governmental body,
Federal, state or local, is necessary in connection with the lawful
execution, delivery and performance of the Loan Documents.
<PAGE>
5. The execution and delivery by the Obligors of the Loan Documents and
the performance by the Obligors of the transactions contemplated
thereby do not and will not (a) violate, conflict with or result in any
default under (i) any order, writ, injunction or decree of any court or
governmental authority or agency binding upon the Obligors or to which
the Obligors are subject, (ii) the Organic Documents of the Obligors or
(iii) any material contractual obligation of the Obligors or the HIGH
TIDES Documents or (b) result in the creation or imposition of any Lien
upon any of the assets or properties of the Obligors (other than Liens
created pursuant to the Collateral Documents).
6. Neither the execution, delivery or performance by any of the Obligors
of the Loan Documents nor the compliance by the Obligors with the terms
and provisions thereof will contravene any provision of any applicable
laws, rules and regulations (including, without limitation, Regulations
T, U and X of the Federal Reserve Board).
7. The delivery to the Administrative Agent of the certificates
representing the Pledged Interests (as defined in the Borrower Pledge
Agreement and the Subsidiary Pledge Agreement), together with the
execution of each of the Borrower Pledge Agreement and the Subsidiary
Pledge Agreement, is effective to create in favor of the Administrative
Agent on behalf of the Lenders a valid and perfected security interest
in the Pledged Interests to secure the Obligations. No interest of any
other creditor of any of the Obligors is equal or prior to the security
interest of the Administrative Agent on behalf of the Lenders in the
Pledged Interests.
8. The provisions of the Borrower Security Agreement and the Subsidiary
Security Agreement (collectively, the "Security Agreements") are
effective to create, in favor of the Administrative Agent for the
benefit of the Lenders to secure the Obligations, a valid security
interest in each Obligor's rights in that portion of the Collateral (as
defined in the Security Agreements) pledged by it which is subject to
Article 9 of the UCC.
9. The UCC-1 financing statements executed in connection with the Security
Agreements (the "Financing Statements") are in appropriate form for
filing in each of the filing offices identified on Schedule __ (the
"Filing Offices") under the UCC, and the description (including the
exhibits attached thereto) of the property in which a security interest
is granted pursuant to the respective Collateral Documents is a
sufficient description of the property in which such security interest
is created, to the extent a security interest in such property is
governed by the UCC of the applicable jurisdiction. To the extent that
the filing of a financing statement can be
<PAGE>
effective to perfect a security interest in the Collateral under the
UCC, the security interest in favor of the Administrative Agent for the
benefit of the Lenders in that portion of the Collateral described in
the Financing Statements will be perfected upon the filing of the
Financing Statements in the respective Filing Offices.
10. To the extent that the federal trademark laws of the United States are
applicable, the interest of the Administrative Agent created pursuant
to the provisions of the Security Agreements in the United States
registered trademarks and trademark applications set forth on Schedule
III to the Security Agreements (the "Trademarks") shall be effective
against subsequent purchasers of such Trademarks upon recordation of
the Trademark Security Agreements in the United States Patent and
Trademark Office within three months of the date hereof.
11. To the extent that the federal copyright laws of the United States are
applicable, the interest of the Administrative Agent created pursuant
to the provisions of the Security Agreements in the United States
registered copyrights set forth on Schedule IV to the Security
Agreements (the "Copyrights") shall be effective against subsequent
"transfers of copyright ownership" (as that term is defined in Section
101 of the United States Copyright Act, 17 U.S.C. Section 101) upon
recordation of the Copyright Security Agreements in the United States
Copyright Office within one month of the date hereof.
12. To the extent that the federal patent laws of the United States are
applicable, the interest of the Administrative Agent created pursuant
to the provisions of the Security Agreements in the United States
patents and patent applications set forth on Schedule II to the
Security Agreements (the "Patents") shall be effective against
subsequent purchasers or mortgagees of such Patents upon recordation of
the Patent Security Agreement in the United States Patent and Trademark
Office within three months of the date hereof.
13. None of the Obligors is, after giving effect to the transactions
contemplated by the Loan Documents and the application of the net
proceeds from the making of the Loans under the Credit Agreement (i) an
"investment company" required to register as such under the Investment
Company Act of 1940, as amended, or (ii) a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
<PAGE>
14. There are no actions, suits or proceedings pending or threatened which
could reasonably be expected to have a Material Adverse Effect.
The opinion of Morgan, Lewis & Bockius, LLP shall cover such other
matters relating to the Loan Documents as the Administrative Agent or
its counsel may reasonably request. With respect to matters of fact on
which such opinion is based, such counsel shall be entitled to rely on
appropriate certificates of public officials and officers of the
Obligors.
<PAGE>
EXHIBIT I
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY (as amended, restated, supplemented, or
otherwise modified from time to time, this GUARANTY"), dated as of February 23,
2000, is made by each U.S. Subsidiary of THE TITAN CORPORATION, a Delaware
corporation (the "BORROWER"), now or after the date hereof (including pursuant
to SECTION 5.5) a party to this Guaranty (individually referred to as a
"GUARANTOR" and collectively referred to as the "GUARANTORS") in favor of each
of the Secured Parties, including CREDIT SUISSE FIRST BOSTON, in its capacity as
the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to a Senior Secured Credit Agreement, dated as of
February 23, 2000 (as amended, restated, supplemented, or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among the Borrower, the various
financial institutions as are, or may from time to time become, parties thereto
(collectively referred to as the "LENDERS"), the Administrative Agent, First
Union Securities, Inc., as Syndication Agent, and The Bank of Nova Scotia, as
Documentation Agent, the Lenders and the Issuers have extended Commitments to
make Credit Extensions to the Borrower;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
each Guarantor is required to execute and deliver this Guaranty;
WHEREAS, each Guarantor has duly authorized the execution,
delivery and performance
of this Guaranty; and
WHEREAS, it is in the best interests of each Guarantor to execute this
Guaranty inasmuch as such Guarantor will derive substantial direct and indirect
benefits from the Credit Extensions made from time to time to the Borrower by
the Lenders and the Issuers pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders and the Issuers to
make Credit Extensions (including the initial Credit Extension) to the Borrower,
each Guarantor jointly and severally agrees, for the benefit of each Secured
Party, as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"BORROWER" is defined in the PREAMBLE.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"GUARANTOR" and "GUARANTORS" is defined in the PREAMBLE.
"GUARANTY" is defined in the PREAMBLE.
"INTEREST RATE HEDGING AGREEMENTS" means interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and all other
agreements or arrangements designed to protect a Guarantor against fluctuations
in interest rates, entered into between such Guarantor and a Lender or an
Affiliate of a Lender, for the purpose of hedging interest rate risk with
respect to the Obligations.
"LENDERS" is defined in the FIRST RECITAL.
"TERMINATION DATE" means the date on which all Obligations have
indefeasibly been paid in full, all Commitments have been fully
terminated and all Letters of Credit have been canceled or otherwise
terminated.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein or the context otherwise requires, terms used in this Guaranty, including
its preamble and recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. GUARANTY. Each Guarantor hereby jointly and severally
absolutely, unconditionally and irrevocably
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(a) guarantees the full and punctual payment when due, whether
at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise, of all Obligations of the Borrower and each other
Obligor now or hereafter existing, whether for principal, interest
(including interest accruing at the then applicable rate provided in
the Credit Agreement after the occurrence of any Default set forth in
Section 9.1(i) of the Credit Agreement, whether or not a claim for
post-filing or post-petition interest is allowed under applicable law
following the institution of a proceeding under bankruptcy, insolvency
or similar laws), fees, Reimbursement Obligations, Hedging Obligations,
expenses or otherwise (including all such amounts which would become
due but for the operation of the automatic stay under Section 362(a) of
the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the
operation of Sections 502(b) and 506(b) of the United States Bankruptcy
Code, 11 U.S.C. Section 502(b) and Section 506(b)); and
(b) indemnifies and holds harmless each Secured Party for any
and all costs and expenses (including reasonable attorneys' fees and
expenses) incurred by such Secured Party in enforcing any rights under
this Guaranty;
PROVIDED, HOWEVER, that each Guarantor shall only be liable under this Guaranty
for the maximum amount of such liability that can be hereby incurred without
rendering this Guaranty, as it relates to such Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer, and not
for any greater amount. This Guaranty constitutes a guaranty of payment when due
and not of collection, and each Guarantor specifically agrees that it shall not
be necessary or required that any Secured Party exercise any right, assert any
claim or demand or enforce any remedy whatsoever against the Borrower, any other
Obligor or any other Person before or as a condition to the obligations of such
Guarantor hereunder.
SECTION 2.2. REINSTATEMENT, ETC. Each Guarantor hereby jointly and
severally agrees that this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment (in whole or in part)
of any of the Obligations is invalidated, declared to be fraudulent or
preferential, set aside, rescinded or must otherwise be restored by any Secured
Party, upon the insolvency, bankruptcy, reorganization (or similar event) of the
Borrower, any other Obligor or otherwise, all as though such payment had not
been made.
SECTION 2.3. GUARANTY ABSOLUTE, ETC. This Guaranty shall in all
respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment, and shall remain in full force and effect until the Termination Date
has occurred. Each Guarantor jointly and severally guarantees that the
Obligations of the Borrower and each other Obligor will be paid strictly in
accordance with the terms of the Credit Agreement, each other Loan Document and
any Interest Rate Hedging Agreement under which they arise, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party with respect
thereto. The liability of each Guarantor under this Guaranty shall be joint and
several, absolute, unconditional and irrevocable irrespective of:
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(a) any lack of validity, legality or enforceability of the
Credit Agreement or any other Loan Document;
(b) the failure of any Secured Party
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower, any other Obligor or any
other Person (including any other guarantor) under the
provisions of the Credit Agreement, any other Loan Document,
any Interest Rate Hedging Agreement or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor (including each Guarantor) of, or collateral
securing, any Obligations;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any part of the Obligations, or any
extension, compromise or renewal of any Obligation;
(d) any reduction, limitation, impairment or termination of
any Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and
each Guarantor hereby waives any right to or claim of) any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of
the invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any
Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to or departure from, any of the terms
of the Credit Agreement, any other Loan Document or any Interest Rate
Hedging Agreement, including without limitation any increase in the
Obligations from the extension of additional credit to the Borrower or
otherwise;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to or departure from, any other
guaranty held by any Secured Party securing any of the Obligations;
(g) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any other Obligor; or
(h) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the
Borrower, any other Obligor, any surety or any guarantor.
SECTION 2.4. SETOFF. Each Guarantor hereby irrevocably authorizes the
Administrative Agent and each other Secured Party, without the requirement that
any notice be
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given to such Guarantor (such notice being expressly waived by each Guarantor),
upon the occurrence and during the continuance of any Default described in
SECTION 9.1(i) of the Credit Agreement as it relates to the Borrower or upon the
occurrence and during the continuance of any other Event of Default, to set-off
and appropriate and apply to the payment of the Obligations owing to the Secured
Parties (whether or not then due, and whether or not the Administrative Agent or
such other Secured Party has made any demand for payment of the Obligations),
any and all balances, claims, credits, deposits (general or special, time or
demand, provisional or final), accounts or money of such Guarantor then or
thereafter maintained with such Secured Party; PROVIDED, HOWEVER, that any such
appropriation and application shall be subject to the provisions of Section 4.8
of the Credit Agreement. Each Secured Party agrees to notify the applicable
Guarantor and the Administrative Agent after any such setoff and application
made by such Secured Party; PROVIDED, HOWEVER, that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of each Secured Party under this Section are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Secured Party may have.
SECTION 2.5. WAIVER, ETC.
(a) Each Guarantor hereby waives promptness, diligence, notice
of acceptance and any other notice with respect to any of the Obligations and
this Guaranty and any requirement that the Administrative Agent or any other
Secured Party protect, secure, perfect or insure any Lien, or any property
subject thereto, or exhaust any right or take any action against the Borrower,
any other Obligor or any other Person (including any other guarantor) or entity
or any collateral securing the Obligations, as the case may be.
(b) Each Guarantor hereby waives any right to revoke this
Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to all Obligations, whether
existing now or in the future.
(c) Each Guarantor acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 2.5 are knowingly made in contemplation of such benefits.
(d) Each Guarantor assumes all responsibility for being and
keeping itself informed of the financial condition and assets of the Borrower,
and of all other circumstances bearing upon the risk of non-payment of the
Obligations and the nature, scope and extent of the risks the Guarantors assume
and incur hereunder, and agrees that the Secured Parties shall have no duty to
advise the Guarantors of information known to them regarding such circumstances
or risks.
(e) Each Guarantor hereby waives any right to enforce any
other remedy that the Secured Parties now have or may hereafter have against any
third party, any endorser or any other guarantor of all or any part of the
Obligations and any benefit of and any right to participate
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in, any security or collateral given to or for the benefit of the Secured
Parties to secure payment of the Obligations.
(f) Each Guarantor hereby waives all claims (as such term is
defined in the United States Bankruptcy Code) it may at any time otherwise have
against the Borrower arising from any transaction whasoever, including, without
limitation, its rights to assert or enforce any such claims.
(g) Each Guarantor hereby waives, to the fullest extent
permitted by applicable law, without limiting the generality of the foregoing or
any other provision hereof, all rights and benefits which might otherwise be
available to the Subsidiary Guarantor under Sections 2809, 2810, 2815, 2819,
2821, 2839, 2845, 2848, 2849, 2850, 2899 and 3433 of the California Civil Code.
(h) Each Guarantor acknowledges and affirms that it
understands and is aware that if the Administrative Agent on behalf of the
Secured Parties elects to foreclose on any real property security nonjudicially,
any right of subrogation of such Guarantor against the Borrower may be impaired
or extinguished and that as a result of such impairment or extinguishment or
subrogation rights, the Guarantors might otherwise have a defense to a
deficiency judgment arising out of the operation of Section 580d of the
California Code of Civil Procedure and related principles of estoppel, and
waives any defense arising out of any such election by the Administrative Agent
on behalf of the Secured Parties, including, without limitation, the defense
arising out of the operation of Section 580d of the Code of Civil Procedure and
related principles of estoppel, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
the Guarantors against the Company or any other party or any security.
SECTION 2.6. SUBROGATION. Each Guarantor agrees that it will not
exercise any rights that it may now have or hereafter acquire against the
Borrower that arise from the existence, payment, performance or enforcement of
such Guarantor's Obligations under this Guaranty or any other Loan Document,
including without limitation any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Administrative Agent or any beneficiary against the
Borrower or any Collateral, whether or not such claim, remedy or right arises at
equity or under contract, statute or common law, including without limitation
the right to take or receive from the Borrower, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security on
account of such claim, remedy or right except as specifically otherwise provided
in the Loan Documents. Any amount paid to any Guarantor on account of any such
subrogation rights shall be held in trust for the benefit of the Secured Parties
and shall immediately be paid and turned over to the Administrative Agent for
the benefit of the Secured Parties in the exact form received by such Guarantor
(duly endorsed in favor of the Administrative Agent, if required), to be
credited and applied against the Obligations, whether matured or unmatured, in
accordance with SECTION 2.8; PROVIDED, HOWEVER, that if
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(a) any Guarantor has made payment to the Secured Parties of
all or any part of the Obligations; and
(b) the Termination Date has occurred;
then at such Guarantor's request, the Administrative Agent, (on behalf of the
Secured Parties) will, at the expense of such Guarantor, execute and deliver to
such Guarantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Obligations resulting from such payment by
such Guarantor. In furtherance of the foregoing, at all times prior to the
Termination Date, each Guarantor shall refrain from taking any action or
commencing any proceeding against the Borrower or any other Obligor (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in the respect of payments made under this
Guaranty to any Secured Party. Notwithstanding the foregoing, to the extent
necessary to toll the statute of limitations, such Guarantor may take such
action required to preserve any rights it has by way of rights of subrogation as
consented to by the Administrative Agent in its reasonable discretion.
SECTION 2.7. SUCCESSORS, TRANSFEREES AND ASSIGNS, ETC.
This Guaranty shall:
(a) be binding upon each Guarantor, and its
successors, transferees and assigns;
and
(b) inure to the benefit of and be enforceable by
the Administrative Agent and
each other Secured Party.
Without limiting the generality of CLAUSE (b), any Lender may assign or
otherwise transfer (in whole or in part) any Note, Credit Extension or
Commitment held by it to any other Person and such other Person shall thereupon
become vested with all rights and benefits in respect thereof granted to such
Lender under any Loan Document (including this Guaranty) or otherwise, in each
case as provided in Section 11.11 of the Credit Agreement.
SECTION 2.8. PAYMENTS; APPLICATION. Each Guarantor
hereby agrees with each Secured
Party as follows:
(a) Each Guarantor agrees that all payments made by such
Guarantor hereunder will be made in Dollars to the Administrative
Agent, without set-off, counterclaim or other defense and in accordance
with Sections 4.6 and 4.7 of the Credit Agreement, free and clear of
and without deduction for any Taxes, the Guarantor hereby agreeing to
comply with and be bound by the provisions of Sections 4.6 and 4.7 of
the Credit Agreement in respect of all payments made by it hereunder
and the provisions of which Sections are hereby incorporated into and
made a part of this Guaranty by this reference as if set forth herein;
PROVIDED, that references to the "Borrower" in such Sections shall be
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deemed to be references to each Guarantor, and references to "this
Agreement" shall be deemed to be references to this Guaranty.
(b) All payments made hereunder shall be applied upon receipt
as follows:
(i) first, to the payment of all Obligations owing to
the Administrative Agent pursuant to Section 11.3 of the
Credit Agreement;
(ii) second, after payment in full of the amounts
specified in CLAUSE (b)(i), to the ratable payment of all
other Obligations owing to the Secured Parties, with such
amounts applied first to fees and expenses, then to accrued
and unpaid interest, then to the outstanding principal amount
of the Loans, then to Letter of Credit Outstandings and then
to Interest Rate Hedging Obligations; and
(iii) third, after payment in full of the amounts
specified in CLAUSES (b)(i) and (b)(ii), and following the
Termination Date, to such Guarantor or any other Person
lawfully entitled to receive such surplus.
SECTION 2.9. ACCELERATION OF GUARANTY. Each Guarantor hereby jointly
and severally agrees that, in the event of an Event of Default under Section
9.1(i) of the Credit Agreement, and if such Default shall occur at a time when
any of the Obligations may not then be due and payable, each Guarantor jointly
and severally agrees that it will pay to the Administrative Agent (for the
benefit of the Secured Parties) forthwith the full amount which would be payable
hereunder by each Guarantor if all such Obligations were then due and payable.
SECTION 2.10. RELEASE OF CAYENTA. Each member of the Cayenta Group
shall be automatically released from this Guaranty and shall no longer be a
"Guarantor" hereunder upon the occurrence of the following conditions precedent:
(a) the issuance of shares in connection with the initial public offering of
Cayenta pursuant to the terms of the applicable underwriting agreement and (b)
delivery of an officer's certificate to the Administrative Agent certifying that
no Default shall have occurred and then be continuing or would result from the
initial public offering.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS. In order to induce the Secured Parties to
enter into the Credit Agreement and make Credit Extensions thereunder, each
Guarantor represents and warrants to each Secured Party that the representations
and warranties contained in Article VI of the Credit Agreement, insofar as the
representations and warranties contained therein are applicable to it and its
properties, are true and correct (it being understood that such representations
and warranties not qualified by reference to materiality or Material Adverse
Effect shall be true and correct in all material respects), each such
representation and warranty set
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forth in such Article (insofar as applicable as aforesaid) and all other terms
of the Credit Agreement to which reference is made therein, together with all
related definitions and ancillary provisions, being hereby incorporated into
this Guaranty by this reference as though specifically set forth in this
Article. Furthermore, each Guarantor represents that it has knowledge of the
Borrower's and each other Obligor's financial condition and affairs and that it
has adequate means to obtain from the Borrower and each other Obligor on an
ongoing basis information relating thereto and to the Borrower's and such
Obligor's ability to pay and perform the Obligations, and agrees to assume the
responsibility for keeping, and to keep, so informed for so long as this
Guaranty is in effect. Each Guarantor acknowledges and agrees that the Secured
Parties shall have no obligation to investigate the financial condition or
affairs of any Obligor for the benefit of such Guarantor nor to advise such
Guarantor of any fact respecting, or any change in, the financial condition or
affairs of the Borrower or any other Obligor that might become known to any
Secured Party at any time, whether or not such Secured Party knows or believes
or has reason to know or believe that any such fact or change is unknown to such
Guarantor, or might (or does) materially increase the risk of such Guarantor as
guarantor, or might (or would) affect the willingness of such Guarantor to
continue as a guarantor of the Obligations.
ARTICLE IV
COVENANTS, ETC.
SECTION 4.1. COVENANTS. Each Guarantor covenants and agrees that, at
all times prior to the Termination Date, it will perform, comply with and be
bound by all of the agreements, covenants and obligations contained in the
Credit Agreement (including Articles VII and VIII thereof) which are applicable
to such Guarantor or its properties, each such agreement, covenant and
obligation contained in the Credit Agreement and all other terms of the Credit
Agreement to which reference is made herein, together with all related
definitions and ancillary provisions, being hereby incorporated into this
Guaranty by this reference as though specifically set forth in this Article.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. LOAN DOCUMENT. This Guaranty is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof, including Article XI thereof.
SECTION 5.2. BINDING ON SUCCESSORS, TRANSFEREES AND ASSIGNS;
ASSIGNMENT. In addition to, and not in limitation of, SECTION 2.7, this Guaranty
shall be jointly and severally binding upon each Guarantor and its successors,
transferees and assigns and shall inure to the benefit of and be enforceable by
each Secured Party and their respective successors, transferees
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and assigns (to the full extent provided pursuant to SECTION 2.7); PROVIDED,
HOWEVER, that no Guarantor may (unless otherwise permitted under the terms of
the Credit Agreement) assign any of its obligations hereunder without the prior
written consent
of all Lenders.
SECTION 5.3. AMENDMENTS, ETC. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Administrative Agent (on behalf of the Lenders or the Required
Lenders, as the case may be, pursuant to Section 11.1 of the Credit Agreement)
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 5.4. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and, mailed or
telecopied or delivered to each Guarantor, in care of the Borrower at the
address or facsimile number of the Borrower specified in the Credit Agreement.
All such notices and other communications, when mailed and properly addressed
with postage prepaid or if properly addressed and sent by pre-paid courier
service, shall be deemed given when received; any such notice or communication,
if transmitted by facsimile, shall be deemed given when the confirmation of
transmission thereof is received by the transmitter.
SECTION 5.5. ADDITIONAL SUBSIDIARY GUARANTORS. Upon the execution and
delivery by any other Person of an instrument in the form of ANNEX I hereto,
such Person shall become a "Guarantor" hereunder with the same force and effect
as if originally named as a "Guarantor" herein. The execution and delivery of
any such instrument shall not require the consent of any other Guarantor
hereunder. The rights and obligations of each Guarantor hereunder shall remain
in full force and effect notwithstanding the addition of any new Guarantor as a
party to this Guaranty.
SECTION 5.6. NO WAIVER; REMEDIES. In addition to, and not in limitation
of, SECTION 2.3 and SECTION 2.5, no failure on the part of any Secured Party to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 5.7. CAPTIONS. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 5.8. SEVERABILITY. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
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SECTION 5.9. GOVERNING LAW, ENTIRE AGREEMENT, ETC. THIS GUARANTY SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). THIS GUARANTY AND THE OTHER
LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.
SECTION 5.10. FORUM SELECTION AND CONSENT TO Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE SECURED PARTIES
OR ANY GUARANTOR SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF
NEW YORK, BOROUGH OF MANHATTAN OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. EACH
GUARANTOR HEREBY IRREVOCABLY APPOINTS CSC UNITED STATES CORPORATION COMPANY (THE
"PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 375 HUDSON STREET, NEW
YORK, NEW YORK 10014, AS ITS AGENT TO RECEIVE, ON ITS BEHALF AND ON BEHALF OF
ITS PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY
BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO SUCH GUARANTOR IN
CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND EACH
GUARANTOR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT
SUCH SERVICE ON ITS BEHALF. EACH GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK ADDRESSED TO SUCH GUARANTOR, CARE OF THE BORROWER,
AT THE ADDRESS FOR NOTICES SPECIFIED IN THE CREDIT AGREEMENT. EACH GUARANTOR
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE
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FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT ANY GUARANTOR HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH
GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.
SECTION 5.11. WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE SECURED PARTIES OR SUCH GUARANTOR. EACH GUARANTOR ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING
INTO THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 5.12. COUNTERPARTS. This Guaranty may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
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IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Assist Cornerstone Technologies, Inc.
Atlantic Aerospace Electronics Corporation
Cayenta Operating Company
Cayenta, Inc.
DBA Systems, Inc.
Delfin Systems
Diversified Control Systems, Inc.
Eldyne, Inc.
Horizons Technology, Inc.
J.B. Systems, Inc.
Linkabit Wireless, Inc.
Mergeco, Inc.
Pulse Sciences, Inc.
System Resources Corporation
Titan Food Pasteurization Corp.
Titan Medical Sterilization Corp.
Titan Scan Corp.
Titan Systems Corporation
Titan Unidyne Corporation
Titan Wireless, Inc.
Tomotherapeutics, Inc.
Validity Corporation
VisiCom Laboratories, Inc.
Microlithics Corporation
All By:
------------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
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ANNEX I to
the Subsidiary Guaranty
SUPPLEMENT, dated as of ________________, ____ (this
"SUPPLEMENT"), to the Subsidiary Guaranty, dated as of _____
__, ____ (together with all amendments, supplements,
restatements and other modifications, if any, from time to
time thereafter made thereto, the "GUARANTY"), among the
initial signatories thereto and each other Person (such
capitalized term, and other terms used in this Supplement, to
have the meanings set forth in Article I of the Guaranty)
which from time to time thereafter became a party thereto
pursuant to Section 5.5 thereof (each, individually, a
"GUARANTOR", and, collectively, the "GUARANTORS"), in favor of
the Secured Parties (as defined in the Guaranty).
W I T N E S S E T H:
WHEREAS, pursuant to the provisions of Section 5.5 of the
Guaranty, the undersigned is
becoming a Guarantor under the Guaranty; and
WHEREAS, the undersigned Guarantor desires to become a "Guarantor"
under the Guaranty in order to induce the Secured Parties to continue to extend
Credit Extensions under the
Credit Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
consideration (the receipt and sufficiency of which is hereby acknowledged), the
undersigned agrees, for the benefit of each Secured Party, as follows.
SECTION 1. In accordance with the terms of the Guaranty, by its
signature below the undersigned hereby irrevocably agrees to become a Guarantor
under the Guaranty with the same force and effect as if it were an original
signatory thereto, and the undersigned Guarantor hereby (a) agrees to be bound
by and comply with all of the terms and provisions of the Guaranty applicable to
it as a Guarantor and (b) represents and warrants that the representations and
warranties made by it as a Guarantor thereunder are true and correct as of the
date hereof. In furtherance of the foregoing, each reference to a "Guarantor" in
the Guaranty and each other Loan Document shall be deemed to include the
undersigned Guarantor.
SECTION 2. The undersigned Guarantor hereby represents and warrants
that this Supplement has been duly authorized, executed and delivered by it and
that this Supplement and
<PAGE>
the Guaranty constitute the legal, valid and binding obligation of the
undersigned Guarantor, enforceable against it in accordance with its terms.
SECTION 3. Except as expressly supplemented hereby, the Guaranty shall
remain in full force and effect in accordance with its terms.
SECTION 4. In the event any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Guaranty shall not in any way be affected or impaired.
SECTION 5. THIS SUPPLEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
[NAME OF ADDITIONAL SUBSIDIARY
GUARANTOR]
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT J
INTERCOMPANY SUBORDINATION AGREEMENT
THIS INTERCOMPANY SUBORDINATION AGREEMENT (this "SUBORDINATION
AGREEMENT"), dated as of February 23, 2000, made by and among each of the
undersigned Persons (such capitalized term, and other terms used herein without
definition, to have the meanings ascribed thereto in SECTION 1 below) and such
other Persons that may from time to time become a party hereto pursuant to the
terms hereof or of the Credit Agreement referred to below (collectively, the
"SUBORDINATED CREDITORS"), and THE TITAN CORPORATION, a Delaware corporation
(the "BORROWER"), in favor of the Administrative Agent and each of the Secured
Parties.
W I T N E S S E T H:
WHEREAS, the Borrower has entered into a Senior Secured Credit
Agreement, dated as of February 23, 2000 (as amended, restated, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among the
Borrower, the various financial institutions as are, or may from time to time
become, parties thereto (together with their successors, transferees and
assigns, the "LENDERS"), Credit Suisse First Boston, as administrative agent for
the Lenders (the "ADMINISTRATIVE AGENT"), First Union Securities, Inc., as
Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent, pursuant
to which the Lenders and the Issuers have agreed to make Credit Extensions on
the terms and subject to the conditions set forth therein;
WHEREAS, as a condition precedent to the making of the Credit
Extensions (including the initial Credit Extension) under the Credit Agreement,
the Subordinated Creditors and the Borrower are required to execute and deliver
this Subordination
Agreement;
WHEREAS, each Subordinated Creditor has duly authorized the execution,
delivery and performance of this Subordination Agreement; and
WHEREAS, it is in the best interests of each Subordinated Creditor to
execute this Subordination Agreement inasmuch as each Subordinated Creditor will
derive substantial direct and indirect benefits from the Credit Extensions made
from time to time to the Borrower by the Lenders pursuant to the Credit
Agreement.
NOW, THEREFORE, in consideration of the above premises and in order to
induce the Lenders and the Issuers to make Credit Extensions to the Borrower
pursuant to the Credit Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
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<PAGE>
AGREEMENT
SECTION 1. DEFINITIONS. Terms used but not defined herein have the
meanings given to them in the Credit Agreement. As used in this Subordination
Agreement, the following terms shall have the meanings specified below:
"ADMINISTRATIVE AGENT" is defined in the FIRST RECITAL.
"BORROWER" is defined in the PREAMBLE.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"INTERCOMPANY DEBT" means, on any date, any Indebtedness of the
Borrower related to or resulting from any loan or advance from, or any
non-equity investment by, or any management or similar fees payable to, or any
obligation to pay for goods or services to, any Subsidiary of the Borrower.
"LENDER" is defined in the FIRST RECITAL.
"SENIOR INDEBTEDNESS" is defined in CLAUSE (a) of SECTION
2.
"SUBORDINATED CREDITOR" is defined in the PREAMBLE.
"SUBORDINATION AGREEMENT" is defined in the PREAMBLE.
SECTION 2. AGREEMENT TO SUBORDINATE.
(a) Subject to the terms of the Credit Agreement, the
Borrower and each of the Subordinated Creditors agree that the
Intercompany Debt is and shall be subject, subordinate and rendered
junior, to the extent and in the manner hereinafter set forth, in right
of payment, to the prior payment in cash in full of all Obligations of
the Borrower under the Credit Agreement and the other Loan Documents
now existing or hereafter arising, whether for (i) principal, (ii)
interest (including, without limitation, interest accruing after the
filing of a petition initiating any proceeding referred to in CLAUSE
(a) of SECTION 3, whether or not allowed as a claim in such
proceeding), (iii) reasonable costs, (iv) reasonable fees (including,
without limitation, reasonable attorneys' fees and disbursements), (v)
reasonable expenses, and (vi) otherwise (the Obligations specified in
CLAUSES(a)(i) through (a)(vi) above are referred to collectively as the
"SENIOR INDEBTEDNESS"). For purposes of this Subordination Agreement,
the Senior Indebtedness shall not be deemed to have been paid in cash
in full until the Lenders shall have received full payment of the
Senior Indebtedness in cash, which
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<PAGE>
payment shall have been retained by the Lenders for a period of time in
excess of all applicable preference or other similar periods under
applicable bankruptcy, insolvency or creditors' rights laws. Each of
the Borrower and the Subordinated Creditors waive notice of acceptance
of this Subordination Agreement by the Lenders, and the Subordinated
Creditors waive notice of and consent to the making, amount and terms
of the Senior Indebtedness which may exist or be created from time to
time and any renewal, extension, amendment or modification thereof, and
any other lawful action which any Lender or Lenders in its and their
sole and absolute discretion may take or omit to take with respect
thereto. The provisions of this Section shall constitute a continuing
offer made for the benefit of and to all Lenders and each Lender is
hereby irrevocably authorized to enforce such provisions.
(b) In the event that the Borrower shall make, and/or any
Subordinated Creditor shall receive from any source whatsoever, any
payment on Intercompany Debt in contravention of this Subordination
Agreement or the terms of the Credit Agreement, then and in any such
event such payment shall be deemed to be the property of, segregated,
received and held in trust for the benefit of and shall be promptly
paid over and delivered to the Administrative Agent for the PRO RATA
benefit of the Lenders.
(c) The Borrower shall not make, and no Subordinated
Creditor shall receive or accept from any source whatsoever, any
payment in respect of any Intercompany Debt if any Default shall have
occurred and be continuing or would result therefrom, unless and until
(i) the Senior Indebtedness has been paid in cash in full, (ii) in the
case of a Default other than a Default of the nature set forth in
Section 9.1(i) of the Credit Agreement, such Default has been cured or
waived or (iii) the Administrative Agent has otherwise consented in
writing.
SECTION 3. IN FURTHERANCE OF SUBORDINATION.
(a) Upon any distribution of all or any of the
assets of the Borrower in the
event of
(i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative
to the Borrower, or to its creditors, as such, or to its
assets,
(ii) any liquidation, dissolution or other winding up
of the Borrower, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or
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<PAGE>
(iii) any assignment for the benefit of creditors or
any other marshaling of assets and liabilities of the
Borrower,
then, and in any such event, unless the Administrative Agent shall
otherwise agree in writing, the Lenders shall receive payment in cash
in full of all amounts due or to become due (whether or not the Senior
Indebtedness has been declared due and payable prior to the date on
which the Senior Indebtedness would otherwise have become due and
payable) on or in respect of all Senior Indebtedness (including,
without limitation, interest accruing after the filing of a petition
initiating any proceeding referred to above) before the Subordinated
Creditors or anyone claiming through or on their behalf (including any
receiver, trustee, or otherwise) are entitled to receive from any
source whatsoever any payment on account of principal of (or premium,
if any) or interest on or other amounts payable in respect of the
Intercompany Debt, and to that end, any payment or distribution of any
kind or character, whether in cash, property or securities, which may
be payable or deliverable in respect of the Intercompany Debt in any
such case, proceeding, dissolution, liquidation or other winding up or
event, shall be paid or delivered directly to the Administrative Agent
for the application (in the case of cash) to, or as collateral (in the
case of non-cash property or securities) for, the payment or prepayment
of the Senior Indebtedness until the Senior Indebtedness shall have
been paid in cash in full.
(b) If any proceeding, liquidation, dissolution or
winding up referred to in CLAUSE (A) above is commenced by or against
the Borrower,
(i) the Administrative Agent and the Lenders are
hereby irrevocably authorized and empowered (in their own
names or in the name of the Borrower or otherwise), but shall
have no obligation, to demand, sue for, collect and receive
every payment or distribution in respect of the Intercompany
Debt above and give acquittance therefor and to file claims
and proofs of claim and take such other action (including,
without limitation, voting the Intercompany Debt or enforcing
any security interest or other lien securing payment of the
Intercompany Debt) as the Lenders or the Administrative Agent
may reasonably deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Lenders
or the Administrative Agent hereunder; PROVIDED that in the
event the Administrative Agent or the Lenders take such
action, the Administrative Agent or the Lenders shall apply
all proceeds FIRST, to the payment of the costs of enforcement
of this Subordination Agreement, and SECOND, to the payment of
the Senior Indebtedness in accordance with the terms thereof;
and
(ii) the Subordinated Creditors shall duly and
promptly take such action as the Lenders or the Administrative
Agent may request (A) to collect the Intercompany Debt for the
account of the Lenders and the Administrative Agent
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<PAGE>
and to file appropriate claims or proofs of claim in respect
of the Intercompany Debt, (B) to execute and deliver to the
Lenders or the Administrative Agent such powers of attorney,
assignments, or other instruments as the Lenders or the
Administrative Agent may reasonably request in order to enable
them to enforce any and all claims with respect to, and any
security interests and other liens securing payment of, the
Intercompany Debt and (C) to collect and receive any and all
payments or distributions which may be payable or deliverable
upon or with respect to the Intercompany Debt.
(c) All payments from any source whatsoever or
distributions of assets of the Borrower, whether in cash, property or
securities upon or with respect to the Intercompany Debt which are
received by the Subordinated Creditors contrary to the provisions of
this Subordination Agreement shall be received in trust for the PRO
RATA benefit of the Lenders, shall be segregated from other funds and
property held by the Subordinated Creditors and shall be forthwith paid
over to the Administrative Agent in the same form as so received (with
any necessary indorsement) to be applied, (in the case of cash) to, or
held as collateral (in the case of noncash property or securities) for,
the payment or prepayment of the Senior Indebtedness in accordance with
the terms thereof, whether matured or unmatured, in accordance with the
terms of this Subordination Agreement.
(d) The Lenders and the Administrative Agent are hereby
authorized to demand specific performance of this Subordination
Agreement, whether or not the Borrower or any Subordinated Creditor
shall have complied with any of the provisions hereof applicable to it,
at any time when the Subordinated Creditors or any one of them shall
have failed to comply with any of the provisions of this Subordination
Agreement applicable to it. The Subordinated Creditors hereby
irrevocably waive any defense (other than the defense of payment in
full of the Senior Indebtedness) based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific
performance.
SECTION 4. NO ENFORCEMENT OR COMMENCEMENT OF ANY PROCEEDINGS. Each
Subordinated Creditor agrees that, so long as any Senior Indebtedness shall
remain unpaid, or any Commitment shall be in effect, it will not accelerate the
maturity of the Intercompany Debt or commence, or join with any creditor other
than the Lenders in commencing any proceeding referred to in CLAUSE (a) of
SECTION 3.
SECTION 5. RIGHTS OF SUBROGATION. The Subordinated Creditors agree that
no payment or distribution to the Lenders or the Administrative Agent pursuant
to the provisions of this Subordination Agreement shall entitle the Subordinated
Creditors to exercise any rights of subrogation in respect thereof until all
Senior Indebtedness has been paid in cash in full and the Commitments have been
terminated. The Subordinated Creditors agree that the subordination provisions
contained herein shall not be affected by any action, or failure to act,
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<PAGE>
by the Administrative Agent or the Lenders which results, or may result, in
affecting, impairing or extinguishing any right of reimbursement or subrogation
or other right or remedy of the Subordinated Creditors against the Borrower.
Notwithstanding the foregoing, to the extent necessary to toll the statute of
limitations, the Subordinated Creditors may take such action required to
preserve any rights they have by way of rights of subrogation as consented to by
the Administrative Agent in its reasonable discretion.
SECTION 6. SUBORDINATION LEGEND; FURTHER ASSURANCES. The Subordinated
Creditors and the Borrower will cause each note and instrument (if any)
evidencing the Intercompany Debt to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is subordinated
to the prior payment in cash in full of the Senior Indebtedness (as
defined in the Intercompany Subordination Agreement, dated as of
February 23, 2000) pursuant to, and to the extent provided in, the
Intercompany Subordination Agreement by the maker hereof and payee
named herein in favor of the Lenders and any person now or hereafter
designated as their agent."
Each of the Subordinated Creditors and the Borrower hereby agrees to mark its
books of account in such a manner as shall be effective to give proper notice of
the effect of this Subordination Agreement and will, in the case of any
Intercompany Debt which is not evidenced by any note or instrument, following
the occurrence and subject to the continuation of a Default, upon the
Administrative Agent's request, cause such Intercompany Debt to be evidenced by
an appropriate note or instrument or instruments endorsed with the above legend.
Each of the Subordinated Creditors and the Borrower will at its expense and at
any time and from time to time promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
that the Lenders or the Administrative Agent may reasonably request in order to
protect any right or interest granted or purported to be granted hereunder or to
enable the Lenders or the Administrative Agent to exercise and enforce their
rights and remedies hereunder.
SECTION 7. NO CHANGE IN OR DISPOSITION OF INTERCOMPANY DEBT. The
Subordinated Creditors will not, without the prior written consent of the
Administrative Agent:
(a) sell, assign to any Person other than a Subordinated
Creditor, transfer, endorse, pledge, encumber or otherwise dispose of
any of the Intercompany Debt, except in the case of Liens granted to
the Administrative Agent;
(b) permit the terms of any of the Intercompany Debt to
be changed in such a manner as to have a material adverse effect upon
the rights or interests of the Lenders or the Administrative Agent; or
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<PAGE>
(c) upon the occurrence and during the continuation of
any Default, take, or permit to be taken, any action to assert, collect
or enforce the Intercompany Debt or any part thereof.
SECTION 8. AGREEMENT BY THE BORROWER. The Borrower agrees that it will
not make any payment on any of the Intercompany Debt, or take any other action,
in contravention of the provisions of this Subordination Agreement or the other
Loan Documents.
SECTION 9. OBLIGATIONS HEREUNDER NOT AFFECTED. All rights and interest
of the Lenders and the Administrative Agent hereunder, and all agreements and
obligations of the Subordinated Creditors and the Borrower hereunder, shall
remain in full force and effect irrespective of:
(a) any lack of validity or enforceability of any
document evidencing Senior Indebtedness;
(b) any change in the time, manner or place of payment
of, or any other term of, all or any of the Senior Indebtedness, or any
other amendment or waiver of or any consent to departure from any of
the documents evidencing or relating to the Senior Indebtedness;
(c) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty or Loan Document, for all or any of the
Senior Indebtedness;
(d) any failure of any Lender or the Administrative Agent
to assert any claim or to enforce any right or remedy against any other
party hereto under the provisions of this Subordination Agreement, the
Credit Agreement or any other Loan Document other than this
Subordination Agreement;
(e) any reduction, limitation, impairment or termination
of the Senior Indebtedness for any reason (other than the defense of
payment in full of the Senior Indebtedness), including any claim of
waiver, release, surrender, alteration or compromise, and shall not be
subject to (and the Borrower and each Subordinated Creditor hereby
waive any right to or claim of) any defense (other than the defense of
payment in full of the Senior Indebtedness) or setoff, counterclaim,
recoupment or termination whatsoever by reason of invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Senior
Indebtedness; and
(f) any other circumstance which might otherwise
constitute a defense (other than the defense of payment in full of the
Senior Indebtedness) available to, or a
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<PAGE>
discharge of, the Borrower in respect of the Senior Indebtedness or the
Subordinated Creditors in respect of this Subordination Agreement.
This Subordination Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any Lender or the Administrative
Agent upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made. The Subordinated
Creditors acknowledge and agree that the Lenders and the Administrative Agent
may in accordance with the terms of the Credit Agreement, without notice or
demand and without affecting or impairing the Subordinated Creditors'
obligations hereunder, from time to time (i) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the Senior Indebtedness or any part thereof, including,
without limitation, to increase or decrease the rate of interest thereon or the
principal amount thereof; (ii) take or hold security for the payment of the
Senior Indebtedness and exchange, enforce, foreclose upon, waive and release any
such security; (iii) apply such security and direct the order or manner of sale
thereof as the Administrative Agent and the Lenders, in their sole discretion,
may determine; (iv) release and substitute one or more endorsers, warrantors,
borrowers or other obligors; and (v) exercise or refrain from exercising any
rights against the Borrower or any other Person.
SECTION 10. REPRESENTATIONS AND WARRANTIES. Each of the Subordinated
Creditors, in respect of itself and the Intercompany Debt owing to it, and the
Borrower, as the case may be, hereby represents and warrants as follows:
(a) the Subordinated Creditors own the Intercompany Debt
now outstanding free and clear of any Lien other than pursuant to any
general security agreement then in effect and in favor of the
Administrative Agent;
(b) this Subordination Agreement constitutes a legal,
valid and binding obligation of each Subordinated Creditor and the
Borrower, enforceable in accordance with its terms (subject to the
effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law)).
SECTION 11. AMENDMENTS, WAIVERS. No amendment or waiver of any
provision of this Subordination Agreement nor consent or any departure by the
Subordinated Creditors or the Borrower here from, shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent and the other parties hereto, and then such waiver, amendment or consent
shall be effective only in the specific instance and for the specific purpose
for which given. Any waiver, forbearance, failure or delay by the Administrative
Agent or the Lenders in exercising, or the exercise or beginning of exercise by
the Administrative Agent or the Lenders of, any right, power or remedy,
simultaneous or later
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<PAGE>
shall not preclude the further, simultaneous or later exercise thereof, and
every right, power or remedy of the Administrative Agent and the Lenders shall
continue in full force and effect until such right, power or remedy is
specifically waived in a writing executed or authorized by such Lenders.
SECTION 12. EXPENSES. The Subordinated Creditors and the Borrower
jointly and severally agree to pay, upon demand, to the Administrative Agent or
the Lenders, as applicable, any and all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements
which the Lenders or the Administrative Agent may incur in connection with the
exercise or enforcement of any of the rights or interest of the Lenders or the
Administrative Agent hereunder.
SECTION 13. ADDRESS FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including facsimile communication)
and mailed or telecopied or delivered to either party hereto, if to the
Borrower, the Administrative Agent or any Lender, addressed to it at the address
of the Borrower or such Lender or the Administrative Agent (as the case may be)
listed in the Credit Agreement or in the Lender Assignment Agreement, as
applicable, and, if to other parties hereto, addressed to such parties in care
of the Borrower at the address specified in the Credit Agreement. All such
notices and other communications, when mailed and properly addressed with
postage prepaid or if properly addressed and sent by pre-paid courier service,
shall be deemed given when received; any such notice or communication, if
transmitted by facsimile, shall be deemed given when the confirmation of
transmission thereof is received by the transmitter.
SECTION 14. ENTIRE AGREEMENT; SEVERABILITY. This Subordination
Agreement contains the entire subordination agreement among the parties hereto
with respect to the subject matter hereof. If any of the provisions of this
Subordination Agreement shall be held invalid or unenforceable, this
Subordination Agreement shall be construed as if not containing those
provisions, and the rights and obligations of the parties hereto shall be
construed and enforced accordingly.
SECTION 15. CUMULATIVE RIGHTS. The rights, powers and remedies of the
Lenders and the Administrative Agent under this Subordination Agreement shall be
in addition to all rights, powers and remedies given to the Lenders and the
Administrative Agent by virtue of any contract, statute or rule of law, all of
which rights, powers and remedies shall be cumulative and may be exercised
successively or concurrently. The parties hereto expressly acknowledge and agree
that the Lenders and the Administrative Agent are intended, and by this
reference expressly made, third party beneficiaries of the provisions of this
Subordination Agreement.
SECTION 16. CONTINUING AGREEMENT; TRANSFER OF NOTES. This Subordination
Agreement is a continuing agreement of subordination and the Lenders may, from
time to time and without notice to the Subordinated Creditors, extend credit to
or make other financial
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<PAGE>
arrangements with the Borrower in reliance hereon. This Subordination Agreement
shall (a) remain in full force and effect until the Senior Indebtedness shall
have been paid in cash in full and all Commitments terminated, (b) be binding
upon the Subordinated Creditors, the Borrower and their respective successors,
transferees and assigns, and (c) inure to the benefit of and be enforceable by
the Administrative Agent and each Lender and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing, any
Lender may, subject to the provisions of the Credit Agreement, assign or
otherwise transfer the Senior Indebtedness held by it to any other Person,
subject to Section 11.11 of the Credit Agreement and such other Person shall
thereupon become vested with all the rights in respect thereof granted to such
Lender herein or otherwise.
SECTION 17. GOVERNING LAW. THIS SUBORDINATION AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK).
SECTION 18. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
SUBORDINATION AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY OF THE
LENDERS OR ANY SUBORDINATED CREDITOR OR THE BORROWER SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE BORROWER AND
EACH SUBORDINATED CREDITOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGEMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER
HEREBY IRREVOCABLY APPOINTS CSC UNITED STATES CORPORATION COMPANY (THE "PROCESS
AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 375 HUDSON STREET, NEW YORK, NEW
YORK 10014, AS ITS AGENT TO RECEIVE, ON ITS BEHALF AND ON BEHALF OF ITS
PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE
BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER IN CARE OF THE
PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE BORROWER HEREBY
IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON
ITS BEHALF. THE BORROWER AND EACH SUBORDINATED
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CREDITOR IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL,
POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK
AT THE ADDRESS FOR NOTICES OF SUCH PARTY SPECIFIED IN SECTION 13. THE BORROWER
AND EACH SUBORDINATED CREDITOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER OR SUCH SUBORDINATED
CREDITOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, EACH OF THE BORROWER AND EACH OF SUCH SUBORDINATED
CREDITORS HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS SUBORDINATION AGREEMENT.
SECTION 19. WAIVER OF JURY TRIAL. THE BORROWER AND EACH SUBORDINATED
CREDITOR AND, BY ACCEPTING THIS SUBORDINATION AGREEMENT AND THE BENEFITS
THEREOF, THE ADMINISTRATIVE AGENT AND ANY LENDER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS SUBORDINATION AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE BORROWER OR SUCH
SUBORDINATED CREDITOR AND EACH SUCH PERSON ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS CONTINUING TO MAKE CREDIT
EXTENSIONS AND ENTERING INTO THE AMENDED AND RESTATED CREDIT AGREEMENT AND FOR
THE SUBORDINATED CREDITORS ENTERING INTO THIS SUBORDINATION AGREEMENT.
SECTION 20. EXECUTION IN COUNTERPARTS. This Subordination Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed and delivered as of the date first above written.
The Titan Corporation
Assist Cornerstone Technologies, Inc.
Atlantic Aerospace Electronics Corporation
Cayenta Operating Company
Cayenta, Inc.
DBA Systems, Inc.
Delfin Systems
Diversified Control Systems, Inc.
Eldyne, Inc.
Horizons Technology, Inc.
J.B. Systems, Inc.
Linkabit Wireless, Inc.
Mergeco, Inc.
Pulse Sciences, Inc.
System Resources Corporation
Titan Food Pasteurization Corp.
Titan Medical Sterilization Corp.
Titan Scan Corp.
Titan Systems Corporation
Titan Unidyne Corporation
Titan Wireless, Inc.
Tomotherapeutics, Inc.
Validity Corporation
VisiCom Laboratories, Inc.
Microlithics Corporation
All By:
--------------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
-12-
<PAGE>
EXHIBIT K
LENDER ASSIGNMENT AGREEMENT
____,___ ____
To: The Titan Corporation,
as Borrower
Credit Suisse First Boston,
as Administrative Agent
THE TITAN CORPORATION
Gentlemen and Ladies:
We refer to clause (a)(iv) of Section 11.11 of the Senior Secured
Credit Agreement, dated as of February __, 2000 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among The Titan Corporation, a Delaware corporation (the "BORROWER"), the
various financial institutions as are or may become parties thereto
(collectively, the "LENDERS"), Credit Suisse First Boston, as administrative
agent for the Lenders (the "ADMINISTRATIVE AGENT"), First Union Securities,
Inc., as Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent.
Unless otherwise defined herein or the context otherwise requires, terms used
herein have the meanings provided in the Credit Agreement.
As of ____ __, ____ (the "ASSIGNMENT DATE"), [Name of Lender] (the
"ASSIGNOR") irrevocably sells, transfers, conveys and assigns, without recourse,
representation or warranty (except as expressly set forth herein), to [Name of
Assignee] (the "ASSIGNEE") and the Assignee irrevocably purchases from the
Assignor that portion of the Loans and Commitments of the Assignor as set forth
in SCHEDULE I hereto (the "ASSIGNED PORTION") so that after giving effect to the
foregoing assignment and delegation, the Assignor's and the Assignee's
Percentages for the purposes of the Credit Agreement and each other Loan
Document will be as set forth on SCHEDULE I hereto.
In addition, this agreement constitutes notice to each of you, pursuant
to clause (a)(iii) of Section 11.11 of the Credit Agreement, of the assignment
and delegation to the Assignee of the Assigned Portion of the Credit Extensions
and Commitments of the Assignor outstanding under the Credit Agreement as of the
Assignment Date.
<PAGE>
From and after the Assignment Date, the Administrative Agent shall make
all payments in respect of the Assigned Portion (including payments of
principal, interest, fees and other amounts) to the Assignor for amounts which
have accrued to the Assignment Date and to the Assignee for amounts which have
accrued subsequent to the Assignment Date. The Assignor and the Assignee shall
make all appropriate adjustments in payments by the Administrative Agent for
periods prior to the Assignment Date or with respect to the making of this
assignment directly between themselves.
The Assignee hereby acknowledges and confirms that it has received a
copy of the Credit Agreement and the exhibits related thereto, together with
copies of the documents which were required to be delivered under the Credit
Agreement as a condition to the making of the Credit Extensions thereunder. The
Assignee further confirms and agrees that in becoming a Lender and in making its
Commitments and Credit Extensions under the Credit Agreement, such actions have
and will be made without recourse to, or representation or warranty by, the
Administrative Agent.
The Assignor represents and warrants that it is legally authorized to
enter into and deliver this agreement and represents that it is the legal and
beneficial owner of the Assigned Portion. Except as set forth in the previous
sentence, the Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made pursuant to or in connection with this agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
agreement, the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant hereto or thereto, including the financial
condition of the Borrower or any of its Subsidiaries or the performance or
observance by any Lender of any of its obligations under the Credit Agreement,
any other Loan Document or any other instrument or document furnished pursuant
hereto or thereto. The Assignee represents and warrants that it is legally
authorized to enter into and deliver this agreement and confirms that it has
received a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 7.1 of the Credit Agreement
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this agreement. In addition,
the Assignee independently and without reliance upon the Assignor, the Agents or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, shall continue to make its own credit decisions in
taking or not taking action under the Credit Agreement, the other Loan Documents
and the other instruments and documents delivered in connection therewith.
Except as otherwise provided in the Credit Agreement, effective as of
the Assignment Date
(a) the Assignee
(i) shall be deemed automatically to have become a
party to the Credit Agreement and shall have all the rights
and obligations of a "Lender" under the
2-
<PAGE>
Credit Agreement and the other Loan Documents as if it were an
original signatory thereto to the extent specified in the
second paragraph hereof;
(ii) agrees to be bound by the terms and conditions
set forth in the Credit Agreement and the other Loan Documents
as if it were an original signatory thereto; and
(b) the Assignor shall be released from its obligations under
the Credit Agreement and the other Loan Documents to the extent
specified in the second paragraph hereof.
[The parties hereto understand that no processing fee of the type
referred to in Section 11.11(a) of the Credit Agreement shall be due in
connection with this Assignment.]
[The Assignor and the Assignee hereby agree that the
[Assignor][Assignee] will pay to the Administrative Agent the processing fee
referred to in Section 11.11(a) of the Credit
Agreement.]
The Assignee hereby advises each of you that the Assignee's
administrative details with respect to the assigned Credit Extensions and
Commitments are on file with the Administrative Agent and requests the
Administrative Agent to acknowledge receipt of this document.
The Assignee agrees (for the benefit of the Assignor, the Borrower and
the Administrative Agent) to furnish, if required by clause (e) of Section 4.6
of the Credit Agreement, the applicable Internal Revenue Service forms or other
forms required thereunder no later than the date of acceptance hereof by the
Administrative Agent. In addition, the Assignee represents and warrants (for the
benefit of the Assignor, the Borrower and the Administrative Agent) that, under
applicable law and treaties in effect as of the date hereof, no United States
federal taxes will be required to be withheld by the Administrative Agent or the
Borrower with respect to any payments to be made to the Assignee in respect of
the Credit Agreement.
Notwithstanding any other provisions hereof, if the consents of the
Borrower and the Administrative Agent are required under Section 11.11(a) of the
Credit Agreement, the assignment and delegation contemplated in this agreement
shall not be effective unless such consents shall have been obtained and in any
event no such assignment and delegation shall be effective unless and until such
assignment has been recorded in the Register by the Administrative Agent.
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
3-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed and
delivered this Lender Assignment Agreement as of the date first written above.
[ASSIGNOR]
By:
------------------------------------
Name:
Title:
[ASSIGNEE]
By:
------------------------------------
Name:
Title:
<PAGE>
ACCEPTED AND AGREED TO:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
THE TITAN CORPORATION
By:
--------------------------------------
Name: Ray Guillaume
Title: Assistant Treasurer
<PAGE>
SCHEDULE I
LENDER INFORMATION
<TABLE>
<CAPTION>
LENDER PERCENTAGE DOMESTIC OFFICE LIBOR OFFICE
- ------ ---------- --------------- ------------
<S> <C> <C> <C>
[ASSIGNOR], [ ] Loans........................... % ON FILE WITH ON FILE WITH
as Assignor ADMINISTRATIVE ADMINISTRATIVE
AGENT AGENT
[ASSIGNEE], [ ] Loans........................... % [ ] [ ]
as Assignee Attn: [ ] Attn: [ ]
Tel.: [ ] Tel.: [ ]
Fax: [ ] Fax: [ ]
</TABLE>
Wiring Instructions for the Assignee:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
1-
<PAGE>
EXHIBIT L
SOLVENCY CERTIFICATE
This Certificate (this "CERTIFICATE") is delivered pursuant to Section
5.1(j) of the Senior Secured Credit Agreement, dated as of February __, 2000 (as
amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among The Titan Corporation, a Delaware corporation (the
"BORROWER"), the various financial institutions as are, or may from time to time
become, parties thereto (together with their successors, transferees, and
assigns, the "LENDERS"), Credit Suisse First Boston, as administrative agent for
the Lenders (the "ADMINISTRATIVE AGENT"), First Union Securities, Inc., as
Syndication Agent, and The Bank of Nova Scotia, as Documentation Agent. Unless
otherwise defined herein, terms used herein have the meanings provided in the
Credit Agreement.
The undersigned hereby certifies that he is the [chief financial
Authorized Officer] [treasurer] [assistant treasurer] of the Borrower (in such
capacity, the "OFFICER") and that he is authorized to execute and deliver this
Certificate on behalf of the Borrower. The undersigned further certifies on
behalf of the Borrower, that:
(a) The Officer has continued to monitor the financial
condition and operations of the Borrower and its Subsidiaries, and the
Officer has knowledge of and has participated in the negotiation of the
transactions contemplated by the Credit Agreement and the other Loan
Documents.
(b) The Officer and his staff are familiar with the process
through which the consolidated financial statements of the Borrower and
its Subsidiaries were generated and prepared.
(c) The Officer is familiar with the process through which the
Pro Forma Financial Statements were generated and prepared. In making
the statements set forth in PARAGRAPH (f) hereof, the Officer has
considered the current and anticipated future capital requirements of
the Borrower and its Subsidiaries for the current and future conduct of
the businesses of the Borrower and its Subsidiaries.
(d) Based on the information reflected in the Pro Forma
Financial Statements and the Officer's involvement in the process of
collecting such information, the Officer has no reason to believe that
the Pro Forma Financial Statements and related financial statements are
not
<PAGE>
(i) a fair and reasonable presentation of the PRO
FORMA financial condition and operations of the Borrower and
its Subsidiaries, as of the date hereof, on a going-concern
basis; and
(ii) a reasonable projection of the financial
position, results of operations and cash flows of the Borrower
and its Subsidiaries
in each case on the basis of the assumptions stated in the Pro Forma
Financial Statements, which assumptions the Officer believes to be
reasonable.
(e) Immediately following the consummation of the transactions
contemplated by the Credit Agreement and the other Loan Documents, the
Borrower will be able to pay its Debts (as defined below) as they
become due, will have assets which will have a "fair saleable value"
greater than its Debts as they become absolute and matured, and will
have assets which will have a fair value greater than the sum of all
its Debts.
(f) Both before and immediately after giving effect to each
transaction contemplated by the Credit Agreement and the other Loan
Documents, the Borrower does not have unreasonably small capital and it
is not engaged in businesses or transactions, and (to the best of my
knowledge) does not intend that it will be engaged in any businesses or
transactions, for which it has unreasonably small capital.
(g) Both before and immediately after giving effect to each
transaction contemplated by the Credit Agreement and the other Loan
Documents, the Borrower does not intend to incur, nor believe that it
has incurred, Debts beyond its ability to pay them as they mature.
(h) Both before and immediately after giving effect to each
transaction contemplated by the Credit Agreement and each other Loan
Document, the Borrower has not incurred any obligation under, or in
connection therewith, with actual intent to hinder, delay or defraud
either present or future creditors of the Borrower or any of its
Subsidiaries.
(i) For purposes hereof, "Debts" means all liabilities,
obligations, commitments and indebtedness of any and every kind and
nature (including all obligations to trade creditors), whether
heretofore or now owing, arising, due, or payable by the Borrower to
any person and howsoever evidenced, created, incurred, acquired, or
owing, whether primary, secondary, direct, contingent, fixed, or
otherwise (the foregoing to include, without limitation, all monetary
obligations arising under the Credit Agreement).
(j) The "fair saleable value" of the Borrower's assets and
investments means the amount which may be realized within a reasonable
time, either through collection or sale of such investments and other
assets at the regular market value, based upon the amount
-2-
<PAGE>
which could be obtained for the property in question within such period
by a capable and diligent business person from an interested buyer who
is willing to purchase under ordinary selling conditions. Although no
determination of the "fair saleable value" has been made, it is my
opinion that the asset amounts reflected upon the historic records of
the Borrower and its Subsidiaries do not exceed the "fair saleable
value."
(k) The Officer hereby acknowledges, on behalf of the
Borrower, that the Administrative Agent and each of the Lenders have
relied upon the statements contained herein and such statements are a
material inducement for the Administrative Agent and each of the
Lenders to enter into the Credit Agreement and the other Loan
Documents.
Notwithstanding anything to the contrary herein, the Officer (i) is
executing this Certificate on behalf of the Borrower solely in his
representative capacity and not in his individual capacity, and (ii) shall not
have any liability whatsoever for any statements, certifications or
representations made herein, other than liability arising directly out of his
intentional misconduct or gross negligence.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned Authorized Officer has executed
this Certificate on this ____ day of February, 2000.
THE TITAN CORPORATION
By:
-----------------------------------
Name:
Title:
-4-
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE TITAN CORPORATION,
TITAN ACQUISITION CORPORATION
and
PULSE ENGINEERING, INC.
Dated as of March 10, 2000
<PAGE>
TABLE OF CONTENTS
ARTICLES
Page
----
ARTICLE I THE MERGER.........................................................1
SECTION 1.01 The Merger.................................................1
SECTION 1.02 Effective Time; Closing Date...............................2
SECTION 1.03 Effect of the Merger.......................................2
SECTION 1.04 Articles of Incorporation; Bylaws..........................2
SECTION 1.05 Directors and Officers.....................................2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES................3
SECTION 2.01 The Merger.................................................3
SECTION 2.02 Conversion of Company Common Stock.........................3
SECTION 2.03 Acquiror to Deliver Cash...................................5
SECTION 2.04 Exchange of Cash...........................................5
SECTION 2.05 Escrowed Consideration; Determination of Closing
Adjustment.................................................6
SECTION 2.06 Conversion of Acquiror Sub Shares..........................9
SECTION 2.07 Closing....................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY........................9
SECTION 3.01 Organization and Qualification.............................9
SECTION 3.02 Subsidiaries...............................................10
SECTION 3.03 Articles of Incorporation and Bylaws.......................10
SECTION 3.04 Capitalization.............................................10
SECTION 3.05 Authority; Binding Obligation..............................11
SECTION 3.06 No Conflict; Required Filings and Consents.................11
SECTION 3.07 Intellectual Property......................................13
SECTION 3.08 Financial Statements and Condition.........................14
SECTION 3.09 Absence of Certain Developments............................15
SECTION 3.10 Absence of Undisclosed Liabilities.........................16
SECTION 3.11 Litigation; Disputes.......................................17
SECTION 3.12 Real Property Leases.......................................17
SECTION 3.13 Other Agreements; No Default...............................18
SECTION 3.14 Labor Relations............................................18
SECTION 3.15 Pension and Benefit Plans..................................19
SECTION 3.16 Taxes and Tax Matters......................................20
SECTION 3.17 Insurance..................................................22
SECTION 3.18 Arrangements With Related Parties..........................22
SECTION 3.19 Books and Records..........................................22
SECTION 3.20 Assets.....................................................23
i
<PAGE>
SECTION 3.21 Board Recommendation.......................................23
SECTION 3.22 Directors and Officers.....................................23
SECTION 3.23 State Takeover Statutes; Certain Charter Provisions........23
SECTION 3.24 Environmental Matters......................................24
SECTION 3.25 Y2K Compliance.............................................24
SECTION 3.26 Government Contracts and Other Commitments.................25
SECTION 3.27 Relations with Governments.................................26
SECTION 3.28 Broker's Fees..............................................27
SECTION 3.29 Pulse Employee Stock Ownership Trust.......................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB.......27
SECTION 4.01 Organization and Qualification.............................27
SECTION 4.02 Certificate or Articles of Incorporation and Bylaws........28
SECTION 4.03 Authority; Binding Obligation..............................28
SECTION 4.04 No Conflict; Required Filings and Consents.................28
SECTION 4.05 No Prior Activities of Acquiror Sub........................29
ARTICLE V PRE-CLOSING COVENANTS..............................................29
SECTION 5.01 Conduct of Business of Company Until Effective Time........29
SECTION 5.02 Best Efforts to Satisfy Conditions.........................32
SECTION 5.03 Other Actions..............................................32
SECTION 5.04 Certain Tax Matters........................................32
SECTION 5.05 Access and Information.....................................32
SECTION 5.06 Notification Filing Required under HSR Act.................33
SECTION 5.07 Access to Company and Company Subsidiary Information.......33
SECTION 5.08 Meeting of ESOP Participants...............................33
SECTION 5.09 Termination of ESOP........................................34
SECTION 5.10 Mitigation of FOCI.........................................34
SECTION 5.11 Termination of Dodds Employment Agreement..................34
ARTICLE VI ADDITIONAL AGREEMENTS.............................................34
SECTION 6.01 Stockholder Approval.......................................34
SECTION 6.02 Appropriate Action; Consents; Filings......................35
SECTION 6.03 Disclosure..................................................36
SECTION 6.04 Public Announcements.......................................36
SECTION 6.05 Directors', Officers' and Trustees' Insurance;
Indemnification............................................37
SECTION 6.06 Obligations of Acquiror Sub................................37
SECTION 6.07 No Solicitation............................................37
SECTION 6.08 Transaction Expenses.......................................38
SECTION 6.09 IRS Determination Letter for ESOP..........................39
SECTION 6.10 Key Employees..............................................39
ARTICLE VII CONDITIONS PRECEDENT.............................................39
SECTION 7.01 Conditions to Obligations of Each Party Under This
Merger Agreement...........................................39
ii
<PAGE>
SECTION 7.02 Additional Conditions to Obligations of Acquiror and
Acquiror Sub...............................................40
SECTION 7.03 Additional Conditions to Obligations of Company............42
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................43
SECTION 8.01 Termination................................................43
SECTION 8.02 Effect of Termination......................................44
SECTION 8.03 Expenses...................................................44
SECTION 8.04 Amendment..................................................44
SECTION 8.05 Extension; Waiver..........................................44
ARTICLE IX SURVIVAL OF REPRESENTATIONS; REMEDIES.............................45
SECTION 9.01 Survival of Representations................................45
SECTION 9.02 Indemnification by Principal Stockholder; Right to
Offset.....................................................45
SECTION 9.03 Third Party Claims.........................................48
SECTION 9.04 No Recourse Against the Company............................49
SECTION 9.05 Remedies Cumulative........................................49
ARTICLE X GENERAL PROVISIONS.................................................50
SECTION 10.01 Notices...................................................50
SECTION 10.02 Headings..................................................51
SECTION 10.03 Severability..............................................52
SECTION 10.04 Entire Agreement..........................................52
SECTION 10.05 Assignment................................................52
SECTION 10.06 Parties in Interest.......................................52
SECTION 10.07 Mutual Drafting...........................................53
SECTION 10.08 Governing Law.............................................53
SECTION 10.09 Counterparts..............................................53
SECTION 10.10 Singular and Plural.......................................53
ARTICLE XI DEFINITIONS.......................................................53
EXHIBITS
Exhibit A Articles of Merger
Exhibit B Initial Officers and Directors of Surviving Corporation
Exhibit C Form of Escrow Agreement
Exhibit D Form of Consulting Agreement
Exhibit E Form of Non-Competition Agreement
iii
<PAGE>
This AGREEMENT AND PLAN OF MERGER, dated as of March 10, 2000 (this
"Merger Agreement"), is entered into by and among The Titan Corporation, a
corporation organized under the laws of the State of Delaware ("Acquiror"),
Titan Acquisition Corporation, a corporation organized under the laws of the
State of Maryland ("Acquiror Sub"), and Pulse Engineering, Inc., a corporation
organized under the laws of the State of Maryland ("Company") ("Acquiror,"
"Acquiror Sub" and "Company" individually hereinafter referred to as "Party" and
collectively hereinafter referred to as the "Parties");
WHEREAS, Acquiror Sub, upon the terms and subject to the conditions of
this Merger Agreement and in accordance with the Maryland General Corporation
Law ("Maryland Law"), will merge with and into Company (the "Merger");
WHEREAS, the Board of Directors of Company has (i) determined that the
Merger is advisable and fair to the holders of Company Common Stock (as defined
in Section 3.04 of this Merger Agreement) and is in the best interests of such
stockholders, (ii) advised, authorized, approved and adopted this Merger
Agreement and the transactions contemplated hereby and (iii) recommended
approval and adoption of this Merger Agreement by the stockholders of Company
(the "Company Stockholders");
WHEREAS, the Board of Directors of Acquiror has determined that the Merger
is advisable and in the best interests of Acquiror and its stockholders and the
Boards of Directors of Acquiror and Acquiror Sub and the sole stockholder of
Acquiror Sub have advised, authorized, approved and adopted this Merger
Agreement and the transactions contemplated hereby; and
WHEREAS, as a condition and inducement to Acquiror's and Acquiror Sub's
entering into this Merger Agreement and incurring the obligations set forth
herein, concurrently with the execution and delivery of this Merger Agreement,
Acquiror and Acquiror Sub are entering into a Stockholders Agreement with
certain stockholders of the Company (the "Company Stockholders Agreement"),
pursuant to which, among other things, such stockholders have agreed to vote
their shares of Company Common Stock in favor of the Merger and have granted
Acquiror an irrevocable proxy to vote such shares of Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the Parties agree as
follows.
ARTICLE I
THE MERGER
SECTION 1.01 The Merger
Upon the terms and subject to the conditions set forth in this Merger Agreement,
and in accordance with Maryland Law, at the Effective Time (as defined in
Section 1.02 of this Merger
<PAGE>
Agreement) Acquiror Sub shall be merged with and into Company, with Company
being the surviving corporation (hereinafter sometimes called "Surviving
Corporation") in the Merger. Upon consummation of the Merger, the separate
corporate existence of Acquiror Sub shall cease, and Surviving Corporation shall
continue to exist as a Maryland corporation.
SECTION 1.02 Effective Time; Closing Date
Subject to the provisions of Section 2.07 of this Merger Agreement, as promptly
as practicable after the satisfaction or, if permissible, waiver of the
conditions set forth in Article VII of this Merger Agreement, the Parties shall
cause the Merger to be consummated by filing the Articles of Merger, attached
hereto as Exhibit A, as the same may be modified to comply with the requirements
of the Maryland State Department of Assessments and Taxation (the "Articles of
Merger"), and any other appropriate documents with the Maryland State Department
of Assessments and Taxation, in such form as required by, and executed in
accordance with the relevant provisions of, Maryland Law (the date and time of
such filing being the "Effective Time"). The day on which the Effective Time
shall occur shall hereinafter be referred to as the "Closing Date."
SECTION 1.03 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in Section
3-114 and other applicable provisions of Maryland Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Acquiror Sub
shall vest in Surviving Corporation, and all debts, liabilities and duties of
Company and Acquiror Sub shall become the debts, liabilities and duties of
Surviving Corporation.
SECTION 1.04 Articles of Incorporation; Bylaws
(a) At the Effective Time, the articles of incorporation of Acquiror Sub
shall continue unchanged and shall be the articles of incorporation of Surviving
Corporation until thereafter amended as provided by Law and such articles of
incorporation, except that Article SECOND of Acquiror Sub's articles of
incorporation shall be amended at the Effective Time to read as follows: "The
name of the corporation is Pulse Engineering, Inc.".
(b) At the Effective Time, the bylaws of Acquiror Sub shall continue
unchanged and shall be the bylaws of Surviving Corporation until thereafter
amended as provided by Law, the articles of incorporation of Surviving
Corporation and such bylaws.
SECTION 1.05 Directors and Officers
At the Effective Time, the initial officers and directors of Surviving
Corporation shall be the persons listed on Exhibit B, each to hold office in
accordance with the articles of incorporation and bylaws of Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
2
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 The Merger
Subject to the terms and conditions of this Merger Agreement, in accordance with
Maryland Law, at the Effective Time, Acquiror Sub shall merge into Company, with
Company being the Surviving Corporation in the Merger. Upon consummation of the
Merger, the corporate existence of Acquiror Sub shall cease and Company shall
continue to exist as a Maryland corporation.
SECTION 2.02 Conversion of Company Common Stock
At the Effective Time, by virtue of the Merger and without any action on the
part of the Parties hereto or the holders of the Company Common Stock (as
defined below):
(a) Outstanding Class A Common Stock. Subject to the provisions of this
Merger Agreement, each share of Class A common stock, $0.00858699 par value, of
the Company (each a "Class A Share"), issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares (as defined in Section
2.02(e) of this Merger Agreement) and any shares described in Section 2.02(d) of
this Merger Agreement) shall be converted into the right to receive:
(i) An amount equal to (x) (A) the Adjusted Merger Consideration,
multiplied by (B) the Class A Multiple, divided by (y) the number of Class A
Shares issued and outstanding immediately prior to the Effective Time (the
"Outstanding Class A Common Stock") (the aggregate cash amount payable with
respect to such Class A Shares pursuant to this Section 2.02(a)(i), the "Class A
Cash Consideration"); and
(ii) An amount equal to (x) (A) One Million Dollars ($1,000,000) (or
such lesser amount as may be payable to the former holders of the Company Common
Stock pursuant to the Escrow Agreement), multiplied by (B) the Class A Multiple,
divided by (y) the Outstanding Class A Common Stock, which amount will be placed
in escrow with First Union National Bank, or any other agent mutually acceptable
to the Parties (the "Escrow Agent") pursuant to the Escrow Agreement, to secure
the payment of the Closing Adjustment (as defined in Section 2.05(b) of this
Merger Agreement).
(b) Outstanding Class B Common Stock. Subject to the provisions of this
Merger Agreement, each share of Class B common stock, $0.01945621 par value, of
the Company (each, a "Class B Share"), issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares and any shares described in
Section 2.02(d) of this Merger Agreement) shall be converted into the right to
receive:
(i) An amount equal to (x) (A) the Adjusted Merger Consideration,
multiplied by (B) the Class B Multiple, divided by (y) the number of Class B
Shares issued and outstanding immediately prior to the Effective Time (the
"Outstanding Class B Common Stock") (the aggregate amounts payable with respect
to all such shares of Class B Common Stock pursuant to this Section
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2.02(b)(i), the "Class B Cash Consideration" and, together with the Class A Cash
Consideration the "Cash Consideration"); and
(ii) An amount equal to (x) (A) One Million Dollars ($1,000,000) (or
such lesser amount as may be payable to the former holders of the Company Common
Stock pursuant to the Escrow Agreement), multiplied by (B) the Class B Multiple,
divided by (y) the Outstanding Class B Common Stock, which amount will be placed
in escrow with the Escrow Agent pursuant to the Escrow Agreement to secure the
payment of the Closing Adjustment (the aggregate amount of cash deposited with
the Escrow Agent pursuant to Section 2.02(a)(ii) of this Merger Agreement and
this Section 2.02(b)(ii), the "Escrowed Consideration" and, together with the
Cash Consideration, the "Merger Consideration").
(c) At the Effective Time, all shares of Company Common Stock shall (i) be
converted into the right to receive the cash determined in accordance with this
Article II, (ii) no longer be outstanding, (iii) automatically be canceled and
(iv) cease to exist, and each certificate previously representing any such
shares of Company Common Stock (each a "Certificate") shall thereafter represent
the right to receive the Merger Consideration determined in accordance with
Sections 2.02(a), 2.02(b) and 2.04 of this Merger Agreement.
(d) At the Effective Time, all shares of Company Common Stock that are
owned by Company as treasury stock and all shares of Company Common Stock that
are owned directly or indirectly by Acquiror, any of its Subsidiaries, Company,
or any Company Subsidiary, other than (i) any shares of Company Common Stock
held directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by Persons
other than Acquiror, any of its Subsidiaries, Company, or any Company
Subsidiary, and (ii) any shares of Company Common Stock held by Acquiror, any of
its Subsidiaries, Company, or any Company Subsidiary, in respect of a debt
previously contracted, shall be canceled and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(e) Notwithstanding anything in this Merger Agreement to the contrary and
unless otherwise provided by applicable law, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective Time and that are
owned by Company Stockholders who have properly demanded payment of the fair
value of their stock (the "Dissenting Shares") within the meaning of Section
3-202 of Maryland Law shall not be converted into the right to receive the
Merger Consideration unless and until such Company Stockholders shall have
failed to perfect or shall have effectively withdrawn their demand, or lost
their right of payment under applicable law. If any such Company Stockholder
shall have failed to perfect or shall have effectively withdrawn or lost such
right of payment, each share of Company Common Stock held by such Company
Stockholder shall thereupon be deemed converted into the right to receive and
exchangeable for, at the Effective Time, the Merger Consideration pursuant to
Sections 2.02 and 2.04 of this Merger Agreement. Subject to the terms and
conditions of this Merger Agreement, at and after the Effective Time, any holder
of shares of Company Common Stock who complies with Section 3-203 of Maryland
Law (a "Company Dissenting Stockholder") shall be entitled to obtain payment
from Surviving Corporation of the fair value of such Company Dissenting
Stockholder's shares of Company Common Stock as determined pursuant to Sections
3-207 or 3-210 of Maryland Law; provided, however, that, to the extent
permissible under Maryland Law,
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no such payment shall be made unless and until such Company Dissenting
Stockholder has surrendered to the Exchange Agent the Certificate representing
the shares of Company Common Stock for which payment is being made.
(f) Company shall give Acquiror (i) prompt notice of any written notice of
intent to demand payment for shares filed pursuant to Section 3-203 of Maryland
Law received by Company, withdrawals of such notices, and any other instruments
served in connection with such notices pursuant to the relevant provisions of
Maryland Law and received by Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to such notices under Maryland Law
consistent with the obligations of Company thereunder. Company shall not, except
with the prior written consent of Acquiror (which shall not be unreasonably
withheld), (A) make any payment with respect to any such notice, (B) offer to
settle or settle any such notices or (C) waive any failure to timely deliver a
written notice in accordance with the Maryland Law.
SECTION 2.03 Acquiror to Deliver Cash
At or prior to the Effective Time, Acquiror shall deposit, or shall cause to be
deposited, (a) with First Union National Bank, or any other agent mutually
acceptable to the Parties (the "Exchange Agent"), for the benefit of the holders
of Certificates, for payment in accordance with this Article II, an amount of
cash equal to the Cash Consideration representing the cash (such deposit plus
interest thereon being hereinafter referred to as the "Exchange Fund") to be
paid pursuant to Section 2.04 of this Merger Agreement in exchange for the
Certificates, and (b) with the Escrow Agent, an amount of cash equal to the
Escrowed Consideration representing the cash to be distributed and released in
accordance with the terms and provisions of this Merger Agreement and of the
Escrow Agreement.
SECTION 2.04 Exchange of Cash
(a) Not later than three (3) business days after the Effective Time, the
Exchange Agent shall mail (via first class U.S. mail, postage prepaid) to each
holder of record of Certificates a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent) with instructions for use in effecting the surrender of the Certificates
in exchange for cash pursuant to this Section 2.04 and Section 2.02 of this
Merger Agreement. Company shall have the right to review both the letter of
transmittal and the instructions prior to their being finalized. Upon surrender
of a Certificate for exchange and cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a check in the amount to which
such holder is entitled pursuant to the provisions of Section 2.02(a)(i) or
Section 2.02(b)(i) of this Merger Agreement, as the case may be, and the
Certificate so surrendered shall forthwith be canceled. The Exchange Agent shall
send the foregoing check(s) to each such holder (via first-class U.S. mail,
postage prepaid) no later than the third business day after the Exchange Agent
receives such holder's duly executed and completed transmittal letter. Company
shall fix a date, in accordance with Maryland Law and Company's organizational
documents, as a record date (the "Record Date") for the determination of the
holders of Certificates entitled to receive cash as provided in this Section
2.04, notwithstanding any transfer of any Company Common Stock on the books of
Company after the Record Date is fixed as
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aforesaid. Not less than fifteen (15) days prior to the Effective Time, Company
shall provide Acquiror with a list of holders of Certificates on the Record
Date.
(b) After the close of business on the Record Date, there shall be no
transfers on the stock transfer books of Company of the shares of Company Common
Stock.
(c) Any portion of the Exchange Fund that remains unclaimed by the Company
Stockholders for three (3) months after the Effective Time shall be returned to
Acquiror. Any Company Stockholders who have not complied with this Article II
before such portion of the Exchange Fund is returned to Acquiror shall
thereafter look only to Acquiror for payment of their Merger Consideration
determined pursuant to this Merger Agreement, without any interest thereon.
Notwithstanding the foregoing, none of Acquiror, Company, the Exchange Agent or
any other Person shall be liable to any former holder of shares of Company
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Acquiror,
the posting by such person of a bond in such amount as Acquiror may reasonably
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the cash deliverable in respect thereof pursuant
to this Merger Agreement.
SECTION 2.05 Escrowed Consideration; Determination of Closing Adjustment
(a) Escrowed Consideration. The Escrowed Consideration will be placed in
escrow pursuant to the Escrow Agreement and in accordance with Sections
2.02(a)(ii), 2.02(b)(ii) and 2.03 of this Merger Agreement. The Escrowed
Consideration shall be held in escrow pursuant to the Escrow Agreement as
security for the payment of the Closing Adjustment as determined in the manner
described in Section 2.05(b) of this Merger Agreement. The Escrowed
Consideration shall be released to the Acquiror and/or the Company Stockholders,
as the case may be, only in accordance with the terms of the Escrow Agreement.
(b) Determination of Closing Adjustment. The "Closing Adjustment" shall
equal (i) the amount, if any, by which the actual amount of cash and the fair
market value of the marketable securities of the Company and the Company
Subsidiary on the Closing Date is less than (a) the estimated amount of cash and
the estimated value of the marketable securities of the Company as set forth on
the Estimated Balance Sheet required to be delivered to Acquiror pursuant to
Section 7.02(k) of this Merger Agreement (in the event that the proviso set
forth in clause (c) of the definition of "Adjusted Merger Amount" did not
prevent the balance of such clause (c) from being taken into account in the
preparation of the Estimated Balance Sheet) or (b) $1,700,000 (in the event that
such proviso did prevent the balance of such clause (c) from being taken into
account in the preparation of the Estimated Balance Sheet), provided however,
if, on the Closing Date, the cash and fair market value of the marketable
securities is less than $1,700,000 and the net asset value of the Company,
calculated in accordance with generally accepted accounting principles, is
greater than or equal to Five Million Eight Hundred Seventy
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Five Thousand Dollars ($5,875,000), then the amount by which the cash and the
fair market value of the marketable securities owned by the Company is less than
$1,700,000 shall not be deducted for purposes of determining the Closing
Adjustment, plus (ii) any Losses sustained by Acquiror or Surviving Corporation
as a result of any breaches of the representations and warranties of the Company
contained in this Merger Agreement and which are discovered by the Acquiror as a
result of the audit of the consolidated financial statements of the Company as
of the Closing Date by Arthur Andersen LLP, the Acquiror's independent public
accountants, as hereinafter provided. The Company will use its best efforts to
close its books and records for the period ending on the Closing Date within
twenty (20) days after the Closing Date and shall deliver to the Acquiror or, at
the request of the Acquiror, to Acquiror and Arthur Andersen LLP, such books and
records as shall be requested by Acquiror or Arthur Andersen LLP to enable
Arthur Andersen LLP to perform an audit of the consolidated financial statements
of the Company as of the Closing Date and to determine the amount of the Closing
Adjustment based thereon. Upon receipt of such books and records, the Acquiror
shall use its best efforts to cause Arthur Andersen LLP to complete an audit of
the consolidated financial statements of the Company and to calculate the amount
of the Closing Adjustment within thirty (30) days following receipt of the books
and records of the Company. Acquiror shall deliver to the Stockholders'
Representative and the Escrow Agent a copy of such audited financial statements
and the computations of the amount of the Closing Adjustment promptly upon
receipt of such items from Arthur Andersen LLP. The Stockholders' Representative
shall have the right to review and copy the computations and workpapers used in
connection with the preparation of the audited financial statements and the
computation of the Closing Adjustment, if any. If the Stockholders'
Representative disagrees with the computation of the Closing Adjustment, the
Stockholders' Representative shall so notify the Acquiror and the Escrow Agent
in writing within ten (10) days after the date of receipt of the audited
financial statements and the computation of the Closing Adjustment, specifying
in detail any point of disagreement; provided, however, if the Stockholders'
Representative fails to notify the Acquiror in writing of the Stockholders'
Representative's disagreement within such ten (10) day period, the determination
of the Closing Adjustment shall be final, conclusive and binding on the Parties
for purposes of determining the amount of the Escrowed Consideration to be
released to the former holders of Company Common Stock pursuant to the Escrow
Agreement, but shall not limit Acquiror's other rights pursuant to this Merger
Agreement or any other document delivered in connection with this Merger
Agreement. The Acquiror and the Stockholders' Representative shall negotiate in
good faith to resolve any such disagreement. If any such disagreement cannot be
resolved by the Acquiror and the Stockholders' Representative within fifteen
(15) days after the Acquiror has received notice from the Stockholders'
Representative in accordance with the preceding sentence of the existence of
such disagreement, the Acquiror and the Stockholders' Representative shall
jointly select a nationally recognized independent public accounting firm (which
has not performed any service since January 1, 1996 for either the Company or
the Acquiror or any of their respective Affiliates (the "Accounting Firm")), to
act as an arbitrator to resolve as expeditiously as possible all points of
disagreement with respect to the Closing Adjustment (or, in the event they are
unable to agree, either may request the Washington, D.C. office of the American
Arbitration Association to make such selection, which shall be final and binding
on the Parties). All determinations made by the Accounting Firm with respect to
the Closing Adjustment shall be final, conclusive and binding on the Parties
hereto for purposes of
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determining the amount of the Escrowed Consideration to be released to the
former holders of Company Common Stock pursuant to the Escrow Agreement, but
shall not limit Acquiror's other rights pursuant to this Merger Agreement or any
other document delivered in connection with this Merger Agreement. The fees and
expenses of the Accounting Firm shall be borne by the non-prevailing Party.
Notwithstanding the foregoing, in the event the Closing Adjustment exceeds the
Escrowed Consideration, the Acquiror shall have, in addition to any other rights
it may have under this Merger Agreement or any other documents delivered in
connection with this Merger Agreement, the right to make an offset against the
amounts payable under the Consulting/Non-Competition Arrangement in an amount
equal to the amount by which Closing Adjustment exceeds the Escrowed
Consideration.
(c) Appointment of Stockholders' Representative. John G. Hannon shall, by
virtue of the Merger, be appointed attorney-in-fact and authorized and empowered
to act, for and on behalf of any or all of the Company Stockholders (with full
power of substitution in the premises), in connection with the provisions of
this Section 2.05 and the Escrow Agreement as they relate to the Company and the
Company Stockholders generally, and such other matters as are reasonably
necessary for the consummation of the transactions contemplated hereby
including, without limitation, (i) to review all determinations of the Closing
Adjustment and, to the extent deemed appropriate, dispute, question the accuracy
of, compromise, settle or otherwise resolve any and all such determinations,
(ii) to compromise on their behalf with Acquiror any claims asserted thereunder,
(iii) to authorize payments to be made with respect to the Closing Adjustment,
(iv) to execute and deliver on behalf of the Company Stockholders any documents
or agreement contemplated by or necessary or desirable in connection with this
Merger Agreement or the Escrow Agreement and (v) to take such further actions
including coordinating and administering post-closing matters related to the
rights and obligations of the Company Stockholders as are authorized in this
Merger Agreement and the Escrow Agreement (the above named representative, as
well as any subsequent representative of the Company Stockholders appointed by
the Company Stockholders who previously held a majority of the Company Common
Stock being referred to herein as the "Stockholders' Representative"). The
Stockholders' Representative shall not be liable to any Company Stockholder,
Acquiror, the Surviving Corporation or their respective Affiliates or any other
Person with respect to any action taken or omitted to be taken by the
Stockholders' Representative in his role as Stockholders' Representative under
or in connection with this Merger Agreement unless such action or omission
results from or arises out of fraud, gross negligence, willful misconduct or bad
faith on the part of the Stockholders' Representative. Acquiror, Acquiror Sub
and the Surviving Corporation shall be entitled to rely on such appointment and
treat such Stockholders' Representative as the duly appointed attorney-in-fact
of each Company Stockholder. Each Company Stockholder who votes in favor of the
Merger pursuant to the terms hereof, by such vote and without any further
action, and each Company Stockholder who receives Merger Consideration in
connection with the Merger, by acceptance thereof and without any further
action, confirms such appointment and authority.
(d) Record Retention. Acquiror, the Company and the Stockholder
Representative agree that following the Closing through the date of the final
determination of the Closing Adjustment that they will not destroy any records
pertaining to the final determination of the Closing Adjustment.
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SECTION 2.06 Conversion of Acquiror Sub Shares
Each share of capital stock of Acquiror Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one fully
paid and nonassessable share of common stock of Surviving Corporation.
SECTION 2.07 Closing
Subject to the terms and conditions of this Merger Agreement, the closing of the
Merger (the "Closing") will take place after the satisfaction of the latest to
occur or, if permissible, waiver of the conditions set forth in Article VII of
this Merger Agreement. The scheduled closing date will take place as soon as
practicable (but, in any event, no later than the first business day following
the tenth (10th) day) after the satisfaction of the latest to occur or, if
permissible, waiver, of the conditions set forth in Article VII of this Merger
Agreement (the "Scheduled Closing Date"), at the offices of Hogan & Hartson
L.L.P., 111 South Calvert Street, Baltimore, Maryland 21202, unless another date
or place is agreed to in writing by the Parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF company
Except as specifically set forth in the Disclosure Letter delivered by Company
to Acquiror prior to the execution and delivery of this Merger Agreement (the
"Company Disclosure Letter") and referenced in the Company Disclosure Letter to
the Section(s) of this Article III to which such disclosure applies, Company
hereby represents, warrants to and agrees with Acquiror and Acquiror Sub as
follows, in each case as of the date of this Merger Agreement and as of the
Closing Date:
SECTION 3.01 Organization and Qualification
Company is a corporation duly organized, validly existing and in good standing
under Maryland Law, and has the full and unrestricted corporate power and
authority to own, operate and lease its Assets, to carry on its business as
currently conducted, to execute and deliver this Merger Agreement and to carry
out the transactions contemplated hereby. Company is duly qualified to conduct
business as a foreign corporation and is in good standing in the states,
countries and territories listed in the Company Disclosure Letter and in each
jurisdiction where the nature of its business or the ownership, operation or
leasing of its Assets makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a Company
Material Adverse Effect.
SECTION 3.02 Subsidiaries
Section 3.02 of the Company Disclosure Letter lists each Company Subsidiary.
Neither Company nor any Company Subsidiary has any equity investment or other
interest in, nor has Company or any Company Subsidiary made advances or loans to
any Person (other than intra-
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company transactions between or among Company and a Company Subsidiary). Section
3.02 of the Company Disclosure Letter sets forth (a) the authorized capital
stock or other equity interests of each Company Subsidiary and (b) the
percentage of the issued and outstanding capital stock or other equity interests
of each Company Subsidiary owned by Company. All of such shares of capital stock
or other equity interests of each Company Subsidiary have been duly authorized
and validly issued and are outstanding, fully paid and nonassessable and are
owned by Company free and clear of all Encumbrances other than Encumbrances
arising under applicable securities Laws. Each Company Subsidiary is a
corporation duly organized, validly existing and in good standing under the Laws
of its state or jurisdiction of organization (as listed in Section 3.02 of the
Company Disclosure Letter), and has the requisite corporate or limited liability
company power and authority to own, operate and lease its Assets and to carry on
its business as currently conducted. Each Company Subsidiary is duly qualified
to conduct business as a foreign Person and is in good standing in each
jurisdiction where the nature of its business or the ownership, operation or the
leasing of its Assets makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a Company
Material Adverse Effect.
SECTION 3.03 Articles of Incorporation and Bylaws
Company has furnished to Acquiror a true and complete copy of the articles of
incorporation of Company and each Company Subsidiary, as currently in effect on
the date of this Merger Agreement, and a true and correct copy of Company's
bylaws and the bylaws of each Company Subsidiary, as currently in effect on the
date of this Merger Agreement, and in each case certified by the corporate
secretary of the Company and each such Company Subsidiary, as appropriate.
Neither the Company nor any Company Subsidiary is in violation of any of the
provisions of its respective articles of organization or bylaws.
SECTION 3.04 Capitalization
The authorized capital stock of Company consists of 1,200,000 shares of common
stock, consisting of 780,250 Class A Shares, $0.00858699 par value per share,
and 419,750 Class B Shares, $0.01945621 par value per share, of which (i)
390,125 Class A Shares (the "Class A Outstanding Shares") are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable; and (ii) 282,209 Class B Shares (the "Class B Outstanding
Shares") are issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable (such Class B Outstanding Shares and the
Class A Outstanding Shares are collectively referred to herein as the "Company
Common Stock"). Section 3.04 of the Company Disclosure Letter sets forth the
names and addresses of all holders of record of Company Common Stock and the
number and class of shares held by each such stockholder. No other shares of
Company Common Stock have been reserved for any purpose. There are no
outstanding securities convertible into or exchangeable for Company Common
Stock, any other securities of any Company, or any capital stock or other
securities of any Company Subsidiary and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other securities of Company or any Company Subsidiary.
There are no outstanding Agreements affecting or relating to the voting,
issuance, purchase, redemption, registration, repurchase or transfer of Company
Common Stock, any other
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securities of Company, or any capital stock or other securities of any Company
Subsidiary, except as contemplated hereunder. Each of the outstanding shares of
Company Common Stock and of capital stock of, or other equity interests in, each
Company Subsidiary was issued in compliance with all applicable federal and
state Laws concerning the issuance of securities. There are no obligations,
contingent or otherwise, of Company or any Company Subsidiary to provide funds
to, make any investment (in the form of a loan, capital contribution or
otherwise) in, or provide any guarantee with respect to, any Person other than
Company or any Company Subsidiary. There are no Agreements pursuant to which any
Person (other than Company or any Company Subsidiary) is or may be entitled to
receive any of the revenues or earnings, or any payment based thereon or
calculated in accordance therewith, of Company or any Company Subsidiary.
SECTION 3.05 Authority; Binding Obligation
The execution and delivery by Company of this Merger Agreement, the execution
and delivery by Company of all other Agreements, documents, certificates or
other instruments contemplated hereby, and the consummation by Company of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
Company are necessary to authorize this Merger Agreement and the other
Agreements, documents, certificates or other instruments contemplated hereby, or
to consummate the transactions contemplated hereby and thereby, other than the
approval and adoption of this Merger Agreement by Company in accordance with
Maryland Law and Company's articles of incorporation and bylaws. This Merger
Agreement has been duly executed and delivered by Company and constitutes a
legal, valid and binding obligation of Company, enforceable in accordance with
its terms, except as such enforceability may be subject to the effects of any
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar Laws affecting creditors' rights generally and subject to
the effects of general equitable principles (whether considered in a proceeding
in equity or at law).
SECTION 3.06 No Conflict; Required Filings and Consents
(a) The execution, delivery and performance by Company of this Merger
Agreement and all other Agreements, documents, certificates or other instruments
contemplated hereby, the fulfillment of and compliance with the respective terms
and provisions hereof and thereof, and the consummation by Company of the
transactions contemplated hereby and thereby, do not and will not: (i) conflict
with, or violate any provision of, the articles of incorporation or bylaws of
Company; (ii) subject to (A) obtaining the requisite approval and adoption of
this Merger Agreement by the Company Stockholders in accordance with Maryland
Law and Company's articles of incorporation and bylaws and (B) obtaining the
consents, approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity pursuant to the applicable
requirements, if any, of the HSR Act, and the filing and recordation of the
Articles of Merger as required by Maryland Law, conflict with or violate any Law
applicable to Company or any Company Subsidiary, or any of their Assets; (iii)
conflict with, result in any breach of, or constitute a default (or an event
that with notice or lapse of time or both would become a default) or result in
the termination or acceleration, or create in another Person, a put
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right, purchase obligation or similar right, or require the payment of any fees,
compensation or other remuneration, under any Agreement to which Company or any
Company Subsidiary is a party or by which Company or any Company Subsidiary, or
any of their Assets, may be bound; or (iv) result in or require the creation or
imposition of, or result in the acceleration of, any indebtedness or any
Encumbrance of any nature upon, or with respect to, Company or any Company
Subsidiary or any of the Assets now owned or hereafter acquired by Company;
except for any such conflict or violation described in clause (ii) above, any
such conflict, breach or default described in clause (iii) above, or any such
creation, imposition or acceleration described in clause (iv) above that would
not have a Company Material Adverse Effect and that would not prevent Company
from consummating the Merger on a timely basis.
(b) The execution, delivery and performance by Company and each Company
Subsidiary of this Merger Agreement and all other Agreements, documents,
certificates or other instruments contemplated hereby, the fulfillment of and
compliance with the respective terms and provisions hereof and thereof, and the
consummation by Company and each Company Subsidiary of the transactions
contemplated hereby and thereby, do not and will not: (i) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Person not party to this Merger Agreement, except (A) pursuant to the applicable
requirements, if any, of the HSR Act and Laws of other Governmental Entities,
(B) the filing and recordation of the Articles of Merger as required by Maryland
Law and (C) where the failure to obtain any consent, approval, authorization or
permit or to make any filing or notification otherwise required to be disclosed
hereunder would not have a Company Material Adverse Effect; or (ii) result in or
give rise to any penalty, forfeiture, Agreement termination, right of
termination, amendment or cancellation, or restriction on business operations of
Company or any Company Subsidiary that would have a Company Material Adverse
Effect.
(c) Except as set forth in Section 3.06 of the Company Disclosure Letter,
all returns, reports, statements and other documents required to be filed by the
Company or any Company Subsidiary with any Governmental Entity have been filed
in a timely manner and complied with and are true, correct and complete in all
material respects (and any related fees required to be paid have been paid in
full). All material records of every type and nature relating to the business,
operations or Assets of the Company and each Company Subsidiary have been
maintained in all material respects in accordance with good business practices
and the rules of any Governmental Entity and are maintained at the offices of
the Company or Company Subsidiary.
(d) No Governmental Entity or any other Person has notified Company or any
Company Subsidiary that such Governmental Entity or other Person intends to
object to the transactions contemplated hereunder which shall include for this
purpose any objection to the operations of the business of Company or any
Company Subsidiary as part of Acquiror. The Company is not aware of any fact or
circumstance related to it or to any Company Subsidiary that would reasonably be
expected to (i) cause the filing of any objection to any application for any
Governmental consent required hereunder, (ii) lead to any delay in processing
such application or (iii) require any waiver of any Governmental rule, policy or
other applicable law.
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SECTION 3.07 Intellectual Property
(a) Section 3.07 of the Company Disclosure Letter identifies each item of
Intellectual Property (i) owned by Company or any Company Subsidiary, (ii) owned
by any third party and used by Company or any Company Subsidiary pursuant to
license, sublicense or other Agreement or (iii) otherwise used by Company or any
Company Subsidiary and not otherwise generally used by Persons similarly
situated (including, in each case, specification of whether each such item is
owned, licensed or used by Company or any Company Subsidiary). In addition,
neither Company nor any Company Subsidiary has licensed (as licensor),
sublicensed (as sublicensor) or entered into any other agreement with respect to
the use of any Intellectual Property except: (A) in the course of distributing
software products of Company and any Company Subsidiary; or (B) to the U.S.
Government pursuant to a government contract or a subcontract under a government
contract.
(b) The Company and each Company Subsidiary either owns or has adequate
rights to use all of the Intellectual Property that is necessary to, and
currently used for, its business as now conducted or currently proposed to be
conducted, and such Intellectual Property is free and clear of Encumbrances. The
Company has previously furnished to Acquiror evidence of either ownership by the
Company or a Company Subsidiary of or license rights to use its Intellectual
Property.
(c) There are no pending or, to Company's knowledge, threatened claims
against Company or any Company Subsidiary alleging that the conduct of its
business infringes any Intellectual Property rights of others that would have a
Company Material Adverse Effect. Neither the Intellectual Property of Company
nor any Company Subsidiary is subject to any mortgage, lien, pledge,
encumbrance, security interest, deed of trust, option, order, decree or
judgment. To the Company's knowledge, the business of Company and each Company
Subsidiary as now conducted or proposed to be conducted does not infringe any
third-party Intellectual Property rights.
(d) To the Company's knowledge, no third party is infringing upon any of
the Company's or any Company Subsidiary's Intellectual Property, and neither the
Company nor any Company Subsidiary has notified any third party that it believes
such third party is interfering with, infringing, or misappropriating any of the
Company's or any Company Subsidiary's Intellectual Property or engaging in any
act of unfair competition. The Company and each Company Subsidiary has the right
to bring an action for the infringement of all of its Intellectual Property that
is owned by the Company or any Company Subsidiary.
(e) Company and each Company Subsidiary has taken all reasonable steps
that may be required to protect Company and each Company Subsidiary's rights in
confidential information and trade secrets of Company and each Company
Subsidiary or provided by any other Person to Company or any Company Subsidiary.
(f) The operation of the business of the Company and each Company
Subsidiary as it currently is conducted or currently proposed to be conducted by
the Company and each Company Subsidiary does not and will not and will not when
conducted by the Acquiror or the Surviving
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Corporation in substantially the same manner following the Closing, infringe or
misappropriate any Intellectual Property right of any person, violate any right
of any person (including any right to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(g) Neither this Merger Agreement nor the transactions contemplated by
this Merger Agreement, will result in (i) either Acquiror or the Surviving
Corporation granting to any third party any right to or with respect to any
Intellectual Property right owned by, or licensed to, either of them, (ii)
either Acquiror's or the Surviving Corporation's being bound by, or subject to,
any non-compete or other restriction on the operation or scope of their
respective businesses, or (iii) either Acquiror's or the Surviving Corporation's
being obligated to pay any royalties or other amounts to any third party in
excess of those payable by Acquiror's or the Surviving Corporation's,
respectively, prior to the Closing.
SECTION 3.08 Financial Statements and Condition
(a) Company has prepared an audited balance sheet of Company and its
Subsidiaries as of the end of the fiscal year ended September 30, 1999 (the
"Company Audited Balance Sheet") and the related audited statements of income,
shareholders' equity and cash flows of Company and its Subsidiaries for such
fiscal year (the Company Audited Balance Sheet and such audited statements of
income, shareholders' equity and cash flows are hereinafter referred to
collectively as the "Company Financial Statement"), in each case audited by Bell
& Frech, the Company's independent public accountants, in accordance with
generally accepted auditing standards and accompanied by the related report of
Bell & Frech. A true and complete copy of the Company Financial Statement has
been delivered to Acquiror and is attached as an exhibit to, and constitutes an
integral part of, the Company Disclosure Letter.
(b) The Company Financial Statement, including, without limitation, the
notes thereto, (i) has been prepared in accordance with the books and records of
Company and its Subsidiaries and (ii) presents fairly the consolidated financial
position of Company and its Subsidiaries and their consolidated results of
operations and cash flows in accordance with GAAP applied on a basis consistent
with prior accounting periods.
(c) Company does not expect any material year-end audit adjustments for
the current fiscal year ending September 30, 2000. To the knowledge of Company,
there are no anticipated material charges or write-offs of a non-recurring
nature for the fiscal year ending September 30, 2000.
SECTION 3.09 Absence of Certain Developments
Since September 30, 1999:
(a) the business of Company and each Company Subsidiary has been conducted
in all material respects only in the Ordinary Course of Business;
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(b) neither Company nor any Company Subsidiary has become liable in
respect of any guarantee or has incurred or otherwise become liable in respect
of any debt, except for borrowings, letters of credit and bankers' acceptances
in the Ordinary Course of Business under credit facilities in existence on
September 30, 1999;
(c) neither Company nor any Company Subsidiary has mortgaged, pledged or
subjected to any lien any of their respective property, business or assets,
except for purchase money or similar security interests granted in connection
with the purchase of equipment or supplies in the Ordinary Course of Business in
an amount not exceeding $10,000 in the aggregate;
(d) neither Company nor any Company Subsidiary has made any declaration,
setting aside or payment of any dividend or other distribution with respect to,
or repurchase of, any of their respective capital stock or other equity
interests;
(e) neither Company nor any Company Subsidiary has (i) acquired or leased
from any other Person any material assets, or sold or leased to any other Person
or otherwise disposed of any material assets (in each case except for assets
acquired or sold in the Ordinary Course of Business in connection with goods and
services provided to customers); (ii) entered into any contractual obligation
relating to (A) the purchase or sale of any capital stock, partnership interest
or other equity interest in any Person, (B) the purchase of assets constituting
a business or (C) any merger, consolidation or other business combination; (iii)
entered into or amended any lease of real property or material personal property
(whether as lessor or lessee); (iv) canceled or compromised any debt or claim
other than accounts receivable in the Ordinary Course of Business; (v) sold,
transferred, licensed or otherwise disposed of any material intangible assets
other than in the Ordinary Course of Business; (vi) waived or released any right
of substantial value; (vii) instituted, settled or agreed to settle any material
action; or (viii) entered into or consummated any transaction with any
Affiliate;
(f) there has been no loss, destruction or damage to any material item of
property of Company or any Company Subsidiary, whether or not insured, which has
had or could reasonably be expected to have a Company Material Adverse Effect;
(g) other than in the Ordinary Course of Business and consistent with past
practices, neither Company nor any Company Subsidiary has made any changes in
the rate of compensation payable or paid, or agreed or orally promised to pay,
conditionally or otherwise, any extra compensation, or severance or vacation
pay, to any director, officer, employee, consultant or agent of Company or any
Company Subsidiary;
(h) there has been no material labor trouble (including any work slowdown,
stoppage or strike) involving Company or any Company Subsidiary or any material
change in any of their respective personnel or the terms and conditions of the
employment of such personnel;
(i) neither Company nor any Company Subsidiary has made any change in (x)
its methods of accounting or accounting practices, except as required by GAAP,
or (y) its pricing policies or payment or credit practices or failed to pay any
creditor any amount owed to such
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creditor when due or granted any extensions or credit other than in the Ordinary
Course of Business;
(j) neither Company nor any Company Subsidiary has terminated or closed
any material facility, business or operation;
(k) neither Company nor any Company Subsidiary has made any loan, advance
or capital contributions to, or any other investment in, any Person;
(l) neither Company nor any Company Subsidiary has adopted or increased
any benefits under any Plan in any material manner;
(m) neither Company nor any Company Subsidiary has written up or written
down any of its respective material assets;
(n) neither Company nor any Company Subsidiary has terminated or amended,
or failed in any material respect to perform obligations or suffered the
occurrence of any default under any material contractual obligation; and
(o) neither Company nor any Company Subsidiary has entered into any
contractual obligation to do any of the things referred to elsewhere in this
Section 3.09.
SECTION 3.10 Absence of Undisclosed Liabilities
To the knowledge of Company, there are no material liabilities or obligations
(whether absolute or contingent, matured or unmatured, known or unknown) of
Company or any Company Subsidiary, including but not limited to liabilities for
Taxes and that are not reflected, or reserved against, in the Company Financial
Statement, except for those that may have been incurred after September 30, 1999
in the Ordinary Course of Business or that are not material in amount either
individually or collectively. Since September 30, 1999, neither Company nor any
Company Subsidiary has incurred any material liabilities or obligations (whether
absolute or contingent, matured or unmatured, known or unknown) other than in
the Ordinary Course of Business. Additionally, all bonuses and incentive
compensation (including, without limitation, all compensation-related expenses)
have been accrued on the Company Financial Statement based on GAAP and
consistent with past practices.
SECTION 3.11 Litigation; Disputes
(a) Company has not received notice of, and there is no pending, or, to
the knowledge of Company, threatened, action, suit, claim, arbitration,
proceeding or investigation against, affecting or involving Company or any
Company Subsidiary or their respective businesses or Assets, or the transactions
contemplated by this Merger Agreement, at law or in equity, or before or by any
domestic or foreign court, arbitrator or Governmental Entity that, alone or in
the aggregate, would have a Company Material Adverse Effect. Neither Company nor
any Company Subsidiary is (i) operating under or subject to any order, award,
writ, injunction, decree or judgment of any court, arbitrator or Governmental
Entity or (ii) in default with respect to any
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order, award, writ, injunction, decree or judgment of any court, arbitrator or
Governmental Entity.
(b) Company and each Company Subsidiary have complied and are in
compliance in all material respects with all laws, ordinances, regulations,
awards, orders, judgments, decrees and injunctions applicable to Company and
each Company Subsidiary and their respective businesses or Assets, including all
federal, state and local laws, ordinances, regulations and orders pertaining to
employment or labor, safety, health, zoning and other matters. Company and each
Company Subsidiary have obtained and hold all permits, licenses and approvals
(none of which has been materially modified or rescinded and all of which are in
full force and effect) from all government authorities materially necessary in
order to own, use and maintain their respective Assets and to conduct their
respective businesses as presently conducted.
SECTION 3.12 Real Property Leases
Section 3.12 of the Company Disclosure Letter lists each real property lease
under which Company or any Company Subsidiary is the lessee or lessor. Company
and each Company Subsidiary are the owners and holders of the leasehold estates
purported to be granted to them by the leases listed in Section 3.12 of the
Company Disclosure Letter. Each such lease is in full force and effect and, to
the knowledge of Company, constitutes a legal, valid and binding obligation of,
and is legally enforceable in all material respects against, the respective
parties thereto. Company and each Company Subsidiary have in all material
respects performed all material obligations thereunder required to be performed
by any of them to date. To the knowledge of Company, no party is in default in
any material respect under any of the foregoing, and there has not occurred any
event which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a material default. Neither
Company nor any Company Subsidiary owns or holds interests in any Real Property.
SECTION 3.13 Other Agreements; No Default
Sections 3.12 and 3.13 of the Company Disclosure Letter list each Agreement
(other than Agreements solely between Company and any Company Subsidiary) to
which Company or any Company Subsidiary is a party or by which Company or any
Company Subsidiary, or any of their respective Assets, is bound, and which (i)
involves expenditures or receipts by Company or any Company Subsidiary (other
than contracts, commitments or Agreements which do not require payments or yield
receipts of more than $25,000 in any twelve (12) month period or more than
$50,000 in the aggregate and other than Agreements with respect to trade
payables incurred in the Ordinary Course of Business); or (ii) contain covenants
that limit the freedom of Company or any Company Subsidiary to engage in a line
of business or to compete with any third party, including, without limitation,
covenants regarding organizational conflicts of interests contained in the
Government Contracts (Agreements listed pursuant to clauses (i) and (ii) above,
collectively the "Company Contracts"). Each Company Contract is in full force
and effect, constitutes a valid and binding obligation of and is legally
enforceable in accordance with its terms against Company and, to the knowledge
of Company, the Company Contracts are valid, binding and enforceable obligations
of the other parties thereto, except as such enforceability
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may be subject to the effects of any applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar Laws affecting
creditors' rights generally or subject to the effects of general equitable
principles (whether considered in a proceeding in equity or at law). Company has
complied in all material respects with the provisions of such Company Contracts
and is not in default thereunder, and there has not occurred any event which
(whether with or without notice, lapse of time, or the happening or occurrence
of any other event) would constitute such a default, and the execution of this
Merger Agreement by Company and its performance hereunder will not cause, or
result in, a breach or default under any Company Contract. There has not been
(A) any failure by Company or, to the knowledge of Company, any other party to
any such Company Contract to comply with all material provisions thereof, (B)
any default by Company or, to the knowledge of Company, any other party
thereunder, or (C) to the knowledge of Company (X) any threatened cancellation
thereof or (Y) any outstanding dispute thereunder. Neither Company nor any
Company Subsidiary is a guarantor or otherwise liable for any liability or
obligation (including indebtedness) of any other Person other than any Company
Subsidiary.
SECTION 3.14 Labor Relations
There are no collective bargaining or other labor union Agreements to which
Company or any Company Subsidiary is a party. There are, and for the past two
(2) years have been, no strikes, work stoppages, union organization efforts or
lawsuits (other than grievance proceedings) pending or, to the knowledge of
Company, threatened or reasonably anticipated between Company or any Company
Subsidiary and (a) any current or former employees of Company or any Company
Subsidiary or (b) any union or other collective bargaining unit representing
such employees. Company and each Company Subsidiary have complied and are in
compliance in all material respects with all Laws relating to employment or the
workplace, including, without limitation, Laws relating to wages, hours,
collective bargaining, safety and health, work authorization, equal employment
opportunity, immigration, withholding, unemployment compensation, worker's
compensation, employee privacy and right to know, except where the failure so to
comply would not have a Company Material Adverse Effect.
SECTION 3.15 Pension and Benefit Plans
(a) Company has delivered to Acquiror prior to the execution of this
Merger Agreement true and complete copies (or written descriptions, where no
written plan exists) (and, where applicable, the most recent actuarial,
valuation or annual (Form 5500 with attachments) reports with respect thereto)
of all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plans, employment or change in control agreements, medical, vision, dental or
other health plans, life insurance plans and other employee benefit plans or
fringe benefit plans, programs, arrangements or Agreements, including, without
limitation, all Company Benefit Plans. No Company Benefit Plan is or has been a
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA or could
subject Company or any Company Subsidiary to liability under Sections 4063 or
4064 of ERISA. Company has set forth in the Company Disclosure Letter (i) a list
of all of the Company Benefit Plans, (ii) a list of the Company Benefit Plans
that are Company Pension Plans, (iii) a list of the Company Benefit Plans that
are Company Stock Plans, and (iv) a list of the number of
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shares covered by, exercise prices for, and holders of, all stock options
granted and available for grant under the Company Stock Plans.
(b) From their inception, all Company Benefit Plans have been and are in
compliance (in form and in operation) in all material respects with the
applicable terms of ERISA and the Code and any other applicable Laws, including
the terms of such plans.
(c) All liabilities (contingent or otherwise) under any Company Benefit
Plan are fully accrued or reserved against in the Company Financial Statement in
accordance with GAAP. Each Company Pension Plan that is subject to Title IV of
ERISA or Section 412 of the Code satisfies the minimum funding standards
(without regard to any waiver) provided for in Section 412 of the Code.
(d) Neither Company nor any Company Subsidiary has any obligations for
retiree health or other welfare benefits under any Company Benefit Plan or
otherwise, and there are no restrictions on the rights of Company or any Company
Subsidiary to unilaterally amend or terminate any such Company Benefit Plan at
any time without incurring any material liability thereunder.
(e) Neither the execution and delivery of this Merger Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, golden parachute or
otherwise) becoming due to any person under any Company Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Company
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits.
(f) Each Company Benefit Plan which is intended to be qualified under
Section 401(a) or 401(k) of the Code or qualified as a voluntary employees'
beneficiary association under Sections 501(a) and 501(c)(9) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and so exempt, and , to the best of the Company's knowledge, no fact or event
has occurred that could adversely affect such qualified or exempt status.
(g) Company and each Company Subsidiary have not incurred any liability
under, and have complied in all respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder and do not
reasonably expect to incur any such liability as a result of actions taken or
not taken prior to the consummation of the Merger.
(h) With respect to each Company Benefit Plan that is a Multiemployer
Plan, (i) neither Company nor any Company Subsidiary has incurred any Withdrawal
Liability that has not been satisfied in full; (ii) if Company or any Company
Subsidiary were to experience a withdrawal or partial withdrawal from such plan,
no material Withdrawal Liability would be incurred; (iii) neither Company nor
any Company Subsidiary has received any notification, nor has any reason to
believe, that any such plan is in reorganization, has been terminated, or may
reasonably be expected to be in reorganization or to be terminated, and (iv)
neither Company nor any Company Subsidiary is liable or has been advised that it
is liable for any funding Taxes under sections 413(b)(6) or 4971 of the Code on
account of any accumulated funding deficiency
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of any Multiemployer Plan to which Company or any Company Subsidiary has
contributed or is required to contribute.
(i) Neither Company nor any Company Subsidiary is now or has ever been a
"substantial employer" as defined in Section 4001(a)(2) of ERISA.
SECTION 3.16 Taxes and Tax Matters
(a) The Company and each Company Subsidiary have paid all Taxes due and
payable by any of them for or with respect to all periods up to and including
the date hereof (without regard to whether or not such Taxes are or were
disputed), whether or not shown on any Tax Return.
(b) The Company and each Company Subsidiary has filed on a timely basis
all Company Tax Returns that it was required to file. All such Company Tax
Returns were accurate and complete in all material respects. Except as described
in Section 3.16 of the Company Disclosure Letter, none of Company or any Company
Subsidiary is the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction where
Company or any Company Subsidiary does not file Company Tax Returns that any one
of them is or may be subject to taxation by that jurisdiction. None of Company
or any Company Subsidiary has given any currently effective waiver of any
statute of limitations in respect of Taxes or agreed to any currently effective
extension of time with respect to a Tax assessment or deficiency. There are no
security interests on any of the assets of Company or any Company Subsidiary
that arose in connection with any failure (or alleged failure) to pay any Tax.
(c) Company and each Company Subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party.
(d) None of Company nor any Company Subsidiary has knowledge of any facts
or circumstances which could give rise to a reasonable expectation that any
authority may assess any additional Taxes for any period for which Company Tax
Returns have been filed. There is no dispute or claim concerning any liability
for taxes of Company or any Company Subsidiary either (i) claimed or raised by
any authority in writing or (ii) as to which Company has knowledge based upon
personal contact with any agent of such authority. Company and each Company
Subsidiary has delivered to the Acquiror copies of, and Section 3.16 of the
Company Disclosure Letter sets forth a complete and accurate list of, Company
Tax Returns filed with respect to the taxable periods of Company and any Company
Subsidiary ended on or after September 30, 1995; indicates those Company Tax
Returns that have been audited; and indicates those Company Tax Returns that
currently are the subject of an audit.
(e) The unpaid Taxes of Company and any Company Subsidiary (i) did not, as
of the date of the Company Financial Statement, exceed the reserve for any Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
such financial statements (rather than in any notes thereto)
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and (ii) do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of Company or
any Company Subsidiary in filing their Company Tax Returns.
(f) None of Company or any Company Subsidiary has filed a consent under
Section 341(f) of the Code, concerning collapsible corporations. None of the
Company or any Company Subsidiary has made any payments, is obligated to make
any payments, or is a party to any Agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code. None of Company or any Company Subsidiary has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company and each Company Subsidiary has disclosed on its
federal income Company Tax Returns all positions taken therein that could
reasonably be expected to give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662 of the Code. None of Company or
any Company Subsidiary is a party to any Tax allocation or sharing agreement.
None of Company or any Company Subsidiary (A) has been a member of an
"affiliated group," as defined in Section 1504(a) of the Code, filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Company) and (B) has any Liability for the Taxes of any Person (other
than any of Company or any Company Subsidiary) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
(g) Section 3.16 of the Company Disclosure Letter sets forth the following
information with respect to each of Company and each Company Subsidiary (or, in
the case of clause (ii) below, with respect to each of the Company Subsidiary)
as of the date hereof: (i) the tax basis of Company and each Company Subsidiary
in its assets; (ii) the basis of the stockholders of each Company Subsidiary in
such Company Subsidiary's stock (or the amount of any excess loss account); and
(iii) the amount of any net operating loss, net capital loss, unused investment,
foreign tax or other credit, or excess charitable contribution allocable to
Company or a Company Subsidiary; and (iv) the amount of any deferred gain or
loss allocable to Company or a Company Subsidiary arising out of any "deferred
intercompany transaction" as defined in Treas. Reg. Section 1.1502-13(a)(2).
SECTION 3.17 Insurance
Section 3.17 of the Company Disclosure Letter lists all policies of title,
asset, fire, hazard, casualty, liability, life, worker's compensation and other
forms of insurance of any kind owned or held by Company or any Company
Subsidiary. To the Company's knowledge, all such policies: (a) are with
insurance companies that are financially sound and reputable; (b) are in full
force and effect; (c) are sufficient for compliance by Company and by each
Company Subsidiary with all requirements of Law and of all Agreements to which
Company or any Company Subsidiary is a party; (d) are valid and outstanding
policies enforceable against the insurer; (e) insure against risks of the kind
customarily insured against and in amounts customarily carried by companies
similarly situated and by companies engaged in similar businesses and owning
similar Assets;
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and (f) have the policy expiration dates set forth in Section 3.17 of the
Company Disclosure Letter.
SECTION 3.18 Arrangements With Related Parties
No present or former officer, director, stockholder or Person known by the
Company to be an Affiliate of the Company or the any Company Subsidiary, nor any
Person known by the Company to be an Affiliate of such Person, is currently a
party to any transaction or agreement with the Company or any Company
Subsidiary, including any agreement providing for any loans, advances, the
employment of, furnishing of services by, rental of its Assets from or to, or
otherwise requiring payments to, any such officer, director, stockholder or
affiliate.
SECTION 3.19 Books and Records
The books of account, stock records, minute books and other corporate and
financial records of Company and each Company Subsidiary are complete and
correct and have been maintained in accordance with reasonable business
practices for companies similar to Company and each Company Subsidiary, and
Company and each Company Subsidiary will have prior to Closing prepared and made
available to Acquiror the minutes for all meetings of the Board of Directors
and/or stockholders of the Company and each Company Subsidiary held as of the
date hereof (or written consents in lieu of such meetings).
SECTION 3.20 Assets
Company and each Company Subsidiary have good, valid and marketable title to all
Assets respectively owned by them, including, without limitation, all material
Assets reflected in the Company Financial Statement and all Assets acquired by
Company or by any Company Subsidiary since September 30, 1999 (except for Assets
reflected in the Company Financial Statement or acquired since such date which
have been sold or otherwise disposed of in the Ordinary Course of Business),
free and clear of all Encumbrances other than Permitted Encumbrances. All
personal property of Company and each Company Subsidiary is in good operating
condition and repair and is suitable and adequate for the uses for which it is
intended or is being used. All Inventory of Company and each Company Subsidiary
(i) consists of items which are good and merchantable and of a quality and
quantity presently usable and salable in the Ordinary Course of Business and
(ii) have been reflected in the Company Financial Statement in accordance with
GAAP.
SECTION 3.21 Board Recommendation
The Board of Directors of Company has unanimously adopted, in compliance with
Maryland Law, a resolution advising, authorizing, approving and adopting this
Merger Agreement and the transactions contemplated hereby, and recommending
approval and adoption of this Merger Agreement and the transactions contemplated
hereby by the Company Stockholders.
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SECTION 3.22 Directors and Officers
Section 3.22 of the Company Disclosure Letter lists (a) all current directors
and officers of Company and each Company Subsidiary, showing each such person's
name, positions, and annual remuneration, bonuses and fringe benefits paid by
Company or any Company Subsidiary for the current fiscal year and the most
recently completed fiscal year, and (b) any remuneration or other amounts
payable to any former or current director, officer or employee of the Company
and each Company Subsidiary as a result of the execution, delivery and
performance by the Company of this Merger Agreement and all other Agreements,
documents, certificates, or other instruments contemplated hereby, or otherwise
as a result of a change in control of the Company.
SECTION 3.23 State Takeover Statutes; Certain Charter Provisions
The Board of Directors of Company has, to the extent such statutes are
applicable, taken all action (including appropriate approvals of the Board of
Directors of Company) necessary to exempt Company, each Company Subsidiary and
Affiliates, the Merger, this Merger Agreement and the transactions contemplated
hereby and thereby from Section 3-602 of Maryland Law. To the knowledge of
Company, no other state takeover statutes or Company charter or bylaw provisions
are applicable to the Merger or this Merger Agreement and the transactions
contemplated hereby or thereby.
SECTION 3.24 Environmental Matters
Each of the Company and each Company Subsidiary is in material compliance with
all Environmental Laws. Neither the Company nor any Company Subsidiary has any
material liability under any Environmental Law, nor is any of the Company or any
Company Subsidiary responsible for any liability of any other person under any
Environmental Law. There are no pending or, to the knowledge of the Company,
threatened actions, suits, claims, legal proceedings or other proceedings based
on, and neither the Company nor any Company Subsidiary directly or indirectly
received any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request from
any Government Entity or any other person arising out of or attributable to: (i)
the current or past presence at any part of the real property owned or leased by
the Company or any Company Subsidiary (the "Real Property") of Hazardous
Materials (as defined below) or any substances that pose a hazard to human
health or an impediment to working conditions; (ii) the current or past release
or threatened release into the environment from the Real Property (including,
without limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials originating on or from the Real Property; or
(iv) any violation of Environmental Laws at any part of the Real Property or
otherwise arising from the Company's or any Company Subsidiary's activities
involving Hazardous Materials.
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SECTION 3.25 Y2K Compliance
(a) To the Company's knowledge, each of the Company's and each Company
Subsidiary's products (including products currently under development): (i) will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "Year 2000 Compliant"); (ii) will lose no
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000; and (iii) will be interoperable with other
products used and distributed by Company or each Company Subsidiary, as
applicable, that may reasonably deliver records to, receive records from, or
interact with the Company's or Company Subsidiary's products, including but not
limited to back-up and archived data.
(b) To the Company's knowledge, all of the Company's and each Company's
Subsidiary's Information Technology (as defined below) is Year 2000 Compliant,
and will not cause an interruption in the ongoing operations of the Company's or
any Company Subsidiary's business on or after January 1, 2000. For purposes of
the foregoing, the term "Information Technology" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or any Company Subsidiary in the conduct of its
business, or purchased by the Company or any Company Subsidiary from third party
suppliers.
SECTION 3.26 Government Contracts and Other Commitments
(a) With respect to any contracts with Governmental Entities and
subcontracts (at any tier) under prime contracts with Governmental Entities to
which Company or any Company Subsidiary is a party (collectively, "Government
Contracts"): (A) such Government Contracts constitute valid and binding
obligations of Company or a Company Subsidiary, and the other party or parties
thereto, enforceable in accordance with their terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization or similar laws or
equitable principles relating to creditors' rights generally; (B) Company and
each Company Subsidiary is in compliance in all material respects with the terms
of all Government Contracts to which it is a party and all laws, regulations and
contract provisions applicable to the obtaining, formation, pricing,
performance, billing, administration and other aspects of its Government
Contracts, including without limitation the False Claims Act, False Statements
Act, and Truth in Negotiations Act, except for such non-compliance that does not
have a Company Material Adverse Effect; (C) none of Company, any Company
Subsidiary, or to the knowledge of Company, any other party has terminated,
canceled or waived any material term or condition of any such Government
Contract; (D) the cost accounting, pricing, estimating, property and procurement
systems relating to Company's and any Company Subsidiary's Government Contracts
are in compliance in all material respects with applicable laws, regulations and
contract provisions, including without limitation procurement integrity laws and
regulations, cost
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principles and cost accounting standards; and (E) Company and each Company
Subsidiary is in compliance in all material respects with all national security
obligations, including, without limitation, those specified in the National
Industrial Security Program.
(b) With respect to the Government Contracts to which Company or any
Company Subsidiary is a party, except as is reserved for on the Company
Financial Statement: (A) each billed account receivable represents a bona fide
claim against the government for sales, services performed or other charges
arising on or prior to the date hereof, and all the products delivered and
services performed which gave rise to such accounts were delivered or performed
in accordance with the applicable Government Contracts; (B) to the best of
Company's knowledge, each such billed account receivable is subject to no
defense, counterclaim or right to setoff and is fully collectable in the
Ordinary Course of Business consistent with past practices without cost in
collection efforts therefor; and (C) all unbilled or unreserved amounts included
in accounts receivable will, in the Ordinary Course of Business as currently
conducted consistent with past practices, mature into and become billed accounts
receivable in the same or greater amount and such receivables, when billed, will
be fully collectable in the Ordinary Course of Business consistent with past
practices.
(c) With respect to the Government Contracts to which Company or any
Company Subsidiary currently is a party, none of such Government Contracts has
incurred or currently projects cost overruns in an amount exceeding $50,000.
(d) With respect to the Government Contracts to which Company or any
Company Subsidiary is a party, neither Company nor any Company Subsidiary has
assigned or otherwise conveyed or transferred, or agreed to assign, to any
Person, any Government Contracts to which it is a party, or any account
receivable relating thereto, whether as a security interest or otherwise.
(e) With respect to any Government Property provided to or acquired by the
Company or any Company Subsidiary pursuant to the Government Contracts: (A) the
approximate value of such Government Property as of the date hereof is
$7,000,000; and (B) there exists no material deviation between the Government
Property as provided to or acquired by the Company or any Company Subsidiary and
the Government Property as currently possessed by the Company and any Company
Subsidiary.
(f) Neither Company nor any Company Subsidiary has received any formal
notice or other written communication from the federal government within the
last three (3) years regarding its actual or threatened disqualification,
suspension or debarment from contracting with the federal government and, to the
knowledge of Company, no action for which Company or any Company Subsidiary has
received such notice prior to the last three (3) years is pending.
(g) To the knowledge of Company, there is no: (A) pending or threatened
investigation for fraud or other misconduct relating to Government Contracts to
which Company or any Company Subsidiary is a party; (B) existing or threatened
claim, cost disallowance, pricing adjustment, or adverse audit finding relating
to any Government Contract to which Company or any Company Subsidiary is a
party; or (C) termination for default or cure notice or
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show cause notice currently in effect, relating to any Government Contract to
which Company or any Company Subsidiary is a party.
SECTION 3.27 Relations with Governments
Neither the Company, any Company Subsidiary nor, to the knowledge of the
Company, any of the Company's or any Company Subsidiary's officers, directors,
employees or agents (or stockholders, distributors, representatives or other
persons acting on the express, implied or apparent authority of the Company or
any Company Subsidiary) have paid, given or received or have offered or promised
to pay, give or receive, any bribe or other unlawful payment of money or other
thing of value, any unlawful discount, or any other unlawful inducement, to or
from any person or Government Entity in the United States or elsewhere in
connection with or in furtherance of the business of the Company or any Company
Subsidiary (including, without limitation, any offer, payment or promise to pay
money or other thing of value (a) to any foreign official, political party (or
official thereof) or candidate for political office for the purposes of
influencing any act, decision or omission in order to assist the Company or any
Company Subsidiary in obtaining business for or with, or directing business to,
any person, or (b) to any person, while knowing that all or a portion of such
money or other thing of value will be offered, given or promised to any such
official or party for such purposes). Neither the business of the Company nor
any Company Subsidiary is in any manner dependent upon the making or receipt of
such payments, discounts or other inducements. Neither the Company nor any
Company Subsidiary has otherwise taken any action that would cause the Company
or any Company Subsidiary to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any applicable Laws of similar effect.
SECTION 3.28 Broker's Fees
Except as set forth in the Company Disclosure Letter, neither the Company nor
any Company Subsidiary has any liability or obligation to pay any fees or
commissions to any broker, finder, or similar agent with respect to the
transactions contemplated by this Merger Agreement.
SECTION 3.29 Pulse Employee Stock Ownership Trust
The conversion of Company Common Stock held by the ESOP as contemplated herein
will not constitute or result in a non-exempt "prohibited transaction" as
defined in Section 4975(c) of the Internal Revenue Code and Sections 406 and 407
of ERISA and the regulations thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as specifically set forth in the Disclosure Letter delivered by Acquiror
and Acquiror Sub to Company prior to the execution and delivery of this Merger
Agreement (the "Acquiror
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Disclosure Letter") and referenced in the Acquiror Disclosure Letter to the
Section(s) of this Article IV to which such disclosure applies, Acquiror and
Acquiror Sub hereby jointly and severally represent, warrant to and agrees with
Company as follows, in each case as of the date of this Merger Agreement and as
of the Closing Date:
SECTION 4.01 Organization and Qualification
Acquiror is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware, and has the full and unrestricted
corporate power and authority to own, operate and lease its Assets, to carry on
its business as currently conducted, to execute and deliver this Merger
Agreement and to carry out the transactions contemplated hereby. Acquiror Sub is
a corporation duly organized, validly existing and in good standing under
Maryland Law, and has full and unrestricted corporate power and authority to
own, operate and lease its Assets, to carry on its business as currently
conducted, to execute and deliver this Merger Agreement and to carry out the
transactions contemplated hereby. Each of Acquiror and Acquiror Sub is duly
qualified to conduct business as a foreign corporation and is in good standing
in the states, countries and territories in which the nature of the business
conducted by it or the character of the Assets owned, leased or otherwise held
by it makes such qualification necessary, except where the failure to be so
qualified would not have an Acquiror Material Adverse Effect.
SECTION 4.02 Certificate or Articles of Incorporation and Bylaws
Acquiror has furnished to Company a true and complete copy of the certificate of
incorporation of Acquiror and the articles of incorporation Acquiror Sub, each
as currently in effect, certified as of a recent date by the Secretary of State
of Delaware and the Maryland State Department of Assessments and Taxation,
respectively, and a true and complete copy of the bylaws of Acquiror and
Acquiror Sub, as currently in effect, which shall be certified at Closing by
their respective corporate secretaries.
SECTION 4.03 Authority; Binding Obligation
Each of Acquiror and Acquiror Sub has the full and unrestricted corporate power
and authority to execute and deliver this Merger Agreement and to carry out the
transactions contemplated hereby. The execution and delivery by Acquiror and
Acquiror Sub of this Merger Agreement and all other Agreements, documents,
certificates or other instruments contemplated hereby, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Acquiror or Acquiror Sub are necessary to
authorize this Merger Agreement and the other Agreements, documents,
certificates or other instruments contemplated hereby, or to consummate the
transactions contemplated hereby and thereby. This Merger Agreement has been
duly executed and delivered by Acquiror and Acquiror Sub and constitutes a
legal, valid and binding obligation of Acquiror and Acquiror Sub, enforceable in
accordance with its terms, except as such enforceability may be subject to the
effect of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar Laws affecting
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creditors' rights generally and subject to the effect of general equitable
principles (whether considered in a proceeding in equity or at law).
SECTION 4.04 No Conflict; Required Filings and Consents
(a) The execution, delivery and performance by Acquiror and Acquiror Sub
of this Merger Agreement and all other Agreements, documents, certificates or
other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) conflict with, or violate any provision of, the
certificate of incorporation or the bylaws of Acquiror, or the articles of
incorporation or the bylaws of Acquiror Sub; (ii) subject to obtaining the
consents, approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity pursuant to the applicable
requirements, if any, of the HSR Act and the filing and recordation of the
Articles of Merger as required by Maryland Law, conflict with or violate any Law
applicable to Acquiror or Acquiror Sub or any of their respective Assets; (iii)
conflict with, result in any breach of, constitute a default (or an event that
with notice or lapse of time or both would become a default) under any Agreement
to which Acquiror or Acquiror Sub is a party or by which Acquiror or Acquiror
Sub or any of their respective Assets may be bound; or (iv) result in or require
the creation or imposition of, or result in the acceleration of, any
indebtedness or any Encumbrance of any nature upon, or with respect to, Acquiror
or Acquiror Sub; except for any such conflict or violation described in clause
(ii) above, any such conflict, breach or default described in clause (iii)
above, or any such creation, imposition or acceleration described in clause (iv)
above that would not have an Acquiror Material Adverse Effect and that would not
prevent Acquiror or Acquiror Sub from consummating the Merger on a timely basis.
(b) The execution, delivery and performance by Acquiror and Acquiror Sub
of this Merger Agreement and all other Agreements, documents, certificates or
other instruments contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the consummation by
Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby,
do not and will not: (i) require any consent, approval, authorization or permit
of, or filing with or notification to, any Person not party to this Merger
Agreement, except (A) pursuant to the applicable requirements, if any, of the
HSR Act, (B) the filing and recordation of the Articles of Merger as required by
Maryland Law and (C) where the failure to obtain any consent, approval,
authorization or permit or to make any filing or notification otherwise required
to be disclosed hereunder would not have an Acquiror Material Adverse Effect; or
(ii) result in or give rise to any penalty, forfeiture, Agreement termination,
right of termination, amendment or cancellation, or restriction on business
operations of Acquiror or Surviving Corporation that would have an Acquiror
Material Adverse Effect.
SECTION 4.05 No Prior Activities of Acquiror Sub
Acquiror Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Merger Agreement and has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
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ARTICLE V
PRE-CLOSING COVENANTS
SECTION 5.01 Conduct of Business of Company Until Effective Time
The Company hereby covenants and agrees that, from the date of this Merger
Agreement until the Effective Time, Company, unless otherwise expressly
contemplated by this Merger Agreement or consented to in writing by Acquiror,
will, and will cause each Company Subsidiary to, carry on their respective
businesses only in the Ordinary Course of Business, use their respective best
efforts to preserve intact their business organizations and Assets, maintain
their rights and franchises, retain the services of their officers and employees
and maintain their relationships with customers, suppliers, licensors, licensees
and others having business dealings with them, manage their accounts payable and
accounts receivable in the Ordinary Course of Business, and use their respective
best efforts to keep in full force and effect liability insurance and bonds
comparable in amount and scope of coverage to that currently maintained. Without
limiting the generality of the foregoing, neither Company nor any Company
Subsidiary will:
(a) (i) increase in any manner the compensation or fringe benefits of, or
pay any bonus to, any director, officer or employee; (ii) grant any severance or
termination pay (other than pursuant to the normal severance practices or
existing agreements of the Company in effect on the date of this Merger
Agreement) to, or enter into any severance agreement with, any director, officer
or employee, or enter into any employment agreement with any director, officer
or employee or otherwise without the prior written consent of Acquiror; (iii)
establish, adopt, enter into or amend any Company Benefit Plan or other
arrangement, except as may be required to comply with applicable Law; (iv) pay
any benefit not provided for under any Company Benefit Plan or other
arrangement; (v) except as provided in the Company Disclosure Letter, grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or Company Benefit Plan or other arrangement (including the grant of
stock options, stock appreciation rights, stock-based or stock-related awards,
performance units or restricted stock, or the removal of existing restrictions
in any Company Benefit Plan or other arrangement or agreement or awards made
thereunder), (vi) take any action to fund or in any other way secure the payment
of compensation or benefits under any agreement or (vii) promote or fire any
director, officer or Key Employee;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of capital stock
of the Company or any Company Subsidiary or any securities or obligations
convertible into or exchangeable for any shares of capital stock of the Company
or any Company Subsidiary, or any options, warrants or conversion or other
rights to acquire any shares of capital stock of the Company or any Company
Subsidiary or any such securities or obligations, or any other securities
thereof; (ii) effect any reorganization or recapitalization; or (iii) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock;
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(d) issue, deliver, award, grant or sell, or authorize the issuance,
delivery, award, grant or sale (including the grant of any limitations in voting
rights or other Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury but excluding shares issuable upon the
exercise of options outstanding on the date hereof in accordance with their
terms as of the date hereof), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire,
any such shares, or amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the Assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any Assets of any other person (other than the purchase of assets from
suppliers or vendors in the Ordinary Course of Business);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise subject
to any Encumbrance or dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise subject to any Encumbrance or dispose of, any of
its Assets, except for sales, dispositions or transfers in the Ordinary Course
of Business;
(g) propose or adopt any amendments to its articles of incorporation,
bylaws or other comparable charter or organizational documents;
(h) make or rescind any express or deemed election relating to Taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes which would
reasonably be expected to result in a Company Material Adverse Effect, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns;
(i) make or agree to make any new capital expenditures which are not
included in the Company's 2000 capital budget, a copy of which was furnished to
Acquiror, to the extent that such new capital expenditures exceed in the
aggregate $100,000;
(j) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any Company
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any agreement having the economic effect of any of
the foregoing, except for borrowings incurred in the Ordinary Course of
Business, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person other than travel and payroll advances made to
employees in the Ordinary Course of Business;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (whether absolute or contingent, matured or unmatured, known or
unknown), other than the payments,
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discharges or satisfactions, in the Ordinary Course of Business which are
materially in accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the Company Financial Statement or which have
arisen after the date of the Company Financial Statement or waive any material
benefits of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company or any Company Subsidiary
is a party;
(l) waive, release or assign any rights or claims, or modify, amend or
terminate any agreement to which the Company or any Company Subsidiary is a
party;
(m) make any change in any method of accounting or accounting practice or
policy other than those required by generally accepted accounting principles or
a Government Entity;
(n) take any action or fail to take any action that would have a Company
Material Adverse Effect prior to or after the Effective Time or a material
adverse effect after the Effective Time, or that would adversely affect the
ability of the Company or any Company Subsidiary prior to the Effective Time, or
Acquiror or any of its Subsidiaries after the Effective Time, to obtain consents
of third parties or approvals of Government Entities required to consummate the
transactions contemplated in this Agreement; or
(o) authorize, or commit or agree to do any of the foregoing.
SECTION 5.02 Best Efforts to Satisfy Conditions
Acquiror and Company shall use their respective best efforts to cause all
conditions to the obligations of Acquiror and Company set forth in Article VII
of this Merger Agreement to be satisfied on or before the Closing Date.
SECTION 5.03 Other Actions
Acquiror and Company shall not, and shall not permit any of their respective
Affiliates to, take any action that would, or that could reasonably be expected
to, result in (a) any of the representations and warranties of such Party set
forth in this Merger Agreement becoming untrue, or (b) any of the conditions to
the Merger set forth in Article VII of this Merger Agreement not being
satisfied.
SECTION 5.04 Certain Tax Matters
From the date hereof until the Effective Time, Company and Company Subsidiary
(a) will prepare and timely file with the relevant Taxing authority all Company
Tax Returns required to be filed between the date hereof and the Effective Time,
or obtain permitted extensions with respect thereto, ("Post-Signing Returns"),
which Post-Signing Returns shall be accurate in all material respects, (b) will
timely pay all Taxes due and payable with respect to such Post-Signing Returns,
(c) will pay or otherwise make adequate provision for all Taxes payable by
Company and Company Subsidiary, and (d) will promptly notify Acquiror of any
action, suit, proceeding,
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claim or audit pending against or with respect to Company or any Company
Subsidiary in respect of any Taxes.
SECTION 5.05 Access and Information
For so long as this Merger Agreement is in effect, and subject to applicable
Laws, Company shall, and shall cause each Company Subsidiary to, (a) afford to
Acquiror and its officers, employees, accountants, consultants, legal counsel
and other representatives reasonable access during normal business hours,
subject to reasonable advance notice, to all of their respective properties,
Agreements, books, records and personnel and (b) furnish promptly to Acquiror
(i) a copy of each Agreement, document, certificate or other instrument filed
with, or received from any Governmental Entity and (ii) all other information
concerning their respective businesses, operations, prospects, conditions
(financial or otherwise), Assets, liabilities and personnel as Acquiror may
reasonably request.
SECTION 5.06 Notification Filing Required under HSR Act
If required, Acquiror and Company shall make good faith efforts to complete and
file without delay, and in any event within thirty (30) days after the date of
this Merger Agreement, the notification filing required under the HSR Act with
respect to the transactions contemplated by this Merger Agreement. Acquiror and
Company shall in good faith take (or fully cooperate in the taking of) all
actions, and provide any additional information that may be, required or
reasonably requested in order to comply with the requirements of the HSR Act. If
a notification filing is required under the HSR Act, Acquiror or Acquiror Sub
shall pay all filings fees in connection therewith.
SECTION 5.07 Access to Company and Company Subsidiary Information
From the date hereof and through the Closing Date, Company shall, and shall
cause each Company Subsidiary and its accountants, counsel, investment bankers,
financial advisors, consultants and other representatives, to provide Acquiror
and Acquiror's accountants, counsel, investment bankers, financial advisors,
consultants and other representatives, upon reasonable notice, access to, and
make available, all books, contracts, records, reports, properties and
commitments of Company and each Company Subsidiary, including, without
limitation, Company's and each Company Subsidiary's tax returns and financial
statements, for Acquiror's use in connection with Acquiror's financing.
SECTION 5.08 Meeting of ESOP Participants
Prior to the Closing Date, Company and the independent fiduciary of the ESOP
(the "Independent Fiduciary") shall take any and all actions necessary in
accordance with applicable Law and the terms of the governing documents of the
ESOP to convene an informational meeting of the Participants (as such term is
defined in the ESOP) to consider the approval of this Merger Agreement and the
transactions contemplated hereby (including the conversion of Company Common
Stock held by the ESOP as contemplated herein). The Independent Fiduciary shall
not
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recommend disapproval of this Merger Agreement and the transactions contemplated
hereby (including the conversion of Company Common Stock held by the ESOP as
contemplated herein) and the Independent Fiduciary shall take all reasonable
action to solicit participant direction on voting all Company Common Stock owned
by the ESOP. The Independent Fiduciary shall vote any and all Company Common
Stock owned by the ESOP pursuant to the terms of the governing documents of the
ESOP and applicable Law. Prior to such meeting, representatives of the Acquiror
may, if requested by Acquiror, meet with the Independent Fiduciary and its
counsel and shall be entitled to review and comment on any materials to be
provided to the Participants at such meeting, and shall be entitled to attend
any such meeting and make a presentation to the Participants in connection
therewith (the contents of such presentation to be subject to the approval of
the Independent Fiduciary in accordance with the requirements of ERISA).
SECTION 5.09 Termination of ESOP
Prior to the Closing Date, the board of directors of Company shall take any and
all actions necessary such that the ESOP (a) shall be amended, as necessary, and
terminated immediately prior to the Effective Time, (b) shall, after the
Effective Time, no longer be designated an "employee stock ownership plan" (as
defined in Section 4975 of the Internal Revenue Code), (c) shall, after the
Effective Time, no longer permit distributions to the Participants in the form
of "qualifying employer securities" (as defined in Section 407 of ERISA), (d)
shall, after the Effective Time, require that the entire balance of a
Participant's account be distributable in cash, and further, the board of
directors of Company shall inform the Participants prior to the Effective Time
of such actions as required by the governing documents of the ESOP and
applicable Law and (e) shall offer such distributions to all Participants as
soon as practicable following receipt of a favorable determination letter from
the IRS with respect to the termination of the ESOP.
SECTION 5.10 Mitigation of FOCI
Acquiror and Company shall use their respective reasonable, best efforts,
to obtain as soon as possible, written confirmation from the office in the
National Security Agency responsible for supervision of NISPOM compliance by
contractors and subcontractors of that Agency (the "Cognizant Agency") that they
will not recommend that the Company's security clearances be revoked, suspended
or downgraded as a result of the Merger.
SECTION 5.11 Termination of Dodds Employment Agreement
Prior to the Closing Date, the Company shall take any and all actions necessary
such that (a) the Letter Agreement between the Company and Gerald C. Dodds dated
September 2, 1997, as amended (as amended, the "Dodds Employment Agreement"),
relating to the Company's employment of Mr. Dodds as the Company's President
shall terminate immediately prior to the Effective Time, and (b) in connection
with the termination of the Dodds Employment Agreement, the Company and Mr.
Dodds shall enter into a written agreement reasonably satisfactory to the
Acquiror to the effect that upon payment by the Acquiror on behalf of the
Company to Mr. Dodds of cash on the Closing Date in the amount of $756,000 in
full
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satisfaction of any amounts due under the Dodds Employment Agreement, neither
the Company, Acquiror nor Acquiror Sub shall have any additional obligations
(financial or otherwise) to Mr. Dodds, except as may have been approved by
Acquiror, in its sole discretion.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Stockholder Approval
Promptly after the date of this Merger Agreement, Company shall take all action
necessary in accordance with Maryland Law and its articles of incorporation and
bylaws to secure the vote or consent of Company Stockholders required by
Maryland Law to approve this Merger Agreement and the transactions contemplated
hereby. In all events, this Merger Agreement shall be submitted to the Company
Stockholders whether or not the board of directors of the Company determines
that this Merger Agreement is no longer advisable and recommends that the
Company Stockholders reject it.
SECTION 6.02 Appropriate Action; Consents; Filings
(a) Upon the terms and subject to the conditions set forth in this Merger
Agreement, the Parties shall use their reasonable best efforts to take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Merger Agreement as
promptly as practicable, including without limitation (i) executing and
delivering any additional instruments necessary, proper or advisable to
consummate the transactions contemplated by, and to carry out fully the purposes
of, this Merger Agreement, (ii) obtaining from any Governmental Entities any
material Licenses required to be obtained or made by Acquiror, or any of its
Subsidiaries, or Company, or any Company Subsidiary, in connection with the
authorization, execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated herein, including, without
limitation, the Merger, and (iii) making all necessary filings, and thereafter
making any other required submissions, with respect to this Merger Agreement and
the Merger required under (A) the HSR Act and (B) any other applicable Law;
provided that Acquiror and Company shall cooperate with each other in connection
with the making of all such filings, including providing copies of all such
documents to the non-filing Party and its advisors prior to filing and
discussing all reasonable additions, deletions or changes suggested in
connection therewith. Company and Acquiror shall furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law in connection with the
transactions contemplated by this Merger Agreement.
(b) (i) Except as the Parties may otherwise agree, Company and Acquiror
shall give (and, in the case of Company, shall cause each Company Subsidiary to
give, and, in the case of Acquiror, shall cause its Subsidiaries to give) any
notices to third parties, and use (and, in the
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case of Company, shall cause each Company Subsidiary to use, and, in the case of
Acquiror, shall cause its Subsidiaries to use) their reasonable best efforts to
obtain any third-party consents, approvals or waivers (A) necessary, proper or
advisable to consummate the transactions contemplated in this Merger Agreement,
(B) disclosed or required to be disclosed in the Company Disclosure Letter or
the Acquiror Disclosure Letter, as the case may be, or (C) required to prevent a
Company Material Adverse Effect or an Acquiror Material Adverse Effect.
(ii) In the event that either Company or Acquiror shall fail to
obtain any third-party consent, approval or waiver described in Section
6.02(b)(i) of this Merger Agreement, such Party shall use its reasonable best
efforts, and shall take any such actions reasonably requested by the other
Parties, to minimize any adverse effect upon Company or any Company Subsidiary
and Acquiror or its Subsidiaries and their respective businesses resulting, or
which could reasonably be expected to result after the Effective Time, from the
failure to obtain such consent, approval or waiver.
(c) From the date of this Merger Agreement until the Effective Time,
Company and Acquiror shall promptly notify each other in writing of any pending
or, to the knowledge of Company or any Company Subsidiary or Acquiror or any one
of its Subsidiaries, threatened action, proceeding or investigation by any
Governmental Entity or any other Person (i) challenging or seeking damages in
connection with the Merger or the conversion of Company Common Stock into the
Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Acquiror
or its Subsidiaries to own or operate all or any portion of the businesses or
Assets of Company or any Company Subsidiary. Company and Acquiror shall
cooperate with each other in defending any such action, proceeding or
investigation, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed.
SECTION 6.03 Disclosure
Prior to the Effective Time, each Party shall notify the other Parties by
written update to its respective Disclosure Letter of (i) any representation or
warranty made by it in connection with this Merger Agreement becoming untrue or
materially inaccurate, (ii) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which would be likely to cause any condition to
the obligations of any Party to effect the Merger and the other transactions
contemplated by this Merger Agreement not to be satisfied or (iii) the failure
of Company, any Company Subsidiary, Acquiror or Acquiror Sub, as the case may
be, to comply with or satisfy in any material respect any covenant, condition or
Agreement to be complied with or satisfied by it pursuant to this Merger
Agreement which would be likely to result in any condition to the obligations of
any Party to effect the Merger and the other transactions contemplated by this
Merger Agreement not to be satisfied; provided, however, the delivery of any
notice pursuant to this Section 6.03(a) shall not cure any breach of any
representation or warranty requiring disclosure of such matter as of the date of
this Merger Agreement or otherwise limit or affect the rights and remedies
available hereunder to the Party receiving such notice.
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SECTION 6.04 Public Announcements
Acquiror, Acquiror Sub and Company shall consult with each other before issuing
or making, and shall give each other the opportunity to review and comment upon,
any press release or other public statement with respect to the Merger and the
other transactions contemplated in this Merger Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by Law or any applicable listing
agreements.
SECTION 6.05 Directors', Officers' and Trustees' Insurance; Indemnification
Acquiror agrees that for the entire period from the Effective Time until at
least six (6) years after the Effective Time, (a) Acquiror will cause Surviving
Corporation to maintain Company's current directors', officers', employee stock
ownership trust trustees' and 401(k) fiduciary liability insurance and
indemnification policy and related arrangements, or an equivalent policy and
related arrangements, subject in either case to terms and conditions no less
advantageous to the present and former Company directors, officers, employee
stock ownership plan trustees and 401(k) fiduciaries than those contained in the
policy and arrangements in effect on the date hereof, for all present and former
Company directors, officers, employee stock ownership trust trustees and 401(k)
fiduciaries, covering claims made and insurable events with respect to matters
arising or omissions occurring before, or existing at, the Effective Time
(provided that Surviving Corporation will not be required to maintain such
policy except to the extent that the aggregate annual cost of maintaining such
policy is not in excess of one hundred and fifty percent (150%) of the current
annual cost, in which case Surviving Corporation shall maintain such policies up
to an annual cost of one hundred and fifty percent (150%) of the current annual
cost); and (b) Acquiror will cause Surviving Corporation to maintain
indemnification provisions in Surviving Corporation's articles of incorporation
and bylaws to the fullest extent permitted by Maryland Law.
SECTION 6.06 Obligations of Acquiror Sub
Acquiror shall take all action necessary to cause Acquiror Sub to perform its
obligations under this Merger Agreement and to consummate the Merger on the
terms and conditions set forth in this Merger Agreement.
SECTION 6.07 No Solicitation
(a) Neither Company nor any Company Subsidiary shall (i) initiate or
solicit or take any other action to promote any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined in Section 6.07(d) of this Merger Agreement),
(ii) enter into discussions or furnish any information or negotiate with any
Person or otherwise cooperate in any way in furtherance of such inquiries or to
obtain a Competing Transaction, (iii) agree to or endorse any Competing
Transaction or (iv) authorize any of its officers, employees, agents,
representatives or directors to take any such action. Company
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and each Company Subsidiary shall immediately cease and cause to be terminated
all existing activities, discussions and negotiations, if any, relating to any
Competing Transactions.
(b) Company and each Company Subsidiary shall direct and instruct and use
their respective best efforts to cause their respective directors, officers,
employees, agents and representatives (including, without limitation, any
investment banker, financial advisor, attorney or accountant retained by
Company) not to take any actions proscribed by this Section 6.07, and Company
shall (i) promptly notify Acquiror if any such inquiries or proposals are
received by Company or any Company Subsidiary, (ii) promptly inform Acquiror as
to the material terms of such inquiry or proposal and, if in writing, promptly
deliver or cause to be delivered to Acquiror a copy of such inquiry or proposal
and (iii) keep Acquiror informed, on a current basis, of the nature of any such
inquiries and the status and terms of any such proposals.
(c) Notwithstanding anything to the contrary in this Section 6.07, nothing
contained in this Section 6.07 shall prohibit the board of directors of Company
from furnishing information to, or entering into discussions or negotiations
with, or agreeing to or endorsing any Competing Transaction with, any Person
that makes a bona fide proposal to acquire Company or any Company Subsidiary
pursuant to a merger, consolidation, share exchange, business combination or
other similar transaction (a "Bona Fide Proposal"), if, and only to the extent
that, (i) the board of directors of Company, after consultation with outside
counsel, determines in good faith that such action is required for the board of
directors of Company to comply with its fiduciary duties to the Company
Stockholders imposed by the Maryland Law, (ii) prior to furnishing such
information to, or entering into discussions or negotiations with, such Person
or entity, it provides written notice to Acquiror to the effect that Company is
furnishing information to, or entering into discussions or negotiations with,
such Person or entity and (iii) Company keeps Acquiror informed, on a current
basis, of the status and content of any such discussions or negotiations.
(d) For purposes of this Merger Agreement, a "Competing Transaction" shall
mean any of the following involving Company or any Company Subsidiary (other
than the transactions contemplated by this Merger Agreement): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of ten percent (10%) or more of the Assets of Company or any Company
Subsidiary, other than sales in the Ordinary Course of Business, or issuance of
twenty percent (20%) or more of the outstanding voting securities of Company or
any Company Subsidiary in a single transaction or series of transactions; or
(iii) any agreement to, or public announcement by Company or any Company
Subsidiary of, a proposal, plan or intention to, do any of the foregoing.
SECTION 6.08 Transaction Expenses
Except as set forth in Section 5.06 or this Section 6.08 of the Merger Agreement
(relating to the payment of filing fees in connection with any notification
filings under the HSR Act), each Party to this Merger Agreement shall bear their
own expenses in connection herewith, including, without limitation, the fees of
each Party's respective legal counsel, financial advisors, accountants, brokers,
finders or investment bankers, but in no event shall such fees and expenses
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(including, without limitation, the fees and expenses described in Section 3.28
of the Company Disclosure Letter) incurred by or on behalf of the Company that
remain unpaid as of the Effective Time ("Excess Expenses") exceed $40,000. In
the event Acquiror or Acquiror Sub shall pay any such Excess Expenses of Company
or any Company Subsidiary following the Closing, Acquiror or Acquiror Sub shall
be entitled to offset any such Excess Expenses against the outstanding amounts
payable under the Consulting/Non-Competition Arrangement in the same manner as
set forth in Article IX of this Merger Agreement. Notwithstanding anything to
the contrary, (i) the Acquiror shall pay the reasonable fees, costs and expenses
of the Independent Fiduciary up to an amount not to exceed $25,000, and (ii) the
provisions of this Section 6.08 shall not be deemed to affect the payments
required pursuant to Section 7.01(h) hereof.
SECTION 6.09 IRS Determination Letter for ESOP
As soon as reasonably practicable, but in no event later than ninety (90) days,
after the Closing Date, the Surviving Corporation will cause to be filed with
the IRS an IRS Form 5310 "Application for Determination for Terminating Plan"
with respect to termination of the ESOP. The Surviving Corporation agrees to
adopt any amendments to the ESOP relating to the liquidation of the ESOP which
are in response to comments received from the IRS in connection with (or as a
condition to) the issuance of a favorable determination letter by the IRS and
which are consistent with Section 5.09 of this Merger Agreement.
SECTION 6.10 Key Employees
Each Key Employee of the Company and any Company Subsidiary who continues to be
employed with the Surviving Corporation following the Merger, shall, during the
term of their employment, be eligible to participate in the incentive
compensation program and stock option plan of the business unit of Acquiror of
which such Key Employee is a part on terms consistent with similarly situated
employees of the Acquiror and its Affiliates.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 Conditions to Obligations of Each Party Under This Merger Agreement
The respective obligations of each Party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by agreement of Acquiror and Company, in whole or in part, to the
extent permitted by applicable Law:
(a) Stockholder Approval. This Merger Agreement and the Merger shall have
been approved and adopted by the requisite vote of Company Stockholders.
(b) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule,
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regulation, executive order, decree, judgment, injunction or other order
(whether temporary, preliminary or permanent), in any case which is in effect
and which prevents or prohibits consummation of the Merger; provided, however,
that the Parties shall use their reasonable best efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted; provided,
further, that the failure to obtain a required consent or approval of a
Governmental Entity (other than that specified in Section 7.01(c)) of this
Merger Agreement shall not form the basis for an assertion that this condition
is not satisfied.
(c) HSR Act. The applicable waiting period with respect to the Merger and
the other transactions contemplated hereby, together with any extensions
thereof, under the HSR Act shall have expired or been terminated.
(d) Company Securities. Except as set forth in the Company Disclosure
Letter, there shall be no other securities of Company outstanding that are
securities convertible into or exchangeable for Company Common Stock or any
other equity securities of Company and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such stock or other equity securities of Company.
(e) Cognizant Agency Confirmation. Written confirmation shall have been
obtained from the Cognizant Agency that it will not recommend that the Company's
security clearances be revoked, suspended or downgraded as a result of the
Merger.
(f) Escrow Agreement. Acquiror, the Escrow Agent and the Stockholders'
Representative shall have executed and delivered the Escrow Agreement in
substantially the form attached hereto as Exhibit C.
(g) Consulting Agreement and Non-Competition Agreement. Acquiror and NVLLC
shall have entered into and delivered a Consulting Agreement in substantially
the form attached hereto as Exhibit D. Acquiror, the Principal Stockholder and
NVLLC shall have entered into and delivered a Non-Competition Agreement in
substantially the form attached hereto as Exhibit E.
(h) Payment of Broker's Fees; Payment of Amounts under Dodds Employment
Agreement. Acquiror shall have paid for and on behalf of the Company (i) to
Boles Knop & Company, LLC, the investment banking fee in the amount set forth in
subsection (d) of the definition of Adjusted Merger Consideration and (ii) to
Gerald C. Dodds, the amount set forth in subsection (e) of the definition of
Adjusted Merger Consideration. The Dodds Employment Agreement shall be
terminated prior to Closing.
SECTION 7.02 Additional Conditions to Obligations of Acquiror and Acquiror Sub
The obligations of Acquiror and Acquiror Sub to effect the Merger and the other
transactions contemplated in this Merger Agreement are also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived by Acquiror, in whole or in part, to the extent
permitted by applicable Law:
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(a) Representations and Warranties. Each of the representations and
warranties of Company contained in this Merger Agreement shall be true and
correct as of the date of this Merger Agreement and shall be true and correct
(except that where any statement in a representation or warranty expressly
includes a standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of the Effective Time as though
made as of the Effective Time, except for (i) representations and warranties
which address matters only as of a particular date, which representations and
warranties shall be true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects giving
effect to such standard) as of such date and (ii) changes permitted by or
consistent with this Merger Agreement. Acquiror shall have received a
certificate of the chief executive officer or chief financial officer of Company
to the foregoing effect.
(b) Agreements and Covenants. Company shall have performed or complied in
all respects with all Agreements and covenants required by this Merger Agreement
to be performed or complied with by Company on or prior to the Effective Time.
Acquiror shall have received a certificate of the chief executive officer or
chief financial officer of Company (as to Company) to that effect.
(c) Opinion of Counsel. Acquiror shall have received from Wechsler, Selzer
& Gurvitch, Chartered, counsel to Company, an opinion dated the Closing Date,
which is reasonable and customary for transactions of the type contemplated by
this Merger Agreement.
(d) No Challenge. There shall not be pending any enforcement action or
similar proceeding by any state or federal Governmental Entity that is likely to
have a Company Material Adverse Effect or, if such action arises in connection
with the transactions contemplated hereby, an Acquiror Material Adverse Effect.
(e) Company Material Adverse Effect. Since September 30, 1999, there shall
not have occurred a Company Material Adverse Effect (or any development that,
insofar as reasonably can be foreseen, is reasonably likely to result in any
Company Material Adverse Effect) not disclosed in the Company Disclosure Letter
as of the date hereof.
(f) Consents. Company and Company Subsidiary shall have procured all
consents of third-parties and Governmental Entities specified in Section 3.06 of
the Company Disclosure Letter.
(g) Company Dissenting Stockholders. The Company Dissenting Stockholders
shall not hold more than five percent (5%) of the Company Common Stock.
(h) ESOP Compliance and Opinion. The Independent Fiduciary shall have
complied with all material provisions of the governing documents of the ESOP and
applicable Law necessary for the consummation of the transactions contemplated
hereby. The Independent Fiduciary shall have received, and Company shall have
delivered a copy to Acquiror: (a) an opinion of a qualified appraiser reasonably
acceptable to the Parties (the "Appraiser"), to the effect that as of the date
of mailing or other delivery to the Company Stockholders of the proxy
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statement, the value of Company Common Stock held by the ESOP immediately prior
to the Effective Time is not more than the Merger Consideration received by the
ESOP (the "Appraiser's Opinion Letter") and (b) an opinion of a qualified
financial advisor reasonably acceptable to the Parties (the "Financial
Advisor"), to the effect that as of the date of this Merger Agreement, the
transactions contemplated hereby are fair to the ESOP from a financial point of
view (the "Fairness Opinion").
(i) ESOP Independent Fiduciary Action. The Independent Fiduciary shall not
have recommended disapproval of this Merger Agreement and the transactions
contemplated hereby (including the conversion of Company Common Stock held by
the ESOP as contemplated herein). On or prior to the Closing Date, Company will
have delivered to the Acquiror evidence satisfactory to the Acquiror that the
condition of this Section 7.02(i) has been satisfied.
(j) ESOP Counsel Opinion. Acquiror shall have received from West &
Feinberg, counsel for the ESOP, an opinion dated the Closing Date, that Company
and the Independent Fiduciary have complied with all provisions of the governing
documents of the ESOP and ERISA and the Code with respect to all covenants
related to the ESOP, including, without limitation, (a) that the Company has
amended the ESOP in a manner reasonably intended to satisfy all legal
requirements in connection with the termination of the ESOP, (b) that the
Company's Board of Directors has duly adopted a resolution terminating the ESOP
as of the Effective Time, and (c) that the vote on this Merger Agreement and the
transactions contemplated hereby was administered in accordance with the terms
of the ESOP.
(k) Estimated Balance Sheet as of Closing Date. Acquiror shall have
received from Company two (2) days prior to the Closing Date a balance sheet of
the Company estimated as of the Closing Date (the "Estimated Balance Sheet") and
prepared on a good faith basis consistent with the Company Financial Statement.
The Parties acknowledge and agree that the amounts set forth on the Estimated
Balance Sheet shall be used in computing an estimate of the Adjusted Merger
Amount as of the Closing Date.
(l) Termination of Dodds Employment Agreement. Acquiror shall have
received from the Company evidence satisfactory to the Acquiror in its sole
discretion of the termination of the Dodds Employment Agreement.
(m) Resignation of Principal Stockholder. Acquiror shall have received
from the Principal Stockholder his written resignation from (i) the Company's
Board of Directors and (ii) all offices held with respect to the Company.
SECTION 7.03 Additional Conditions to Obligations of Company
The obligations of Company to effect the Merger and the other transactions
contemplated by this Merger Agreement are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived by Company, in whole or in part, to the extent permitted by applicable
Law:
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(a) Representations and Warranties. Each of the representations and
warranties of Acquiror and Acquiror Sub contained in this Merger Agreement shall
be true and correct as of the date of this Merger Agreement and shall be true
and correct (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Effective Time
as though made as of the Effective Time, except for (i) representations and
warranties which address matters only as of a particular date, which
representations and warranties shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of such date and (ii)
changes permitted by or consistent with this Merger Agreement. Company shall
have received a certificate of the chief executive officer or chief financial
officer of Acquiror to the foregoing effect.
(b) Agreements and Covenants. Acquiror and Acquiror Sub shall have
performed or complied in all respects with all Agreements and covenants required
by this Merger Agreement to be performed or complied with by them on or prior to
the Effective Time except for such noncompliance that does not have an Acquiror
Material Adverse Effect. Company shall have received a certificate of the chief
executive officer or chief financial officer of Acquiror and Acquiror Sub to
that effect.
(c) Deposit of Cash. Acquiror shall have delivered to (i) the Exchange
Agent, the Exchange Fund and (ii) the Escrow Agent, the Escrow Consideration, in
accordance with Section 2.03 of this Merger Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination
This Merger Agreement may be terminated at any time (except where otherwise
indicated) prior to the Effective Time, whether before or after approval of this
Merger Agreement and the Merger by Company Stockholders:
(a) by mutual written consent of Acquiror and Company;
(b) (i) by Acquiror, if any of the conditions provided in Section 7.02
have not been met and such failure has not been cured within twenty (20)
business days following receipt by Company of written notice of such failure
describing the extent and nature thereof in reasonable detail, or to the extent
permitted by applicable law, such conditions have not been waived in writing by
Acquiror;
(ii) by Company, if any of the conditions provided in Section 7.03
have not been met and such failure has not been cured within twenty (20)
business days following receipt by Acquiror of written notice of such failure
describing the extent and nature thereof in
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reasonable detail, or, to the extent permitted by applicable law, such
conditions have not been waived in writing by Company.
(c) by either Acquiror or Company if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
other federal or state (but not county or municipal) Governmental Entity
preventing or prohibiting consummation of the Merger shall have been filed or in
effect;
(d) by either Acquiror or Company if the Merger shall not have been
consummated by the earlier to occur of the Scheduled Closing Date or April 18,
2000; provided however, that the right to terminate this Merger Agreement under
this Section 8.01(d) shall not be available to (i) Acquiror, where Acquiror's
failure to fulfill any obligation under this Merger Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before such
date, or (ii) Company, where Company's failure to fulfill any obligation under
this Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(e) by Acquiror, if the board of directors of Company (i) fails to make or
withdraws or modifies its recommendation referred to in Section 3.21 of this
Merger Agreement or (ii) recommends to the Company Stockholders approval or
acceptance of a Bona Fide Proposal; or
(f) by either Acquiror or Company if any of the conditions provided in
Section 7.01 have not been met, or to the extent permitted by applicable law,
have not been waived by both Parties.
SECTION 8.02 Effect of Termination
In the event of termination of this Merger Agreement by either Acquiror or
Company as provided in Section 8.01 of this Merger Agreement, this Merger
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Acquiror, Acquiror Sub, Company or any Company
Subsidiary or any of their respective directors or officers except (i) nothing
herein shall relieve any Party from liability for any breach hereof, (ii) each
Party shall be entitled to any remedies at law or in equity for such breach and
(iii) Sections 6.08, 8.02 and 8.03 and Article IX of this Merger Agreement shall
remain in full force and effect and survive any termination of this Merger
Agreement.
SECTION 8.03 Expenses
If this Merger Agreement is terminated pursuant to Section 8.01(e) of this
Merger Agreement, then Company shall pay to Acquiror all of Acquiror's expenses
incurred in connection with the transactions contemplated by this Merger
Agreement.
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SECTION 8.04 Amendment
Subject to applicable Law, this Merger Agreement may be amended by the Parties
at any time prior to the Effective Time. This Merger Agreement may not be
amended except by an instrument in writing signed by all of the Parties.
SECTION 8.05 Extension; Waiver
At any time prior to the Effective Time, the Parties may (a) extend the time for
the performance of any of the obligations or other acts of the other Parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any Agreements, documents, certificates or other instruments
delivered pursuant hereto and (c) waive compliance with any of the Agreements or
conditions contained in this Merger Agreement. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the Party or
Parties to be bound thereby. The failure of any Party to assert any of its
rights under this Merger Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; REMEDIES
SECTION 9.01 Survival of Representations
All representations, warranties, covenants, indemnities and other agreements
made by any party to this Merger Agreement herein, shall be deemed made on and
as of the Effective Time as though such representations, warranties, covenants,
indemnities and other agreements were made on and as of such date, and all such
representations, warranties, covenants, indemnities and other agreements shall
survive for a period of twelve (12) months after the Effective Time; provided,
however, that the representations set forth in Section 3.16 (Taxes and Tax
Matters), Section 3.15 (Pension and Benefit Plans) and Section 3.24
(Environmental Matters) shall survive until the expiration of the applicable
statute of limitations and provided further that in the event of fraud all such
representations, warranties, covenants, indemnities and other agreements shall
survive indefinitely. Notwithstanding anything herein to the contrary, any
representation, warranty, covenant, agreement or indemnity which is the subject
of a claim which is asserted in writing prior to the expiration of the
applicable period set forth above shall survive solely with respect to such
claim until the final resolution thereof.
SECTION 9.02 Indemnification by Principal Stockholder and Networking Ventures,
LLC; Right to Offset
(a) Each of the Principal Stockholder and Networking Ventures, LLC, a
Maryland limited liability company ("NVLLC"), hereby agrees to, jointly and
severally, indemnify, defend and hold Acquiror, the Surviving Corporation and
their respective officers and directors, and each person, if any, who controls
or may control Acquiror or the Surviving Corporation within
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the meaning of the Securities Act (all such persons hereinafter are referred to
individually as an "Acquiror Indemnified Person" and collectively as "Acquiror
Indemnified Persons," but in no event shall any stockholder of the Company prior
to the Effective Time be such an Acquiror Indemnified Person) harmless against
all Losses resulting from, imposed upon or incurred by any Acquiror Indemnified
Person, directly or indirectly, as a result of any of the following, anything in
this Merger Agreement (except for Section 9.02(c)) to the contrary
notwithstanding:
(i) any inaccuracy or breach of a representation or warranty of the
Company given or made by the Company in this Merger Agreement, in the Articles
of Merger or in the Company Disclosure Letter or in any certificate, document or
agreement delivered by or on behalf of the Company pursuant hereto; and
(ii) any failure by the Company to perform or comply with any
covenant or agreement contained in this Merger Agreement, in the Articles of
Merger or in the Company Disclosure Letter or in any certificate, document or
agreement delivered by or on behalf of the Company pursuant hereto.
(b) In the event, from time to time, any Acquiror Indemnified Person
determines that it has suffered a Loss for which indemnification is available
pursuant to this Article IX, the following procedure shall be followed:
(i) Acquiror Indemnified Person shall give written notice of any
such claim (a "Loss Notice") to the Principal Stockholder specifying in
reasonable detail the amount of the claimed Loss (the "Loss Amount") and the
basis for such Loss and that the Acquiror intends to offset against amounts
payable under the Consulting/Non-Competition Arrangement the amount of any such
Loss.
(ii) Within twenty (20) days after delivery of a Loss Notice, the
Principal Stockholder shall provide to Acquiror and the Acquiror Indemnified
Person (if not the same Person), a written response (a "Response Notice") in
which the Principal Stockholder will (i) agree that an offset in the full Loss
Amount may be made against amounts payable under the Consulting/Non-Competition
Arrangement, (ii) agree that an offset in an amount equal to part, but not all,
of the Loss Amount (the "Agreed Amount") may be made against amounts payable
under the Consulting/Non-Competition Arrangement or (iii) contest making any
offset against amounts payable under the Consulting/Non-Competition Arrangement.
The Principal Stockholder may contest an offset against the amounts payable
under the Consulting/Non-Competition Arrangement upon a good faith belief that
all or such portion of such offset does not constitute a Loss for which the
Acquiror Indemnified Person is entitled to indemnification under this Article
IX. If no Response Notice is delivered by the Principal Stockholder within such
twenty (20) day period, the Principal Stockholder shall be deemed to have agreed
that an offset in the full Loss Amount may be made against the amounts payable
under the Consulting/Non-Competition Arrangement.
(iii) If the Principal Stockholder in the Response Notice agrees (or
is deemed to have agreed) that an offset may be made against the amounts payable
under the Consulting/Non-Competition Arrangement in an amount equal to the Loss
Amount, the Acquiror
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may, promptly following the earlier of the required delivery date of the
Response Notice or the delivery of the Response Notice, cause an offset in the
amount of the Loss Amount to be made to the amounts payable under the
Consulting/Non-Competition Arrangement.
(iv) If the Principal Stockholder in the Response Notice agrees that
an offset in an amount equal to part, but not all, of the Loss Amount (the
"Agreed Amount") may be made against the amounts payable under the
Consulting/Non-Competition Arrangement, the Acquiror may, promptly following the
earlier of the required delivery date of the Response Notice or the delivery of
the Response Notice, cause an offset in the amount of the Agreed Amount to be
made to the amounts payable under the Consulting/Non-Competition Arrangement.
(v) If the Principal Stockholder in the Response Notice contests an
offset against the amounts payable under the Consulting/Non-Competition
Arrangement equal to all or any part of the Loss Amount (the "Contested
Amount"), the Acquiror Indemnified Person and the Principal Stockholder shall
negotiate in good faith to resolve any such dispute. If any such dispute cannot
be resolved within fifteen (15) days after the receipt by the Acquiror of the
Response Notice, the Acquiror Indemnified Person and the Principal Stockholder
shall submit the matter to the Washington, D.C. office of the American
Arbitration Association ("AAA") for binding arbitration to be conducted in
accordance with the AAA commercial arbitration rules in effect at the time such
matter is submitted. If any such matter is submitted to the AAA as provided
herein, (A) each of the Acquiror Indemnified Person and the Principal
Stockholder will furnish to AAA such workpapers and other documents and
information as AAA may request and will be afforded the opportunity to present
to AAA any material relevant to the matter, (B) the determination by AAA, as set
forth in a notice delivered to the Acquiror Indemnified Person and the Principal
Stockholder by AAA, will be binding and conclusive on such parties and (iii) the
non-prevailing party will pay the fees of the AAA for such determination.
(vi) All action and inaction by the Principal Stockholder taken or
not taken pursuant to this Article IX shall be deemed taken or not taken, as the
case may be, by the Principal Stockholder on his behalf and the behalf of NVLLC
and shall bind NVLLC as fully as if taken or not taken, as the case may be, by
NVLLC.
(c) The indemnity obligations of the Principal Stockholder and NVLLC under
this Article IX shall first be satisfied through a claim against the Escrowed
Consideration (including, without limitation, Escrowed Consideration
attributable to Company Common Stock owned by Company Stockholders other than
the Principal Stockholder), to the extent that the same has not been released
from escrow, and then by the exercise by the Acquiror of the right of offset
against the amounts payable under the Consulting/Non-Competition Arrangement.
The Escrowed Consideration and amounts payable under the
Consulting/Non-Competition Arrangement shall in no way be deemed to be a
limitation on the recourse available to any Acquiror Indemnified Person for the
indemnification obligations of the Principal Stockholder and NVLLC for any
breach of the representations and warranties set forth in Section 3.01
(Organization and Qualification), Section 3.04 (Capitalization), Section 3.05
(Authority; Binding Obligation), Section 3.16 (Tax and Tax Matters), or Section
3.24 (Environmental Matters) or for any Losses resulting from fraud on the part
of the Company, any Company Subsidiary or their respective officers or
directors. Following its exhaustion of its offset rights as set forth above,
Acquiror
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shall have the right to enforce the indemnity obligations of the Principal
Stockholder for any breach of the representations and warranties set forth in
Sections 3.01, 3.04, 3.05, 3.16 or 3.24, or for fraud, through an action in a
court of competent jurisdiction.
(d) Notwithstanding the foregoing, neither the Principal Stockholder nor
NVLLC shall have any liability under Section 9.02(a) until the cumulative amount
of all Losses with respect to such matters exceeds $25,000, following which the
Principal Stockholder and NVLLC shall be liable for the full amount of such
Losses back to and including the first dollar of such Losses. However, this
Section 9.02(d) shall not apply to any Losses arising out of or in connection
with any breach of any representations and warranties of the Company given or
made by the Company in this Merger Agreement, in the Articles of Merger or in
the Company Disclosure Letter or in any certificate, document or agreement
delivered by or on behalf of the Company pursuant hereto of which breach the
Company had knowledge at any time prior to the date on which such representation
and warranty was made or any intentional failure by the Company to perform or
comply with any covenant or agreement contained in this Merger Agreement, in the
Articles of Merger or in the Company Disclosure Letter or in any certificate,
document or agreement delivered by or on behalf of the Company pursuant hereto.
(e) The exercise of such right of offset by Acquiror in good faith,
whether or not ultimately determined to be justified, will not constitute a
breach of this Merger Agreement. Neither the exercise of nor the failure to
exercise such right of offset will constitute an election of remedies or limit
Acquiror in any manner in the enforcement of any other remedies available to
Acquiror.
SECTION 9.03 Third Party Claims.
The obligations and liabilities of the Principal Stockholder and NVLLC with
respect to their indemnities pursuant to this Article IX, resulting from any
Third Party Claim shall be subject to the following terms and conditions:
(a) The party seeking indemnification (the "Indemnified Party") must give
the party obligated to indemnify (the "Indemnifying Party"), notice of any Third
Party Claim which is asserted against, resulting to, imposed upon or incurred by
the Indemnified Party and which may give rise to liability of the Indemnifying
Party pursuant to this Article IX, stating (to the extent known or reasonably
anticipated) the nature and basis of such Third Party Claim and the amount
thereof; provided that the failure to give such notice shall not affect the
rights of the Indemnified Party hereunder except to the extent (i) that the
Indemnifying Party shall have suffered actual damage by reason of such failure,
or (ii) such failure or delay materially adversely affects the ability of the
Indemnifying Party to defend, settle or compromise such Third Party Claim.
(b) Subject to Section 9.03(c) below, if the Indemnifying Party assumes
responsibility for Losses arising out of such Third Party Claim, then the
Indemnifying Party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense of such Third Party Claim at
the Indemnifying Party's risk and expense.
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(c) In the event that (i) the Indemnifying Party shall elect not to
undertake such defense, (ii) within a reasonable time after notice from the
Indemnified Party of any such Third Party Claim, the Indemnifying Party shall
fail to undertake to defend such Third Party Claim, or (iii) there is a
reasonable probability that such Third Party Claim may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a Third
Party Claim under this Section 9.03, the Indemnifying Party shall pay to the
Indemnified Party, in addition to the other sums required to be paid hereunder,
the reasonable costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
(d) Anything in this Section 9.03 to the contrary notwithstanding, (i)
neither the Indemnified Party nor the Indemnifying Party shall, without the
other party's written consent (which consent shall not be unreasonably withheld
or delayed), settle or compromise such Third Party Claim or consent to entry of
any judgment which does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Third Party Claim in form and substance
satisfactory to the Indemnified Party; (ii) in the event that a party hereto
undertakes defense of such Third Party Claim in accordance with this Section
9.03, the other parties, by counsel or other representative of their own
choosing and at their sole cost and expense, shall have the right to participate
in the defense, compromise or settlement thereof and each party and its counsel
and other representatives shall cooperate with the other party and its counsel
and representatives in connection therewith; and (iii) the party that undertakes
the defense of such Third Party Claim in accordance with this Section 9.03 shall
have an obligation to keep the other parties informed of the status of the
defense of such Third Party Claim and furnish the other parties with all
documents, instruments and information that the other parties shall reasonably
request in connection therewith.
SECTION 9.04 No Recourse Against the Company
The Company Stockholders (including, without limitation, the Principal
Stockholder) and NVLLC each hereby irrevocably waives any and all right to
recourse against the Company and the Surviving Corporation with respect to any
misrepresentation or breach of any representation, warranty or indemnity, or
noncompliance with any conditions or covenants, given or made by the Company in
this Merger Agreement or any other agreements and documents executed or to be
executed by the Parties hereto in order to consummate the transactions
contemplated by this Merger Agreement. Neither NVLLC nor any Company
Stockholder, including, without limitation, the Principal Stockholder, shall be
entitled to contribution from, subrogation to or recovery against the Company or
the Surviving Corporation with respect to any liability of NVLLC or any Company
Stockholder, including, without limitation, the Principal Stockholder, that may
arise under or pursuant to this Merger Agreement or any of the other agreements
and documents executed or to be executed by the Parties hereto in order to
consummate the
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transactions contemplated by this Merger Agreement or such other agreements and
documents contemplated hereby.
SECTION 9.05 Remedies Cumulative
Subject to the limitations and qualifications set forth in this Article IX, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by the parties hereto of any other rights or the seeking of any other
remedies against the other parties, or their respective successors or assigns.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 Notices
All notices and other communications given or made pursuant hereto shall be in
writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) or sent by
overnight courier (providing proof of delivery) to the Parties at the following
addresses or sent by electronic transmission to the following facsimile numbers
(or at such other address or facsimile number for a Party as shall be specified
by like notice):
(a) If to Acquiror or Acquiror Sub:
The Titan Corporation
3033 Science Park Road
San Diego, California 92121
Facsimile: (619) 552-9759
Attention: Nicholas J. Costanza, Esq.,
General Counsel
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Facsimile: (703) 610-6200
Attention: Richard K.A. Becker, Esq.
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(b) If to Company:
Pulse Engineering, Inc.
7480 Candlewood Road
Hanover, Maryland 21076
Facsimile: (410) 859-4924
Attention: John G. Hannon and Gerald C. Dodds
With a copy (which shall not constitute notice) to:
Wechsler, Selzer & Gurvitch, Chartered
4550 Montgomery Avenue, Suite 900N
Bethesda, Maryland 20814
Facsimile: (301) 986-1301
Attention: Neil Gurvitch, Esq.
(c) If to Stockholders' Representative:
John G. Hannon
1859 Baltimore and Annapolis Boulevard
Annapolis, Maryland 21401
Facsimile: (301) 212-9689
With a copy (which shall not constitute notice) to:
Wechsler, Selzer & Gurvitch, Chartered
4550 Montgomery Avenue, Suite 900N
Bethesda, Maryland 20814
Facsimile: (301) 986-1301
Attention: Neil Gurvitch, Esq.
(d) If to Principal Stockholder or NVLLC:
John G. Hannon
1859 Baltimore and Annapolis Boulevard
Annapolis, Maryland 21401
Facsimile: (301) 212-9689
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With a copy (which shall not constitute notice) to:
Wechsler, Selzer & Gurvitch, Chartered
4550 Montgomery Avenue, Suite 900N
Bethesda, Maryland 20814
Facsimile: (301) 986-1301
Attention: Neil Gurvitch, Esq.
SECTION 10.02 Headings
The headings contained in this Merger Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Merger
Agreement.
SECTION 10.03 Severability
If any term or other provision of this Merger Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Merger Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Merger Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.04 Entire Agreement
This Merger Agreement (together with the Exhibits, Schedules, the Company
Disclosure Letter and the Acquiror Disclosure Letter and the other documents
delivered pursuant hereto) constitute the entire agreement of the Parties and
supersede all prior agreements and undertakings, both written and oral, among
the Parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 10.05 Assignment
Neither this Merger Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the Parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other Parties;
provided, however, that Acquiror and Acquiror Sub shall have the right to assign
this Merger Agreement without the prior written consent of the Company to a
direct or indirect Subsidiary of the Acquiror, but no such assignment shall
relieve Acquiror or Acquiror Sub, as the case may be, of its obligations
hereunder. Subject to the preceding sentence, this Merger Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors, personal representatives, heirs and permitted
assigns.
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SECTION 10.06 Parties in Interest
This Merger Agreement shall be binding upon and inure solely to the benefit of
each Party and their respective successors, personal representatives, heirs and
permitted assigns, and nothing in this Merger Agreement, express or implied,
other than the right to receive the Merger Consideration pursuant to Article II
of this Merger Agreement and the rights of the Acquiror Indemnified Person
pursuant to Article IX, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Merger Agreement.
SECTION 10.07 Mutual Drafting
Each Party has participated in the drafting of this Merger Agreement, which each
Party acknowledges is the result of extensive negotiations between the Parties.
Consequently, this Merger Agreement shall be interpreted without reference to
any rule or precept of law that states that any ambiguity in a document be
construed against the drafter.
SECTION 10.08 Governing Law
This Merger Agreement shall be governed by, and construed in accordance with,
the Laws of the State of Maryland, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of law.
SECTION 10.09 Counterparts
This Merger Agreement may be executed and delivered in one or more counterparts,
and by the different Parties in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 10.10 Singular and Plural
Any reference in this Merger Agreement to the singular includes a reference to
the plural and vice versa.
ARTICLE XI
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Acquiror" is defined in the Preamble to this Merger Agreement.
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"Acquiror Audited Balance Sheet" is defined in Section 4.07(a) of this
Merger Agreement.
"Acquiror Financial Statement" is defined in Section 4.07(a) of this
Merger Agreement.
"Acquiror Disclosure Letter" is defined in Article IV of this Merger
Agreement.
"Acquiror Material Adverse Effect" means any event, change or effect that,
individually or when taken together with any related events, is or is reasonably
likely to be materially adverse to the business, operations, condition
(financial or otherwise), Assets or liabilities of Acquiror and its
Subsidiaries, taken as a whole.
"Acquiror Sub" is defined in the Preamble to this Merger Agreement.
"Adjusted Merger Consideration" means an amount equal to (a) the Adjusted
Merger Amount, minus (b) the Escrowed Consideration.
"Adjusted Merger Amount" means an amount equal to (a) Twenty Four Million
Seven Hundred Thousand Dollars ($24,700,000), minus (b) the amount of all bank
debt (including accrued interest thereon), related party debt (including accrued
interest thereon) and accrued bonuses to employees of the Company or Company
Subsidiary that remain unpaid immediately prior to the Effective Time, minus (or
plus, as the case may be) (c) the amount by which the cash and the fair market
value of the marketable securities owned by the Company immediately prior to the
Effective Time is less than (or exceeds) One Million Seven Hundred Thousand
Dollars ($1,700,000), provided however, if the cash and fair market value of
such marketable securities is less than $1,700,000 and the net asset value of
the Company immediately prior to the Effective Time, calculated in accordance
with generally accepted accounting principles, is greater than or equal to Five
Million Eight Hundred Seventy Five Thousand Dollars ($5,875,000), then the
amount by which the cash and the fair market value of the marketable securities
owned by the Company is less than $1,700,000 shall not be deducted for purposes
of calculating the Adjusted Merger Amount; minus (d) the investment banking fee
in the amount of $1,166,724.33 payable by the Company to Boles Knop & Company,
LLC (which fee shall be paid by Acquiror on behalf of the Company as provided in
Section 7.01(h)), minus (e) the payment in the amount of $756,000 payable by the
Company to Gerald C. Dodds in connection with the termination of the Dodds
Employment Agreement (which payment shall be made by Acquiror on behalf of the
Company as provided in Section 7.01(h)); plus (f) an amount equal to the product
of (i) the sum of (a) the amount determined pursuant to clauses (a), (b), (c),
(d) and (e) above plus (b) Two Million One Hundred Forty Thousand Dollars
($2,140,000), times (ii) the number of days beginning on and including February
1, 2000 and ending on but excluding the Closing Date times (iii) 0.0180547
percent. For purposes of computing the Adjusted Merger Amount as of the Closing
Date, the amounts set forth in (b) and (c) above, shall be determined by
reference to the unaudited balance sheet of the Company required to be delivered
to the Acquiror pursuant to Section 7.02(k) of this Merger Agreement.
"Affiliate" means: (a) with respect to an individual, any member of such
individual's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in
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such entity or of or in any Affiliate of such entity; and (c) with respect to a
Person, any Person which directly or indirectly, through one or more
intermediaries, Controls, is Controlled by, or is under common Control with such
Person or entity.
"Agreement" means any agreement between or among two or more Persons with
respect to their relative rights and/or obligations or with respect to a thing
done or to be done, including, without limitation, agreements denominated as
contracts, leases, promissory notes, covenants, easements, rights of way,
commitments, arrangements and understandings.
"Articles of Merger" is defined in Section 1.02 of this Merger Agreement.
"Assets" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"business day" means a day other than a Saturday, a Sunday or any other
day on which commercial banks in the State of Maryland are authorized or
obligated to be closed.
"Cash Consideration" is defined in Section 2.02(b)(i) of this Merger
Agreement.
"Certificate" is defined in Section 2.02(c) of this Merger Agreement.
"Class A Multiple" means an amount equal to (a) the aggregate par value of
all Class A Shares, divided by (b) (i) the aggregate par value of all Class A
Shares plus (ii) the aggregate par value of all Class B Shares. As of the date
of this Merger Agreement, the Class A Multiple is equal to 0.37892848, computed
as follows:
(390,125 x 0.00858699)
-----------------------------------------------
(390,125 x 0.00858699) + (282,209 x 0.01945621)
"Class A Shares" is defined in Section 2.02(a) of this Merger Agreement.
"Class B Multiple" means an amount equal to (a) the aggregate par value of
all Class B Shares, divided by (b) (i) the aggregate par value of all Class A
Shares plus (ii) the aggregate par value of all Class B Shares. As of the date
of this Merger Agreement, the Class B Multiple is equal to 0.62107152, computed
as follows
(282,209 x 0.01945621)
-----------------------------------------------
(390,125 x 0.00858699) + (282,209 x 0.01945621)
"Class B Shares" is defined in Section 2.02(b) of this Merger Agreement.
"Closing Adjustment" is defined in Section 2.05(b) of this Merger
Agreement.
"Closing Date" is defined in Section 1.02 of this Merger Agreement.
"Code" means the United States Internal Revenue Code of 1986, as amended.
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"Cognizant Agencies" is defined in Section 5.10 of this Merger Agreement.
"Company" is defined in the Preamble to this Merger Agreement.
"Company Audited Balance Sheet" is defined in Section 3.08(a) of this
Merger Agreement.
"Company Benefit Plans" means all "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, whether or not terminated, and trust
agreements and insurance contracts under or with respect to which Company or
Company Subsidiary has or could have any liability, contingent, secondary or
otherwise.
"Company Common Stock" is defined in Section 3.04 of this Merger
Agreement.
"Company Contracts" is defined in Section 3.12 of this Merger Agreement.
"Company Disclosure Letter" is defined in Article III of this Merger
Agreement.
"Company Dissenting Stockholder" is defined in Section 2.02(d) of this
Merger Agreement.
"Company Financial Statement" is defined in Section 3.08(a) of this Merger
Agreement.
"Company Material Adverse Effect" means any event, change or effect that,
individually or when taken together with any related events, is or is reasonably
likely to be materially adverse to the business, operations, condition
(financial or otherwise), Assets or liabilities of the Company and any Company
Subsidiaries, taken as a whole.
"Company Pension Plan" means any Company Benefit Plans that is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA.
"Company Stockholders" is defined in the Preamble to this Merger
Agreement.
"Company Stock Plan" means any Company Benefit Plan pursuant to which
Company is or may become obligated to, or obligated to cause Company Subsidiary
or any other Person to, issue, deliver or sell shares of capital stock of
Company or Company Subsidiary, or grant, extend or enter into any option,
warrant, call, right, commitment or agreement to issue, deliver or sell shares,
or any other interest in respect of capital stock of Company or Company
Subsidiary.
"Company Subsidiary" means any Subsidiary of Company.
"Company Tax Returns" means all Tax Returns required to be filed by
Company or any of Company Subsidiary (without regard to extensions of time
permitted by law or otherwise).
"Competing Transactions" is defined in Section 6.08(d) of this Merger
Agreement.
"Consulting/Non-Competition Arrangement" means the (a) the Consulting
Agreement described in Section 7.01(f)(ii) of this Merger Agreement to be
entered into between the
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Acquiror and NVLLC and (b) the Non-Competition Agreement described in Section
7.01(f)(iii) of this Merger Agreement to be entered into among the Acquiror, the
Principal Stockholder and NVLLC, each as of the Closing Date.
"Control" (including the terms "Controlled by" and "under common Control
with") means, as used with respect to any Person, possession of power (directly
or indirectly or as a trustee or executor) to direct or cause the direction of
management or policies of such Person (whether through ownership of voting
securities, as trustee or executor, by Agreement or otherwise).
"Dodds Employment Agreement" is defined in Section 5.11 of this Merger
Agreement.
"Effective Time" is defined in Section 1.02 of this Merger Agreement.
"Encumbrance" means any mortgage, lien, pledge, encumbrance, security
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge, Agreement, claim or equity of any
kind.
"Environmental Laws" means any federal, state or local Law relating to
public health or safety, worker health or safety, or pollution, damage to or
protection of the environment including, without limitation, Laws relating to
emissions, discharges, releases or threatened release of Hazardous Materials
into the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, generation,
disposal, transport or handling of any Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Escrow Agent" is defined in Section 2.02(a)(ii) of this Merger Agreement.
"Escrow Agreement" means the Escrow Agreement among Acquiror, the
Stockholders' Representative and the Escrow Agent in the form attached hereto as
Exhibit C.
"Escrowed Consideration" is defined in Section 2.02(b)(ii) of this Merger
Agreement.
"ESOP" means the Pulse Engineering Employee Stock Ownership Plan.
"Estimated Balance Sheet" is defined in Section 7.02(k) of this Merger
Agreement.
"Exchange Agent" is defined in Section 2.03 of this Merger Agreement.
"Exchange Fund" is defined in Section 2.03 of this Merger Agreement.
"GAAP" means United States generally accepted accounting principles.
"Government Property" means property or equipment in the possession of or
directly acquired by a Governmental Entity and subsequently made available to
the Company or any
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Company Subsidiary or any other property or equipment otherwise acquired by the
Company or any Company Subsidiary to which a Governmental Entity has title.
"Governmental Entities" (including the term "Governmental") means any
governmental, quasi-governmental or regulatory authority, whether domestic or
foreign.
"Hazardous Material" means (i) any "hazardous substance" as now defined
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss.9601(14); (ii) any "pollutant or contaminant" as defined in 42
U.S.C. ss.9601(33); (iii) any material now defined as "hazardous waste" pursuant
to 40 C.F.R. Part 261; (iv) any petroleum, including crude oil and any fraction
thereof; (v) natural synthetic gas usable for fuel; (vi) any "hazardous
chemical" as defined pursuant to 29 C.F.R. Part 1910; and (vii) any asbestos,
polychlorinated biphenyl ("PCB"), radium, or isomer of dioxin, or any material
or thing containing or composed of such substance or substances.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
all patent disclosures, industrial designs, utility models and all patents and
patent applications, together with all reissuances, continuations,
continuations-in-part, divisions, revisions, extensions, renewals and
reexaminations thereof, (b) all trademarks, service marks, trade dress, domain
names, web site addresses, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all registered and
unregistered copyrights, all rights to database information, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, software, databases, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all rights,
including rights of privacy and publicity, to use the names, likenesses and
other personal characteristics of any individual, and (g) other proprietary
rights and (h) all copies and tangible embodiments thereof (in whatever form or
medium) existing in any part of the world (including all computer software and
related data and documentation).
"Inventory" means all new materials, work in progress, finished goods and
inventorable supplies.
"Key Employees" means John G. Hannon, Gerald C. Dodds, Bob Allen, Bobby
Adams and Caroline Pisano.
57
<PAGE>
"knowledge" will be deemed to be present with respect to Company and each
Company Subsidiary when the matter in question is known, or upon reasonable
investigation, should have been known, to the Company or any Company Subsidiary.
"Laws" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, tariffs, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified Person and to the
businesses and Assets thereof (including, without limitation, Laws relating to
the protection of classified information; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff,
permit, easement, variance, exemption, consent, certificate, approval or order
of any Governmental Entity.
"Losses" means all demands, losses, claims, actions or causes of action,
assessments, damages, liabilities, costs and expenses, including, without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements.
"Maryland Law" is defined in the Preamble to this Merger Agreement.
"Merger" is defined in the Preamble to this Merger Agreement.
"Merger Consideration" is defined in Section 2.02(b)(ii) of this Merger
Agreement.
"Multiemployer Plan" means any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA to which Company or Company Subsidiary contribute,
have an obligation to contribute, or have at any time since September 2, 1974,
contributed or been obligated to contribute.
"NVLLC" is defined in Section 9.02(a) of this Merger Agreement.
"Ordinary Course of Business" means ordinary course of business consistent
with past practices and reasonable business operations.
"Party" and "Parties" are defined in the Preamble to this Merger
Agreement.
"Permitted Encumbrance" means (i) easements, rights of way, minor
irregularities of title, and liens for taxes not yet due and payable, (ii)
landlord, warehouse and materialmen's liens and (ii) other Encumbrances similar
to clauses (i) and (ii); provided, however, that any or all of the foregoing do
not materially affect the utility or value of the Assets or other matters to
which they relate.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization or other entity, or a
Governmental Entity.
58
<PAGE>
"Plan" means any plan, program or arrangement, whether or not written,
that is or was an "employee benefit plan" as such term is defined in Section
3(3) of ERISA and (a) which was or is established or maintained by Company or
Company Subsidiary; (b) to which Company or Company Subsidiary contributed or
was obligated to contribute or to fund or provide benefits; or (c) which
provides or promises benefits to any person who performs or who has performed
services for Company or Company Subsidiary and because of those services is or
has been (i) a participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.04 of this Merger
Agreement.
"Principal Stockholder" means John G. Hannon.
"Scheduled Closing Date" is defined in Section 2.07 of this Merger
Agreement.
"Stockholders' Representative" is defined in Section 2.05(c) of this
Merger Agreement.
"Subsidiary" means a corporation, partnership, joint venture or other
entity of which any Person owns, directly or indirectly, at least fifty percent
(50%) of the outstanding securities or other interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body or otherwise exercise control of such entity.
"Surviving Corporation" is defined in Section 1.01 of this Merger
Agreement.
"Taxes" (including the terms "Tax" and "Taxing") means all federal, state,
local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, real property, personal property, ad valorem, excise,
employment, social security and wage withholding taxes) and installments of
estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration fees, withholdings, or other similar charges of every kind,
character or description imposed by any Governmental Entity, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
"Tax Liabilities" means any action, suit, proceeding, audit, investigation
or claim pending or threatened in respect of any Taxes for which Company or any
Company Subsidiary is or may become liable, or any deficiency or claim for any
such Taxes that has been to Company's knowledge proposed, asserted or
threatened.
"Tax Returns" means all federal, state, local, foreign and other
applicable returns, declarations, reports and information statements with
respect to Taxes required to be filed with the United States Internal Revenue
Service, and its successors, or any other Governmental Entity or Tax authority
or agency, including, without limitation, consolidated, combined and unitary tax
returns.
"Third Party Claim" means any claim or other assertion of liability by any
third party.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as those terms
are defined in Part I of Subtitle E of Title IV of ERISA.
59
<PAGE>
"Year 2000 Compliant" is defined in Section 3.25(a) of this Merger
Agreement.
[Remainder of Page Intentionally Left Blank; Signature Page Follows.]
60
<PAGE>
IN WITNESS WHEREOF, The Titan Corporation, Titan Acquisition Corporation and
Pulse Engineering, Inc. have executed and delivered, or have caused this Merger
Agreement to be duly executed and delivered, as of the date first set forth
hereinabove.
THE TITAN CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
TITAN ACQUISITION CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
PULSE ENGINEERING, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
The undersigned hereby acknowledges his appointment as the Stockholders'
Representative hereunder and his willingness to fulfill the duties of the
Stockholders' Representative as contemplated by this Merger Agreement.
------------------------------------
John G. Hannon
The undersigned hereby enters into this Merger Agreement for the sole purpose of
acknowledging, and agreeing to be bound by, his obligations as the "Principal
Stockholder" under Article IX hereof.
------------------------------------
John G. Hannon
61
<PAGE>
The undersigned hereby enters into this Merger Agreement for the sole purpose of
acknowledging, and agreeing to be bound by, the obligations of Networking
Ventures, LLC under Article IX hereof.
NETWORKING VENTURES, LLC
By:_________________________________
Name:_______________________________
Title:______________________________
62
<PAGE>
EXHIBIT A
FORM OF
ARTICLES OF MERGER
BETWEEN
TITAN ACQUISITION CORPORATION
AND
PULSE ENGINEERING, INC.
THIS IS TO CERTIFY THAT:
FIRST: Titan Acquisition Corporation and Pulse Engineering, Inc. agree to
merge in the manner hereinafter set forth.
SECOND: Pulse Engineering, Inc. is the corporation to survive the merger.
THIRD: Both Pulse Engineering, Inc. and Titan Acquisition Corporation are
incorporated under the laws of the State of Maryland.
FOURTH: The principal office of Pulse Engineering, Inc. in the State of
Maryland is located in [____________] County and the principal office of the
Titan Acquisition Corporation is located in [Baltimore City].
FIFTH: Titan Acquisition Corporation owns no interests in land located in
the State of Maryland.
SIXTH: Immediately upon the effectiveness of the merger, the charter of
Pulse Engineering, Inc. shall be amended and restated to read in its entirety as
set forth on Exhibit A hereto.
SEVENTH: The total number of shares of all classes of stock which each
corporation party to these Articles has the authority to issue and the number of
shares of each class are as follows:
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Pulse Engineering, Inc. Titan Acquisition Corporation
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Total number of shares
of all classes: 1,200,000 100
- ------------------------------------------------------------------------------------------------
Number and par values of 780,250 shares of Class A Common 100 shares of Common Stock,
authorized shares of Stock, $0.00858699 par value per $0.01 par value per share
each class: share
419,750 shares of Class B Common
Stock, $0.01945621 par value per
share
- ------------------------------------------------------------------------------------------------
Number of authorized
shares without par value None None
of each class
- ------------------------------------------------------------------------------------------------
Aggregate par value of
all authorized shares $14,866.74 $1.00
with par value
- ------------------------------------------------------------------------------------------------
</TABLE>
The merger herein provided for changes the authorized share structure of
Pulse Engineering, Inc. so that said authorized share structure will be as
follows upon the effectiveness of the merger:
- --------------------------------------------------------------------------------
Pulse Engineering, Inc.
- --------------------------------------------------------------------------------
Total number of shares of all
classes: 100
- --------------------------------------------------------------------------------
Number and par values of
authorized shares of each class: 100 shares of Common Stock,
$0.01 par value per share
- --------------------------------------------------------------------------------
Number of authorized shares
without par value of each class None
- --------------------------------------------------------------------------------
Aggregate par value of all
authorized shares with par value $1.00
- --------------------------------------------------------------------------------
EIGHTH: Immediately upon the effectiveness of the merger, Titan
Acquisition Corporation shall be merged into Pulse Engineering, Inc.; and,
thereupon, Pulse Engineering, Inc. shall possess any and all purposes and powers
of Titan Acquisition Corporation; and all leases, licenses, property, rights,
privileges, and powers of whatever nature and description of Titan Acquisition
Corporation shall be transferred to, vested in, and devolved upon Pulse
Engineering,
<PAGE>
Inc., without further act or deed, subject to all of the debts and obligations
of Titan Acquisition Corporation. Each share of Class A common stock,
$0.00858699 par value per share, of Pulse Engineering, Inc. shall be converted
into the right to receive $[________], and each share of Class B common stock,
$0.01945621 par value per share, of Pulse Engineering, Inc. shall be converted
into the right to receive $[_________], in each case without the necessity of
any action on the part of the holder thereof. Each share of common stock, $0.01
par value per share, of Titan Acquisition Corporation shall be converted into
one fully paid and nonassessable share of the common stock of Pulse Engineering,
Inc.
NINTH: The terms and conditions of the transaction described in these
Articles were duly advised, authorized and approved by Pulse Engineering, Inc.
in the manner and by the vote required by the laws of the State of Maryland and
the charter of Pulse Engineering, Inc., as follows:
a) The board of directors of Pulse Engineering, Inc. adopted
resolutions declaring that the merger of Titan Acquisition
Corporation into Pulse Engineering, Inc. is advisable on
substantially the terms and conditions set forth or referred to in
said resolution and directed that the proposed transaction be
submitted to the stockholders of Pulse Engineering, Inc. for their
consideration. Said resolutions of the board of directors of Pulse
Engineering, Inc. were adopted at a meeting duly held on [__________
___], 2000 at which a quorum was present and at which the board
acted by at least a majority of its members present thereat.
b) At a meeting of the stockholders of Pulse Engineering, Inc. duly
held on [__________ ___], 2000, pursuant to notice duly given, the
stockholders of Pulse Engineering, Inc. approved the terms and
conditions of the transaction by the affirmative vote of at least
two-thirds of all of the votes entitled to be cast on the matter.
TENTH: The terms and conditions of the transaction described in these
Articles were duly advised, authorized and approved by Titan Acquisition
Corporation in the manner and by the vote required by the laws of the State of
Maryland and the charter of Titan Acquisition Corporation, as follows:
a) The board of directors of Titan Acquisition Corporation adopted
resolutions declaring that the merger of Titan Acquisition
Corporation into Pulse Engineering, Inc. is advisable on
substantially the terms and conditions set forth or referred to in
said resolution and directed that the proposed transaction be
submitted to the sole stockholder of Titan Acquisition Corporation
for its consideration. Said resolutions of the board of directors of
Titan Acquisition Corporation were adopted without a meeting by
written consent signed on [__________ ___], 2000, by all of the
members of the board of directors.
b) A consent in writing, setting forth approval of the terms and
conditions of the transaction described herein as so proposed was
signed by the sole stockholder of
<PAGE>
Titan Acquisition Corporation, and such consent is filed with the
records of stockholder meetings of Titan Acquisition Corporation.
ELEVENTH: [These Articles of Merger shall become effective on
[_______________ ____], 2000.] [These Articles of Merger shall become effective
upon filing with and acceptance by the Maryland State Department of Assessments
and Taxation.]
TWELFTH: Each of the undersigned Chairman of the Board of Pulse
Engineering, Inc. and the President of Titan Acquisition Corporation
acknowledges these Articles of Merger to be the corporate act of the respective
party on whose behalf he has signed, and further, as to all matters or facts
required to be verified under oath, each of the undersigned acknowledges that to
the best of his knowledge, information and belief, these matters and facts
relating to the corporation on whose behalf he has signed are true in all
material respects and that this statement is made under penalties for perjury.
<PAGE>
DRAFT: March 13, 2000
IN WITNESS WHEREOF, these Articles of Merger have been duly executed by
the parties hereto this ______ day of ______________, 2000.
PULSE ENGINEERING, INC.
By:
-----------------------------------
John G. Hannon
Chairman of the Board of Directors
Attest:
- ---------------------------------
[Name]
Secretary
TITAN ACQUISITION CORPORATION
By:
-----------------------------------
Mellon C. Baird
President
Attest:
- ---------------------------------
Nicholas J. Costanza
Secretary
<PAGE>
DRAFT: March 21, 2000
EXHIBIT B
INITIAL OFFICERS AND DIRECTORS
OF
SURVIVING CORPORATION
Initial Officers
- --------------------------------------------------------------------------------
Office Officer
- --------------------------------------------------------------------------------
President and Chief Executive Officer Mellon C. Baird
- --------------------------------------------------------------------------------
Executive Vice-President, Chief Financial
Officer and Treasurer Eric M. DeMarco
- --------------------------------------------------------------------------------
Senior Vice President, General Counsel and Nicholas J. Costanza
Secretary
- --------------------------------------------------------------------------------
Assistant Treasurer Deanna Hom Petersen
- --------------------------------------------------------------------------------
Assistant Treasurer Ray H. Guillaume
- --------------------------------------------------------------------------------
Assistant Secretary Cheryl L. Barr
- --------------------------------------------------------------------------------
Initial Directors
- --------------------------------------------------------------------------------
Gene W. Ray
- --------------------------------------------------------------------------------
Mellon C. Baird
- --------------------------------------------------------------------------------
Eric M. DeMarco
- --------------------------------------------------------------------------------
<PAGE>
DRAFT: March 21, 2000
EXHIBIT C
[FORM OF ESCROW AGREEMENT]
<PAGE>
DRAFT: March 21, 2000
EXHIBIT D
[FORM OF CONSULTING AGREEMENT]
<PAGE>
EXHIBIT E
[FORM OF NON-COMPETITION AGREEMENT]
<PAGE>
1999 ANNUAL REPORT
[LOGO] Cayenta
[LOGO] Titan Scan
[LOGO] Titan Wireless
[LOGO] Titan Systems
[LOGO] TITAN
CREATING, BUILDING & LAUNCHING
TECHNOLOGY-BASED BUSINESSES
FOUR CORE BUSINESSES
POSITIONED FOR GROWTH
Titan is a company dedicated to creating, building, and launching
technology-based businesses.
We are a technology rich company. Within our businesses lie a multitude of new
technologies, offering some of the most innovative technological advances in the
areas of communication and information systems. Our core competency is creating
new technologies, evaluating market needs, developing business units and
maximizing shareholder value by launching these business units into stand-alone
public companies.
Today, we have four core businesses: government information technology services,
e-business solutions, satellite telephony, and food pasteurization. Each is well
positioned in its respective market for sustained long-term growth, and each is
moving rapidly towards becoming an independent stand-alone public company. While
our focus is on spinning these businesses off and delivering value to Titan
shareholders, our technology incubator is hard at work identifying the next new
commercial business.
Since our founding in 1981, our most valuable asset has been our employees. In
our headquarters in San Diego and in our more than one hundred offices
throughout the world, we employ 5,200 talented and dedicated individuals who
continually strive to create value for Titan shareholders. We are proud that
they have chosen to work at Titan and are mindful of the fact that they are the
reason for our success.
1999 was a year of great execution and great accomplishment. Our success
generated enormous optimism among our employees, our customers, and our
shareholders. We look forward to making 2000 even better as we continue to build
Titan's reputation as the world's premier technology incubator.
1999 FINANCIAL HIGHLIGHTS
In millions.
Revenues(1) Operating Income(1) Net Income(1)
[GRAPH] [GRAPH] [GRAPH]
<PAGE>
Earnings per Share(1) Stockholders' Equity
[GRAPH] [GRAPH]
LEVERAGING TITAN'S TECHNOLOGY
Building a Joint Venture Portfolio
SAKON: International Telecommunications. 19.9% Ownership
TITAN AFRICA-BENIN: International Telecommunications. 50% Ownership
Satellite Terminal Access (STA): Satellite-based Internet
Communications. Up to 19.9% Ownership
MITSUBISHI: Food Pasteurization/Medical Product Sterilization.
Up to 19.9% Ownership(2)
ZERO MOUNTAIN: Food Pasteurization. Up to 19.9% Ownership(2)
HAWAII PRIDE: Food Pasteurization and Disinfestation.
Up to 19.9% Ownership(2)
SOLIANCE: Utility Industry Application Service Provider (ASP).
10% Ownership
(1) 1999 and 1998 reflect proforma results from continuing operations before
special charges and credits, and before cumulative effect of change in
accounting principle in 1998. 1997 results are as historically reported, before
the effects of the poolings that occurred in 1998.
(2) Represents interest in newly formed joint venture company established
together with parent company named.
[GRAPH]
With an increase of 760.2%, Titan was the leading market gainer on the New York
Stock Exchange for 1999.
We are building a portfolio of joint venture businesses that allow Titan to
participate in their future growth and profitability.
CHAIRMAN'S MESSAGE
BUILDING TITAN FOR THE NEW MILLENNIUM
"Titan's continued execution of a long-term strategy resulted in creating
significant value for our shareholders in 1999. Our market
capitalization increased to $2 billion--a 965% increase. "
To Our Shareholders:
Titan's continued execution of a long-term strategy resulted in creating
significant value for our shareholders in 1999. Our
<PAGE>
market capitalization increased to $2 billion--a 965% increase. The rise in
Titan's stock price reflected significant accomplishments in growing our
commercial businesses and positioning them to become public companies.
These achievements include: 300% revenue growth in Titan Wireless; 100% revenue
growth in Cayenta; and executed contracts with companies that produce 75% of the
United States ground beef and almost 50% of the poultry which plan to deploy
Titan Scan's food pasteurization technology. We are entering 2000 in the
strongest financial position in the company's history and with four businesses
well positioned in their respective markets for sustained long-term growth.
Titan Wireless, our international telecommunications business, is building a
satellite-based global telecommunications network that provides voice, data and
Internet services. Installing gateways and connecting them to the local public
telephone network to complete calls made from anywhere in the world has enabled
us to provide service in ten countries in Latin America, Asia, Africa and the
Middle East, with expectations to be providing service in many more by year end.
Cayenta, our business-to-business e-commerce subsidiary, rapidly evolved in 1999
from a commercial software integration business to a Total Services Provider
offering a full suite of Internet-based management systems. Cayenta's services
range from finance and accounting to customer billing and collection,
supply-chain integration, and enterprise asset management. In December 1999,
Cayenta filed a registration statement with the Securities and Exchange
Commission for a proposed public offering. We expect Cayenta to be listed on the
NASDAQ under the symbol CYTA. This is in line with our announced strategy of
spinning out a minority interest of each of our businesses through initial
public offerings. We are also preserving the option to execute a tax-free
spin-off of these businesses to Titan shareholders at an appropriate time.
An exciting development in 1999 was the first steps towards widespread
implementation of Titan's food pasteurization technology by some of the nation's
largest food producers. During the past 12 months, companies such as Tyson
Foods, IBP, Cargill and Kraft have signed contracts to use our patented SureBeam
process to eliminate the threat of food-borne pathogens such as E-Coli,
listeria, salmonella, etc. Our patented SureBeam system, similar to a microwave
oven, uses commercial electricity as its source of energy.
We continue to move closer to our goal of creating a $1 billion government
information technology business. With the acquisition of Advanced Communication
Systems, Inc., Titan Systems now has a government information technology
business that is more than $600 million strong and is well positioned to
continue growing in 2000 and beyond. This business continues to generate cash
that fuels the growth of our commercial businesses, and also continues to be the
source of the new technologies in our Emerging Technologies and Businesses
segment.
We continued to grow our bottom line earnings per share by more than 30 percent,
while also making significant investments in our rapidly growing commercial
businesses. Pro forma net income from continuing operations was $0.46, compared
to $0.35 a year ago. Titan's common stock was the Number One market gainer on
the New York Stock Exchange in 1999. We believe this demonstrates that Titan is
a premier choice for investors who are seeking "emerging growth technology
companies." We create, build and launch technology-based businesses and then
maximize Titan shareholder value by spinning these businesses off as stand-alone
<PAGE>
public companies. As we enter Year 2000, we are well positioned to continue
executing this strategy for maximizing shareholder value.
The success we achieved in 1999 would not have taken place without the
significant support of our dedicated employees, our valued customers, and our
diligent shareholders who were rewarded for their patience and confidence in our
management team. We enthusiastically look forward to continuing to make all of
our shareholders proud to be affiliated with our organization.
/s/
Gene W. Ray
Chairman, President &
Chief Executive Officer
March 31, 2000
[PHOTO]
Dr. Gene W. Ray
Chairman, President &
Chief Executive Officer
"We continued to grow our bottom line earnings per share by more than 30%, while
also making significant investments in our rapidly growing commercial
businesses."
CAYENTA
[PHOTO]
(Images of Cayenta's Network Operations Center
and E-Business Solutions in Use.)
Accelerating the Evolution of Business
The use of the Internet is growing exponentially. The speed at which web-based
electronic business transactions are occurring creates exciting new
opportunities and new challenges. Forrester Research, an independent research
firm, projects that the market for business-to-business e-Commerce will grow
from $43 million in 1998 to $1.3 trillion in 2003, a compound annual growth rate
of more than 100%.
For businesses seeking to enhance operational efficiencies and to strengthen
customer relationships, scalability and reliability are key. More and more,
businesses are seeking to utilize the Internet to improve communications
internally and with their trading partners. Cayenta, with its roots in Titan's
commercial software integration business, is responding to this changing
business environment by quickly, and cost-effectively, bringing new capabilities
to both Fortune 1000 and start-up companies.
As a Total Service Provider or TSP, Cayenta provides a palette of business
services, including a full complement of Internet-based management systems.
These range from finance and accounting to customer billing and collection,
supply-chain integration, and enterprise asset management. Cayenta not only
hosts and manages proprietary and third party software applications, but by
virtue of its years of technical
<PAGE>
expertise, is also uniquely positioned to provide the services of system
integration and universal interoperability between new applications and legacy
systems--all on a fixed-time/fixed-price basis.
Cayenta has regional solution centers in British Columbia, California, Florida,
Utah, Virginia, and Washington, D.C. The "Cayenta Approach" uses shared process
and software solutions and industry-specific templates to assess, design, and
construct e-Business systems in collaboration with their customers. This enables
Cayenta to predictably and efficiently deliver quality solutions offering the
following advantages to businesses seeking interconnectivity:
* Access to rapidly expanding software offerings
* Scalability to match growth in e-Business needs
* Industry-specific expertise available on demand
* Lower capital and operational costs
* Speed-to-market through reusable software design and implementation
* No costly customization and maintenance
* In a box, ready to go solutions
While Cayenta has expertise in multiple industries, the focus in 1999 was on the
transportation and utility industries where e-Business transactions can be
especially complex. Key customers in 1999 included Sempra EnergySM, Energy
America, the Federal Aviation Administration, and Waste Management. Also a focus
in 1999 was the acquisition of three companies which provide Cayenta with
proprietary software for e-Commerce, revenue cycle management, and enterprise
asset management. Together they form a core competency of Cayenta's unique TSP
offering. To further support the TSP offering, Cayenta signed agreements with
Exodus, Qwest, and Intel to ensure sufficient data-center access and began
construction on a state-of-the-art Network Operations Center in San Diego which
uses proprietary technology to manage and monitor hosted applications at the
national data centers. Sales, marketing, and branding infrastructure was
significantly increased with the expectation that this will be an area of
emphasis for Cayenta in 2000 as the company seeks to build its TSP offering.
In December 1999, Cayenta filed a registration statement with the Securities and
Exchange Commission for a proposed public offering. In keeping with Titan's
previously announced strategy of delivering value to Titan shareholders by
creating "pure plays," Cayenta has proposed selling a minority interest to the
public while majority ownership would reside at Titan. Additionally, Titan has
maintained the ability to execute a tax-free spin off of its remaining interest
directly to Titan shareholders. While Cayenta is expected to be the first public
offering of a Titan subsidiary, Titan envisions similar transactions in the
future with respect to each of its four core businesses.
[PHOTO]
Cayenta provides Internet-based information services, designed to provide small-
to mid-sized utilities with a competitive advantage through cost-effective
billing and other customer service needs.
Following the company's strategy to be an incubator of technology-based
commercial companies, Cayenta is expected to be Titan's first public offering of
a subsidiary.
[PHOTO]
Sempra Energy, a Fortune 500 energy services company, is a key customer of
Cayenta. Cayenta specializes in the transportation and utility industries where
e-Business transactions can be especially complex.
<PAGE>
As a Total Service Provider or TSP, Cayenta provides a palette of business
services, including a full complement of Internet-based management systems.
[PHOTO]
Cayenta opened its San Diego-based, state-of-the art network operations center
in March 2000. Cayenta also has regional solution centers in British Columbia,
Florida, Utah, Virginia, and Washington, D.C.
REVOLUTIONIZING FOOD SAFETY WITH
ELECTRONIC PASTEURIZATION
In a year punctuated with many exciting firsts and significant business
achievements, Titan's revolutionary electronic food pasteurization technology
made its national debut, capturing headlines around the world.
With contracts signed with companies comprising over 75% of the ground beef and
almost 50% of the poultry markets, Titan's patented SureBeam(R) electron beam
technology is paving the way for major future growth and success in food
pasteurization and medical sterilization markets.
Unveiled in Sioux City, Iowa--the heart of America's food belt--this
revolutionary technology is capable of killing--instantly--E. coli, listeria,
salmonella and other deadly food-borne pathogens. SureBeam works much like a
microwave oven. It takes ordinary commercial electricity as its power source and
accelerates a stream of electrons into a powerful beam. When the beam scans
food, it kills harmful bacteria in a flash--without changing the food's taste or
texture. Because SureBeam uses electricity--instead of the nuclear isotope
irradiation technology used by competitors -- the system is efficient,
high-speed, and environmentally friendly. Titan is the only company to offer
turnkey systems that can pasteurize food products either in a central service
facility, such as Titan Scan's Sioux City facility, or in-line within a food
manufacturer's facility.
Titan Scan has executed multiyear contracts with many of the major poultry and
meat providers and producers in the United States, including Cargill, IBP, Tyson
Foods, Emmpak, and Huisken Meats, among others. These companies produce
approximately 75 percent of the 25.8 billion pounds of beef and approximately 43
percent of the 75.4 billion pounds of meat--including beef, pork, and poultry--
produced in the United States in 1999. Titan believes that if pasteurized
foods--foods irradiated with e-beam or x-rays--gain market acceptance, these
producers will elect to pasteurize a portion of their ground beef and poultry
production. Titan's multiyear arrangements generally provide that it will be the
exclusive provider of electronic pasteurization services whenever any of these
companies elect to use pasteurization technology. Titan believes that no other
company can deliver a commercially cost-effective electronic pasteurization
system without violating one or more of Titan's patents.
In 1999, Titan also formed joint ventures with Zero Mountain, one of the
nation's largest independent suppliers of cold storage and distribution services
for the poultry industry, and Hawaii Pride, an exporter of Hawaiian fruit and
flowers. A pioneer in the cold storage industry for more than 30 years, Zero
Mountain intends to offer pasteurization services to users of its Russellville,
Arkansas, cold storage facility. For Hawaii Pride, Titan's SureBeam x-ray system
provides for the first
<PAGE>
time the ability to disinfest flowers, papaya, and other exotic fruits directly
on the island. In both instances, turnkey pasteurization or sterilization
systems were purchased by the joint ventures. In addition, Titan has a right to
receive a 19.9 percent interest in the new companies, allowing Titan to
participate in the ongoing profit stream generated by the joint ventures.
The FDA and USDA have approved Titan's SureBeam technology. In February 2000,
the company's Sioux City facility began pasteurizing product for test marketing.
Although expected soon, the government approvals do not cover the processed and
pre-cooked food market. In anticipation of that approval, however, in early
February 2000 Titan executed an agreement with Kraft Foods, Inc.--the largest
packaged food company in North America. As part of the agreement, Titan and
Kraft will work closely together on research using Titan's patented SureBeam
technology for electronic pasteurization on processed foods.
Internationally, Titan also reached an agreement with Japan's Mitsubishi
Corporation to purchase a turnkey system from Titan to be installed in Japan.
The system is expected to be operational in the first quarter of 2001, and is
planned to be used as both a showplace and test center for food pasteurization
and medical-product sterilization services, and eventually as a production site.
The agreement also calls for Mitsubishi to market Titan's SureBeam electron beam
and x-ray sterilization and pasteurization technology in Japan. Besides the
medical sterilization market, Mitsubishi will also target Japan's food product
markets. Although electron beam technology has not yet been approved for food
pasteurization in Japan, Mitsubishi and Titan are committed to working toward
regulatory approval.
In the medical sterilization area, Titan Scan's SureBeam system has now been
successfully sterilizing medical products for seven years with well over 100,000
hours of processing time. Titan Scan's San Diego and Denver facilities received
upgrades in capacity in 1999, providing opportunities for future growth. Similar
to electronic pasteurization, the sterilization market has been served
historically by two technologies--gamma irradiation or ethylene oxide (EtO).
Titan believes its proprietary SureBeam process is superior to gamma or EtO
because it uses electricity, which requires significantly less processing time
and poses no known environmental risk.
In July 1999, Titan filed a patent-infringement lawsuit against Electron
Ventures, Inc. In January 2000, Electron Ventures signed a consent decree
acknowledging infringement of Titan's electronic sterilization system patents.
Subsequently, Electron Ventures discontinued its business in the infringing
area, with Titan taking control of certain assets, including a linear
accelerator for medical product sterilization.
SureBeam's future is bright. The Center for Disease Control estimates that 76
million illnesses, 325,000 hospitalizations, and 5,000 deaths occur annually as
a result of food-borne bacteria. The USDA has said that the only known way to
kill certain pathogens, such as E. coli, in raw meat is through irradiation or
pasteurization. As more manufacturers learn of Titan Scan's capabilities, more
strategic relationships will be pursued. For the first time, American consumers
will have a choice to purchase products that are free of dangerous pathogens
processed with environmentally friendly SureBeam versus other technologies that
use nuclear energy sources.
Titan's patented SureBeam-Registered Trademark- electron beam technology is
paving the way
<PAGE>
for major future growth and success in food pasteurization and medical
sterilization markets.
[PHOTO]
In addition to killing E. coli on strawberries and eliminating pests from papaya
and other exotic fruit, SureBeam's electronic pasteurization process also
extends the shelf life of fruit.
Titan Scan's revolutionary SureBeam-Registered Trademark- electronic
pasteurization system instantly kills harmful foodborne pathogens in food
without changing its texture or taste.
[PHOTO]
(SureBeam-Registered Trademark- Electronic Pasteurization System)
[PHOTO] [PHOTO] [PHOTO]
E. coli 0157:H7 Listeria Salmonella
[PHOTO]
In addition to electronic pasteurization, the use of electron beam technology
for the sterilization of medical products is an important thrust and business
segment for Titan. Rapidly growing, this segment has been operating at near full
capacity.
[LOGO]
BE SAFE! SUREBEAM-Registered Trademark- ELECTRONIC PASTEURIZATION
[PHOTO]
(Defense Information Technology and Communications Images)
TARGETING THE STRENGTH OF
DEFENSE INFORMATION TECHNOLOGY
With 1999 revenues increasing by 20 percent to more than $311 million, Titan's
defense information technology business provides the largest percentage of the
company's revenues. Outpacing 1998's growth, the company is continuing to build
Titan Systems towards the $1 billion sales mark through internal growth, as well
as externally through focused, strategic acquisitions.
Ongoing national demand for advanced defense information technology (IT) to
provide a complete picture of the battlefield in real time--aiding the
warfighter with improved surveillance, reconnaissance, and intelligence systems,
and streamlining the business processes of the Services and Agencies of the
Department of Defense--is driving the growth of Titan's government information
technology business. Given the significance of this need and Titan's vast
experience and capabilities, Titan has continued to focus on building the
premier government IT company.
Titan's significant growth has been accomplished by growing its existing
business base and through strategic acquisitions. Acquisitions are key to
Titan's business strategy: They enlarge Titan's defense business base, enhancing
the company's ability to better compete for--and win--new, larger contracts.
Titan's acquisitions also give the company access to innovative, leading-edge
technologies.
<PAGE>
As an integral part of its technology incubation business strategy, Titan
capitalizes on transferring government technology into the commercial
marketplace. The company already has taken defense technologies successfully
into non-defense markets such as communications, software, engineering
processes, and e-business solutions. The company also has over 130 patents
protecting the intellectual property it has amassed. Not only does Titan
transition defense technology into the commercial sector, but it has also
nurtured that same technology in the private sector with an eye toward bringing
it back into government as a robust, cost-savings Commercial Off-the-Shelf
Technology (COTS).
Over the past two years, Titan has targeted strong companies with proven track
records in the national security marketplace. For 1999, the company continued
that initiative by acquiring System Resources Corporation, a key provider of
information systems solutions and services in aviation, airport systems, and
command and control. Titan also acquired Atlantic Aerospace Electronics
Corporation, a defense and commercial technology development and systems company
that focuses on applied R&D in information technology.
As the year drew to a close, Titan announced the acquisition of Advanced
Communication Systems, Inc., an IT company having particular strength in the
area of satellite communications and widely known in the industry as a premier
provider of command, control, communications, computing, intelligence,
surveillance, and reconnaissance (C4ISR) capability--thus adding increased range
and depth to Titan's strong support to the leading edge IT initiatives for
national security. Subsequently in January 2000, Titan announced an agreement to
purchased LinCom Corporation, a key developer of advanced satellite
communications and software technology for NASA space programs and defense.
Each acquisition is a strategic fit for Titan, enhancing the company's ability
to be an "end-to-end" IT and C4ISR solution provider.
The defense and government IT markets remain strong, and for the first time in
more than a decade, the defense budget has increased in real terms on a
year-to-year basis. Titan is mainly focused in two areas: the design,
development, and delivery of specialized IT systems to U.S. and international
defense customers, as well as providing on-site and off-site systems engineering
and technical services. Often working side-by-side with its military and
government personnel, Titan provides technical expertise and support to military
operations around the world with a robust menu of advanced technologies, such as
the following:
* The UHF Tunable Patch Antenna, a state-of-the-art satellite communications
technology possessing a very low-profile antenna measuring only eight inches in
diameter. It is ideal for "communications on the move," and other highly
versatile applications.
* As a leading provider of DAMA (Demand Assigned Multiple Access) based
communications products, Titan is implementing advanced wave forms which will
allow existing UHF satellite communications a significant increase in data
throughput rates to meet the increased information requirements of today's war
fighter.
* The company is developing interactive software tools to fight the terrorist
threat worldwide, as well as identifying new technologies to protect vital
information against information warfare initiatives.
* Titan has developed real-time video and image-processing technology
<PAGE>
that can be customized for security and surveillance needs, as well as
medical applications.
* The company is an industry leader in Rapid Retargeting Technology that helps
military customers breed new life into aging systems and components. The process
transforms aging, obsolete electronic systems into a functionally identical but
technologically upgraded replacement.
* Titan is developing a highly mobile multi-station, signal intercept and
direction finding system called "Prophet" to support the U.S. Army in the field.
Small, lightweight, inexpensive, operator friendly, and consuming less than 9
watts of power, the system is easy to use in any tactical environment.
In addition to providing specialized technology and products such as these,
Titan provides system-engineering expertise for numerous leading-edge
technologies and programs being acquired or fielded by the U.S. military. The
company is continuing to, for example, develop, test, and support two of the
nation's premier C4ISR systems: the Joint Surveillance Target Attack Radar
System (Joint Stars) and the Airborne Warning and Control System (AWACS). Titan
is also a key partner in the digital growth of the Maritime Services, providing
innovations, support, and training for the Navy's "IT-21" project and the
leading-edge United States Marine Corps battlespace information systems.
Outside the Department of Defense, Titan is working with NASA and the Federal
Aviation Administration in defining the plan for future navigation and landing
systems in the United States. The company is playing a vital role in the various
communications, navigation, and surveillance programs designed to address the
nation's transportation systems of the future, including air, marine, and land
needs.
Titan's depth and strength in information technology and its record past
achievements within the military and leading government agencies have resulted
in a current backlog of more than $1.6 billion. Titan Systems is poised to
become a billion-dollar business unit; it is dedicated to providing IT solutions
that make a difference.
With 1999 revenues increasing by 20 percent, the company is continuing to build
Titan Systems towards the $1 billion sales mark.
An approach controller in the Carrier Air Traffic Control Center aboard
the USS George Washington. Every aircraft carrier in the U.S. fleet has
benefitted from Titan technology and engineering.
[PHOTO]
[PHOTO]
Titan develops technology that enlarges and enhances the capabilities of
communications systems such as the Joint Tactical Information Distribution
System (JTIDS). JTIDS is an advanced communications system that distributes
tactical information in an integrated form to all the military services and to
weapons systems such as the B-2 bomber shown here.
[PHOTO]
Titan is building a ground-based electronic jamming and direction finder to
support the Army in a tactical environment. These sensors can also be deployed
on helicopters.
[PHOTO]
Titan specializes in the development and production of advanced
<PAGE>
satellite ground terminals, satellite voice and data modems, and networking
systems. Through "Mini-DAMA" UHF Satellite Communications Terminals, such as
shown here, Titan provides innovative advanced wave form to allow existing UHF
satellite communications a significant increase in data rates.
AWACS, with its distinctive fuselage-mounted radome, provides surveillance,
command and control function and early warning detection and tracking of air
targets at extended ranges over varying land configurations and water. Titan is
continuing to develop, test, and support AWACS, as well as JSTARS. JSTARS'
sophisticated technology can see the entire battlefield from the air, providing
commanders with a "God's-eye" view.
[PHOTO]
The company is continuing to develop, test, and support two of the nation's
premier C4ISR systems: the Joint Surveillance Target Attack Radar System (Joint
Stars) and the Airborne Warning and Control System (AWACS).
[PHOTO] (Satellite Communications Images)
PAVING THE WAY TO LOW-COST
WORLDWIDE WIRELESS COMMUNICATIONS
Titan is now delivering long-distance minutes between the U.S. and ten
countries in Africa, Latin America, the Middle East, and Asia.
Titan's expertise in satellite-based telecommunications technology has enabled
Titan Wireless, our commercial communications subsidiary, to emerge as a rapidly
growing, low-cost service provider--profitably carrying minutes to and from
previously underserved parts of the world. Revenues increased more than 300% in
1999, surpassing internal expectations.
Titan's core products, which are based on highly efficient Demand Assigned
Multiple Access (DAMA) technology, provide a complete end-to-end voice and data
telecommunications solution. This includes network management centers or hubs,
gateways that interconnect with the Public Switched Telephone Network, and
Xpress Connection(R) Very Small Aperture Terminals (VSATs). Key elements of
Titan's infrastructure include:
* Common network architecture and commercial off-the-shelf components for ease
of operation, maintenance and expansion.
* Completely centralized global network control; centralized troubleshooting,
diagnostics, configuration management, security, billing, accounting,
clearing-house and other essential support functions.
* Low-cost hardware and proprietary software which provide least cost routing,
single channel per carrier satellite efficiency and prepaid billing capabilities
for unparalleled low risk and low cost.
Along with our joint venture partner, Sakon, L.L.C., Titan is now delivering
long-distance minutes between the U.S. and ten countries in Africa, Latin
America, the Middle East, and Asia. In each instance, gateways designed, built,
and deployed by Titan provide a competitive advantage. Twenty to twenty-five
additional locations are planned for deployment in 2000. In December 1999, over
three million minutes of traffic were handled by these gateways. This traffic
will continue to grow as Titan expands into new countries and additional sites
in current
<PAGE>
markets come on-line. In addition, discussions are underway for attaining access
to satellite teleport facilities in Europe and Asia, which will further expand
network traffic. In the future, these gateways will also provide the basic
backbone infrastructure for expansion into countrywide rural telephony networks.
In Guatemala and El Salvador, Titan has also acquired rights to full-carrier
licenses and is deploying nearly two thousand public phones and Internet centers
throughout the rural areas of these two countries. Rapid installation times
allowed the network to be constructed in less than six months, and commercial
service was launched in early 2000. In Benin, Titan has a contract to install
and operate a rural telephony network, a GSM cellular and wireless local loop
network, synchronous digital hierarchy fiber optic national backbone, and local
telephone switching equipment. Service is scheduled to begin in the spring of
2000. Through these projects, the first where Titan will operate countrywide
networks, Titan Wireless will gain valuable experience as a supplier of not just
equipment but satellite telecommunications services. To the extent possible,
Titan ensures that the risks of operating in emerging markets are mitigated
through measures such as prepaid service, private insurance, and local bank
financing.
Pilot networks are underway in conjunction with our joint venture partner,
Telecel, one of the largest owners of cellular licenses in Africa, in the
Central Africa Republic and Ghana. The joint venture has the right to provide
rural telephony service in each market where Telecel owns a license. Roll out in
additional countries is expected in 2000. The joint venture plans to offer a
full range of telecommunications services through partnerships with national
telecommunications operators or via local entrepreneurs. Governmental and other
non-profit programs are being used to identify, select, train, and provide
financial and business support to these entrepreneurs.
Not only is Titan bringing voice and data communications to previously
underserved markets, but also a new focus beginning in 2001 will be on high
speed Internet access. The company is currently in the process of developing a
small, low-cost terminal capable of carrying voice traffic and providing
broadband Internet access via satellite at speeds of 2mbps downlink and 128 kbps
uplink. An Internet only terminal is also being developed along with Titan's
French partner, Satellite Terminal Access, for France Telecom, which plans to
test-market satellite-based broadband service by the end of the fiscal 2000.
As a complete end-to-end voice and data telecommunications solutions provider,
Titan Wireless' revenues increased more than 300 percent in 1999.
[PHOTO]
Through its joint venture partnership with Sakon, Titan has signed agreements
with local partners in 16 countries in Asia, Latin America, and Africa to
provide long-distance minutes using Titan Wireless' satellite gateways. Ten are
in operation and 20 to 25 additional locations are planned for deployment by the
end of 2000.
Not only is Titan bringing voice and data communication to previously
underserved markets, but also a new focus beginning in 2001 will be on high
speed Internet access.
[PHOTO]
In Guatemala and El Salvador, Titan has acquired rights to full- carrier
licenses. The company is deploying nearly two thousand public phones and
Internet centers throughout the rural areas of these two countries.
<PAGE>
Titan is in the process of developing a small, low-cost terminal capable of
carrying voice traffic and providing broadband Internet access via satellite at
speeds of 2mbps downlink and 128 kbps uplink.
In delivering long-distance telephony minutes across the world, Titan
holds a competitive advantage because of gateways designed, built, and
deployed by the company.
[PHOTO]
CAPITALIZING ON
EMERGING TECHNOLOGIES
[PHOTO]
(Images of Wireless Technology, Satellites,
PitchTrax-TM- and Fingerprints)
In Titan's Emerging Technologies and Businesses segment, management continually
assesses Titan's large technology and intellectual property portfolio for new
and promising commercial applications. Through both internally-funded and
government-funded efforts, Titan has built a technology portfolio that includes
over 130 patents worldwide. Each of Titan's commercial businesses today--Titan
Wireless, Titan Scan and Cayenta--are all products of Titan's emerging
technologies incubation process. Titan expects to have at least one new
subsidiary launched within the next year.
In addition to its subsidiaries, several other businesses have been launched
from technologies within Titan's Emerging Technologies group. Some are still a
part of Titan's Emerging Technologies segment, while others are independent
companies where Titan maintains an equity or royalty interest. All have the
potential to create value for Titan shareholders. A representative list of some
of the more exciting technologies follows:
* State-of-the-art fingerprint and card scanning systems: Certified by the FBI
in 1995, Titan's ImagClear F5000-TM- units are used in fingerprint card
processing centers in Michigan, California, Illinois, Indiana, Atlanta, Chicago,
Texas, Virginia, and Australia.
* Motion-tracking technology used to create three dimensional views of
trajectory speed and movement of objects: Used at major sporting events, this
technology called Supervision Pitch Trax-TM- is the culmination of the efforts
of QuesTec and Titan. The system complements live coverage of sporting events by
providing real-time digital telemetry of pitch-by-pitch action that can better
illustrate the true movement of a baseball than, for example, any TV camera
angle could.
* Internet transaction metering systems: Now a part of Wave Systems
(NASDAQ: WAVX).
* Wireless broadband multimedia modem technology providing home and office
Internet connectivity: With new technology brought to Titan from its LinCom
acquisition, Titan is exploring the potential commercial application of
sophisticated wireless LAN technology.
As they mature, each technology in Titan's incubator may follow one of several
paths. Options include: remaining a part of Titan either in the Emerging
Technologies segment as with ImagClear, or as a new, wholly
<PAGE>
owned subsidiary; being licensed to other companies having greater expertise or
market share as was the case with Wave Systems; or becoming a full-fledged
start-up company funded through venture capital financing as was the case with
IPivot. While retaining an eight percent ownership, Titan created the technology
spin-off IPivot in 1996 to commercialize a concept developed by its software
business unit. IPivot developed software products that improve the performance
of server farms, web sites, and software applications. In October 1999, Intel
acquired IPivot for $500 million. Titan will receive $45 million in cash for its
ownership interest. As a result, Titan is able to generate shareholder value
without adversely impacting the predictability of future earnings.
Titan's Emerging Technologies segment is a critical component of the company's
value creation strategy. It allows the company to capitalize on its
government-funded R&D and exploit opportunities that would perhaps otherwise be
ignored. It also lays the groundwork from which to build and launch new
commercial businesses. A relatively hidden asset within Titan, the Emerging
Technologies segment will continue to serve as the incubator for Titan's
commercialization process.
[PHOTO]
The culmination of the efforts of QuesTec and Titan, SuperVision Pitch Trax-TM-
and Tennis ProView-TM- complement live coverage of sporting events by providing
real-time digital telemetry--motion tracking--of baseball and tennis action,
pitch-by-pitch, serve-by-serve.
[PHOTO]
Certified by the FBI, Titan's state-of-the-art fingerprint and card scanning
systems are used in fingerprint card processing centers in Michigan, California,
Illinois, Indiana, Atlanta, Chicago, Texas, Virginia, and Australia.
[LOGO] TITAN
TITAN'S LEADERSHIP
Officers
Gene W. Ray
Chairman of the Board of Directors
President and Chief Executive Officer
Eric DeMarco
Executive Vice President and
Chief Financial Officer
M. C. "Bud" Baird
Senior Vice President of
The Titan Corporation and
President and CEO of Titan Systems
Herbert L. Bradley
Senior Vice President of
The Titan Corporation and
President and CEO of Titan Wireless
Nicholas J. Costanza
Senior Vice President,
General Counsel and Secretary
Ronald B. Gorda
Senior Vice President of
The Titan Corporation and
<PAGE>
President of Titan Linkabit
Larry A. Oberkfell
Senior Vice President of
The Titan Corporation and
President and CEO of Titan Scan
David Porreca
Senior Vice President of
The Titan Corporation and
President and CEO of Cayenta
Rochelle Bold
Vice President, Investor Relations
L.L. "Mike" Fowler
Vice President, Corporate Contracts
Deanna Hom Petersen
Vice President and Corporate Controller
Dianne D. Scott
Vice President, Human Resources
Ralph "Wil" Williams
Vice President, Corporate Communications
Directors
Gene W. Ray
Chairman of the Board of Directors
President and Chief Executive Officer
The Titan Corporation
Charles R. Allen
Former Executive Vice President
TRW, Inc.
Joseph F. Caligiuri
Former Executive Vice President
Litton Industries
Daniel J. Fink
Former Senior Vice President
Corporate Planning and Development
General Electric Corporation
Robert M. Hanisee
Managing Director
Trust Company of the West
Robert E. La Blanc
President
Robert E. La Blanc Associates, Inc.
Thomas G. Pownall
Former Chairman of the Board and
Chief Executive Officer
Martin Marietta Corporation
Jim Roth
Former Chairman and
<PAGE>
retired President and CEO of
GRC International
...for more information visit our web site: www.titan.com
This annual report contains forward looking statements which are based upon
certain assumptions and describe certain plans, strategies and expectations of
Titan and are generally identifiable by the use of the words "believe,"
"expect," "intend," or similar expressions. The ability of Titan to predict
actual results is inherently uncertain. Important factors which may cause actual
results to differ materially from forward looking statements contained herein
are described in the section entitled "Risk Factors" in Titan's fiscal year 1999
10-K and in other documents on file with the SEC. Factors that could cause
actual results to differ include but are not limited to the risks associated
with integration of acquisitions, the entry into new commercial businesses,
market acceptance of our products, dependence on continued funding from the U.S.
Department of Defense and related government contract audits, Titan's or its
subsidiaries' ability to access private financing, and/or capital markets and
competitive pressures that could affect market demand for Titan products or
services.
BUSINESS HIGHLIGHTS IN THE NEWS
FEBRUARY
17 Titan's President & CEO Gene Ray meets with Benin's head of state regarding
the installation of state-of-the-art telecommunications systems.
APRIL
1 Titan announces it has formed a joint venture with Hawaii Pride and will
provide a SureBeam x-ray system to Hawaii Pride for the disinfestation of
fruit flies and pasteurization of papaya and other exotic tropical fruits.
12 Several of the nation's largest ground beef processors enter into agreements
with Titan to effectively eliminate the E. coli 0157.H7 threat in meat.
26 Titan, through its joint venture partner Sakon, signs agreements
with companies in nine countries to provide satellite-based
telecommunications equipment and services. The countries include: El
Salvador, Cameroon, Egypt, Ghana, Jordan, Kuwait, Pakistan, South Africa,
and Vietnam.
MAY
3 Titan wins Department of Defense information technology contract having a
potential value of $60 million.
11 Additional new electronic pasteurization customers sign contracts with
Titan, resulting in Titan being the technology of choice for companies
comprising approximately 75 percent of the U.S. ground beef market.
17 Titan and Sakon sign agreements with partners in India, Nigeria,
<PAGE>
and Lebanon to provide telephone, internet and telephony products and
services.
JUNE
9 Titan acquires System Resources Corporation, a high-end systems engineering
and integration company.
JULY
22 Titan acquires Atlantic Aerospace Electronics Corporation, a defense and
commercial technology and systems company.
SEPTEMBER
20 Tyson Foods, the nation's largest poultry processor, signs an exclusive
multiyear agreement to use Titan's state-of-the-art electronic
pasteurization system.
OCTOBER
4 Titan announces it will receive $45 million from Intel acquisition of
IPivot, a spin-off technology.
25 Titan nationally debuts its revolutionary electronic pasteurization
technology at Sioux City, Iowa.
NOVEMBER
2 Titan acquires J.B. Systems, Inc., d.b.a. Mainsaver, a leading provider of
Enterprise Asset Management software & workflow management technology.
15 Huisken Meats joins list of companies committed to using electronic
pasteurization to fight harmful pathogens in food.
DECEMBER
9 Advanced Communication Systems, Inc., a leading defense information company,
is to be acquired by Titan.
13 Titan announces acquisition of ASSIST Cornerstone Technologies, Inc., an
advanced catalog and direct response business software for e-commerce.
22 Titan acquires SFG Technologies, Inc., a solutions and software provider
focusing on revenue cycle services for the utility industry.
29 Titan files an SEC registration statement for the initial public offering
(IPO) of Cayenta.
[PHOTO]
Pasteurized food gets a taste test at the unveiling ceremony of the nation's
first electronic pasteurization facility in Sioux City, Iowa. From the left,
Senator Tom Harkin (D-Iowa) and John Tyson, Chairman of Tyson Foods, taste
pasteurized chicken and ground beef; Congressman Tom Latham (R-Iowa) with Bob
Peterson, Chairman and CEO of IBP, Inc.; Dr. Gene Ray, Titan's Chairman,
President, and CEO; and Dr. Dennis Olson, a noted expert on electronic
pasteurization from Iowa State University.
"An estimated 110 million consumers have learned about Titan's SureBeam
electronic pasteurization process through nationwide media coverage in
<PAGE>
top outlets including, television, radio, news magazines, newspapers and wire
services."
Stockholder
Information
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Independent Public Accountants
Arthur Andersen LLP
701 B Street
San Diego, California 92101
Corporate Headquarters
The Titan Corporation
3033 Science Park Road
San Diego, California 92121
Telephone: (858) 552-9500
Fax: (858) 552-9645
Form 10-K
The Company files an annual report with the Securities and Exchange
Commission on Form 10-K, pursuant to the Securities Exchange Act of
1934. Stockholders may obtain a copy of this report at no charge by
writing to:
Rochelle Bold, Vice President
Investor Relations
The Titan Corporation
3033 Science Park Road
San Diego, California 92121
Telephone: (858) 552-9400
Fax: (858) 552-9477
Email: [email protected]
Annual Meeting
The Annual Meeting of Stockholders
will be held at 4:00 p.m. on
Tuesday, May 30th, 2000 at:
Corporate Headquarters, The Titan Corporation,
3033 Science Park Road, San Diego, California 92121.
[LOGO] TITAN
The Titan Corporation
3033 Science Park Road
San Diego, CA 92121
www.titan.com
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE TITAN CORPORATION
State of
Name Incorporation
- ---- or Jurisdiction
---------------
Advanced Communication Systems, Inc................ Delaware
Assist Cornerstone Technologies, Inc............... Utah
Atlantic Aerospace Electronics Corporation......... Delaware
Cayenta Operating Company.......................... Delaware
Cayenta, Inc....................................... Delaware
DBA Systems, Inc. ................................. Delaware
Delfin Systems..................................... California
Diversified Control Systems, Inc. ................. Delaware
Eldyne, Inc. ...................................... California
Horizons Technology, Inc. ......................... Delaware
Horizons Services Company, Inc. ................... Delaware
JB Systems, Inc. (d/b/a Mainsaver Corporation)..... Delaware
Linkabit Wireless, Inc. ........................... Delaware
Linkabit Wireless Limited.......................... Cayman Islands
MERGECO, Inc. ..................................... Delaware
MicroLithics Corporation .......................... Colorado
Pulse Sciences, Inc. .............................. California
Sakon, LLC......................................... Delaware
SFG Technologies Inc. ............................. Canada
System Resources Corporation....................... Delaware
Titan Africa, Inc. ................................ Delaware
Titan Africa, S.A. ................................ Benin, West Africa
Titan Africa-Benin GSM, S.A........................ Benin, West Africa
Titan Food Pasteurization Corp. ................... Delaware
Titan Medical Sterilization Corp. ................. Delaware
Titan Scan Corp. .................................. Delaware
Titan Systems Corporation.......................... Delaware
Titan Unidyne Corporation ......................... Delaware
Titan Wireless, Inc. .............................. Delaware
Titan Sakon, Inc. ................................. Delaware
Tomotherapeutics, Inc.............................. Delaware
Validity Corporation............................... California
VisiCom Laboratories, Inc. ........................ California
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, included in this Form 10-K, into The Titan Corporation's
previously filed registration statements (as amended, as applicable) File
Numbers 33-4041, 33-9570, 33-12119, 33-15680, 33-37827, 33-56762, 33-65123,
33-83402, 333-07413, 333-10919, 333-10965, 333-30947, 333-57651, 333-66149,
333-47633, 333-66147, 333-67341, 333-68621, 333-90133, 333-90139 and
333-95245.
ARTHUR ANDERSEN LLP
San Diego, California
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE TITAN CORPORATION'S REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,749
<SECURITIES> 0
<RECEIVABLES> 151,771
<ALLOWANCES> 768
<INVENTORY> 14,708
<CURRENT-ASSETS> 199,648
<PP&E> 86,198
<DEPRECIATION> 50,837
<TOTAL-ASSETS> 406,196
<CURRENT-LIABILITIES> 122,150
<BONDS> 137,743
0
695
<COMMON> 454
<OTHER-SE> 109,599
<TOTAL-LIABILITY-AND-EQUITY> 406,196
<SALES> 406,551
<TOTAL-REVENUES> 406,551
<CGS> 314,369
<TOTAL-COSTS> 314,369
<OTHER-EXPENSES> 24,393
<LOSS-PROVISION> 398
<INTEREST-EXPENSE> 9,633
<INCOME-PRETAX> 59,183
<INCOME-TAX> 21,983
<INCOME-CONTINUING> 37,200
<DISCONTINUED> (5,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,600
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.69
</TABLE>
