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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission file number 1-6035
THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2588754
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3033 Science Park Road
San Diego, CA 92121-1199
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (619) 552-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
$1.00 Cumulative Convertible New York and Chicago Stock Exchanges
Preferred Stock, $1.00 par value
Common Stock, $.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 21, 1996: $88,470,044.
Number of shares of Common Stock outstanding at March 21, 1996:
14,046,238.
Document Incorporated By Reference
Proxy Statement for the 1996 Annual Meeting of Stockholders on May 16,
1996. (The Company has or will have filed a definitive proxy statement with
the Commission within 120 days after the close of the fiscal year pursuant to
Regulation 14A.) With the exception of those portions which are incorporated
by reference in this Form 10-K Annual Report, the Proxy Statement for the
1996 Annual Meeting of Stockholders is not deemed to be filed as part of this
Report, Part III.
PART I
Item 1. Business
General Development and Description of Business
The Titan Corporation ("Titan" or the "Company") is an innovative high
technology company which groups its businesses in four industry segments:
Communications Systems, Software Systems, Defense Systems, and Emerging
Technologies. The Communications Systems segment contains two start-up
business units, both targeting rapidly growing commercial markets. The first
business unit, secure television, specializes in providing complete turnkey
security for television delivery systems. The second business unit is
satellite communications, which develops, manufactures, and sells satellite
earth station networks and related components. The Software Systems segment
provides custom and semi-custom software development services to assist
customers in moving from older mainframe systems to distributed computing
systems utilizing client/server software. The Defense Systems segment,
serving primarily the U.S. Government, includes satellite communications
products; test and evaluation of complex systems; management and technical
consulting; training and simulation support; and other consulting and
engineering services. The Defense Systems segment also provides militarized
computers. The Emerging Technologies segment contains a group of diverse
businesses including the start-up medical product sterilization services and
systems and environmental consulting services businesses, as well as several
established businesses generally involved in broad-based technology
development primarily for the U.S. Government and pulse power products.
The Company has significantly changed its customer mix over the last five
years. In 1991 a minimal amount of the Company's revenues was generated from
commercial business with the bulk of revenues generated by business with the
Department of Defense (DoD) and other Government agencies. For 1995, 1994,
and 1993, the Company's revenues generated by business other than DoD or other
U.S. Government agencies represented 39%, 32% and 25% of total Company
revenues, respectively. For the past several years, the Company has pursued a
strategy to use the technology and experience gained in its defense business
to build commercial business. At the same time, the Company has continued to
focus on growing its defense business in key market areas.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment contains two start-up business units, both
targeting rapidly growing commercial markets. The first business, secure
television, specializes in providing complete turnkey security for television
delivery systems, with applications for delivery of television programming via
satellite, coaxial cable, fiber optics and wireless distribution. In January
1995, the Company signed an equipment purchase agreement to provide analog
equipment and software for use in a wireless television service in New York
City. It is currently making significant investments in developing a digital
conditional access system in order to address the direct-to-home satellite and
wireless television markets. The Company is making enhancements to its
existing analog system. The Company is actively marketing its system in
domestic and international markets.
The second business unit is satellite communications, which develops,
manufactures and sells bandwidth-efficient, cost-effective satellite earth
station networks and related subsystems. The Company believes that these
systems are particularly suited for commercial applications in developing
nations for rural communications. These systems are being marketed in Asia
and Latin America. In the third quarter of 1995, the Company received a $10
million fixed price contract to develop a rural telephony system in Indonesia.
SOFTWARE SYSTEMS SEGMENT
The Software Systems segment provides custom and semi-custom software
development services to clients desiring to upgrade their information systems.
These services assist customers in moving from older mainframe systems to
distributed computing systems utilizing client/server software so that they
can respond to market changes, meet competitive demands and improve their
responsiveness to customer needs. Applications include enhancement of
customer service centers for telecommunications companies and improved trouble
reporting for telecommunications systems. The Company provides its products
and services using its detailed knowledge of the telecommunications and other
customers' operations and business needs, expert and responsive project teams,
senior management experience, and a protocycling approach to software
development. The Software Systems segment is substantially dependent on
business from a major telecommunications customer. Revenues in 1995 from this
customer were approximately $24.5 million. The Company has been actively
working to diversify its software customer base.
DEFENSE SYSTEMS SEGMENT
The Defense Systems segment includes two business units, communications and
information systems. These units provide their products and information
systems solutions primarily to U.S. and allied government and defense
customers. The defense communications business develops and produces advanced
satellite terminals and associated voice/data processing modems. These
products are specifically tailored to meet defense requirements, provide
highly secure communications and are produced in relatively small amounts.
Generally, the Company is initially involved in a product development stage
which is subsequently followed by production orders. In some situations, the
government is shifting to a nondevelopment approach to procurement wherein
companies are encouraged to perform their own research and development for
products identified for procurement. During 1995, the Company completed major
portions of research and development on four new technology applications in
the defense communications area. By the end of 1995, all four developments had
been converted into deliverable products and were under contract.
The defense information systems business supports high priority government
programs by providing information systems engineering services as well as
development and integration of systems and specialized products. The systems
engineering services business applies key technologies to the large-scale and
complex problems of major government programs. The systems development and
integration business provides systems and related software design and
development, as well as the integration of complex government information
systems.
The segment also includes the Company's Electronics division, which designs
and manufactures processing and control electronics for use in severe
environmental conditions.
Marketing for the Defense Systems segment involves identifying the
requirements of the U.S. Government and other potential customers for the
types of products and services provided by the Company. The information is
then evaluated to determine if the Company can prepare a responsive proposal
to the customer. This business is highly dependent upon continued funding of
certain U.S. Government contracts.
EMERGING TECHNOLOGIES SEGMENT
The Emerging Technologies segment contains a group of mature businesses
generally involved in Department of Defense (DoD) funded research and
development contracts and start-up commercial businesses, including medical
product sterilization services and systems and environmental consulting
services. The Company's strategy is to use the research and development
activities as a source of additional DoD and commercial products, systems or
services.
The research and development activity is primarily composed of defense cost
reimbursable contracts. These research and development activities involve a
number of technologies including those necessary to develop and manufacture
particle accelerators and high powered microwave tubes.
The Company's medical product sterilization business is based upon advanced
linear accelerator technology developed from the Company's research and
development activities. The Company owns and operates two medical
sterilization facilities - one in Denver, Colorado and one in San Diego,
California. These facilities provide electron beam sterilization services
using Titan's SureBeamR process to producers of disposable medical products.
The facility in Denver has been operational since July 1993 and the facility
in San Diego became operational in January 1996. In 1995, the Company also
sold a turnkey electron beam sterilization system to a customer in Austria.
The environmental consulting and services business provides a range of
professional environmental consulting and engineering services to commercial
customers.
SEGMENT PRO FORMA DATA
The following unaudited pro forma data should be read in conjunction with the
audited historical financial statements and related management discussion and
analysis beginning on page 9. Such financial statements reflect the actual
historical operating performance of Titan for the period 1993 through 1995.
The following additional information is provided to assist the reader in
understanding the segment data contained in this document taking into account
all those businesses divested during 1993 through 1995 which are not a part of
ongoing business. Revenues and operating profit are reflected as if all
divested businesses as of December 31, 1995 had been divested as of January 1,
1993. Also excluded from the pro forma data is the effect of restructuring.
The pro forma data does not purport to represent results of operations for any
future date or period.
Revenues:
(Unaudited)
.
1995 1994
1993
Communications Systems $ 6,978 $ 2,524 $
1,348
Software Systems 33,175 27,875
12,922
Defense Systems 67,948 66,867
71,371
Emerging Technologies 23,851 20,344
24,708
$131,952 $117,610
$110,349
Operating Profit (Loss):
Communications Systems $ (4,138) $ (2,519) $
(2,886)
Software Systems 4,964 6,168
1,550
Defense Systems 4,159 4,999
(6,104)
Emerging Technologies 215 (308)
1,231
$ 5,200 $ 8,340 $
(6,209)
Government Contracts
Sales to the United States Government, including both defense and non-defense
agencies, and sales as a subcontractor as well as direct sales, aggregated
$81,632 in 1995, $93,107 in 1994 and $112,001 in 1993. These amounts
represent 61%, 68% and 75% of total revenues in 1995, 1994, and 1993,
respectively.
Titan's Government customers include the Army, the Air Force, the Navy and
other Government agencies, including the Federal Emergency Management Agency,
the Department of Commerce, the National Aeronautics and Space Administration,
the Federal Aviation Administration, the Defense Nuclear Agency and others.
The Company's business is dependent to a large extent upon continued funding
from these and other government agencies.
The Company's contracts with the Government and subcontracts to prime
contractors are subject to termination for the convenience of the Government;
termination, reduction, or modification in the event of change in the
Government's requirements or budgetary constraints; and, when the Company
participates as a subcontractor, the failure or inability of the prime
contractor to perform its prime contract. In addition, the Company's contract
costs and fees, including allocated indirect costs, are subject to audits and
adjustments by negotiation between the Company and the Government.
In addition to the right to terminate, Government contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress
usually appropriates funds on a fiscal year basis even though contract
performance may take several years. Consequently, at the outset of a major
program, the contract is usually incrementally funded and additional funds are
normally committed to the contract by the procuring agency as appropriations
are made by Congress for future fiscal years.
The Company's business with the Government and prime contractors is generally
performed under cost reimbursement, time and materials or fixed price
contracts. Cost reimbursement contracts for the Government provide for
reimbursement of costs plus the payment of a fee. Under time and materials
contracts, the Company is reimbursed for labor hours at negotiated hourly
billing rates and is reimbursed for travel and other direct expenses at actual
costs plus applied general and administrative expense. Under fixed price
contracts, the Company agrees to perform certain work for a fixed price.
The following table gives the percentage of revenues realized by the Company
from the three primary types of Government contracts during the years
indicated.
Contract Type 1995 1994 1993
Cost Reimbursement.............. 54.7% 59.9% 35.5%
Time and Materials.............. 5.1 3.3 1.8
Fixed Price..................... 40.2 36.8 62.7
100.0% 100.0% 100.0%
Industry Segments, Significant Customers and Export Revenues
Reference is made to Note 4 to the accompanying consolidated financial
statements.
Raw Materials
The Company operates both fabrication and assembly facilities and also
purchases certain components and assemblies from other suppliers. No one
supplier accounts for a significant portion of total purchases.
Patents, Trademarks and Trade Secrets
The policy of the Company is to apply for patents and other appropriate
statutory protection when it develops new or improved technology. The Company
presently holds over 50 U.S. patents, as well as a number of trademarks and
copyrights. However, it does not rely solely on such statutory protection to
protect its technology and intellectual property. In addition to seeking
patent protection for its inventions, the Company relies on the laws of unfair
competition and trade secrets to protect its unpatented proprietary rights.
The Company attempts to protect its trade secrets and other unpatented
proprietary information through agreements with customers, vendors, employees
and consultants. In addition, various names used by the Company for its
products and services have been registered with the U.S. Patent and Trademark
Office.
Backlog
Contracts undertaken by the Company may extend beyond one year, and
accordingly, portions are carried forward from one year to the next as part of
backlog. Because many factors affect the scheduling of projects, no
assurances can be given as to when revenue will be realized on projects
included in the Company's backlog. Although backlog represents only business
which is considered to be firm, there can be no assurance that cancellations
or scope adjustments will not occur. The majority of backlog represents
contracts under the terms of which cancellation by the customer would entitle
the Company to all or a portion of its costs incurred and potential fees.
The Company's commercial backlog represents contracts primarily for services.
By segment, the commercial backlog is approximately $11 million, $5 million,
and $9 million for Communications Systems, Software Systems and Emerging
Technologies, respectively.
Many of the Company's contracts with the U.S. Government are funded by the
procuring agency from year to year, primarily based on its fiscal
requirements. This results in two different categories of U.S. Government
backlog: funded and unfunded backlog. "Funded backlog" consists of the
aggregate contract revenues remaining to be earned by the Company at a given
time, but only to the extent such amounts have been appropriated by Congress
and allocated to the contract by the procuring Government agency. "Unfunded
backlog" consists of (i) the aggregate contract revenues which are expected to
be earned as the Company's customers incrementally allot funding to existing
contracts, whether the Company is acting as a prime contractor or
subcontractor, and (ii) the aggregate contract revenues which remain to be
funded on contracts which have been newly awarded to the Company. "Backlog"
is the total of the commercial and government funded and unfunded backlog.
The Company's backlog consists of the following approximate amounts as of
December 31:
Backlog 1995
1994
Commercial backlog.......................... $25,949,000 $
11,005,000
U.S. Government funded backlog.............. 32,903,000
43,032,000
U.S. Government unfunded backlog............ 19,883,000
14,203,000
$78,735,000 $
68,240,000
In addition to the backlog described above, at December 31, 1995 the Company
had priced options of approximately $70 million from the U.S. Navy for full-
scale production of its Mini-DAMA satellite communications terminal. The
Company expects that a substantial number of these options will be exercised
in the future.
Management believes that year-to-year comparisons of backlog are difficult and
not necessarily indicative of future revenues. The Company's backlog is
typically subject to large variations from quarter to quarter as existing
contracts are renewed or new contracts are awarded. Additionally, all U.S.
Government contracts included in backlog, whether or not funded, may be
terminated at the convenience of the U.S. Government.
The Company expects to realize approximately 92% of its 1995 backlog by the
end of 1996.
Research and Development
The Company maintains a staff of engineers, other scientific professionals and
support personnel engaged in development of new applications of technology and
improvement of existing products. These programs' costs are expensed as
incurred. Total expenditures for research and development were $16,667,000,
$12,699,000, and $8,935,000 in 1995, 1994, and 1993, respectively. These
expenditures included company funded research and development of $5,904,000,
$5,339,000, and $2,257,000 and customer sponsored research and development of
$10,763,000, $7,360,000, and $6,678,000 in 1995, 1994, and 1993, respectively.
The majority of the Company's customer sponsored research and development
activity is funded under contract to the U.S. Government.
Competitive Conditions
The Company is one of many companies providing satellite earth station
networks and related subsystems in commercial markets. The products compete
based primarily on quality, reliability, service and price. Competition is
intense, and many competitors have greater financial and personnel resources
than does the Company.
The Company is one of many developers producing custom software for high
technology clients. The custom software industry is rapidly changing and is
subject to technological obsolescence. Many of the Company's customers in
this business have their own in-house capabilities to perform certain types of
services that might otherwise be performed by the Company. The primary
factors of competition in the business in which the Company is engaged include
technical skills, knowledge of specific industry operations for which the
software is being developed, management and marketing expertise and price.
The Company is one of a few companies in the secure distribution of television
business. These products compete based primarily on quality, reliability,
service and price. The Company's major competitors are General Instruments
Corporation and Scientific Atlanta, Inc., both of whom have significantly
greater resources than the Company.
The Company designs, manufactures and sells earth stations and related
subsystems for use in military satellite communications systems. Although the
Company has significant market share in certain segments of the military
satellite communications systems market, some competitors have greater
financial and personnel resources than the Company.
The Company is one of a few companies involved in the sterilization of
disposable medical products prior to their use. This service competes
primarily on quality, reliability, service, safety, environmental
acceptability and price. The Company's major competitors are Isomedix, Inc.
and Sterigenics International, Inc.
The Company is one of many involved in providing sophisticated systems
engineering for a variety of programs for agencies of the United States
Government and prime contractors for these agencies. Most activities in which
the Company engages are very competitive and require highly skilled and
experienced technical personnel. Numerous companies compete in the service
areas in which the Company is engaged, many of which have significantly
greater financial and personnel resources than does the Company. As is
customary in the business, the Company expends time and effort in preparing
competitive proposals, only a portion of which may result in the award of
contracts.
The Government's own in-house capabilities and federally-funded (non-profit)
research and development centers are also, in effect, competitors of the
Company in that they perform certain types of services that might otherwise be
performed by the Company. The primary factors of competition in the business
in which the Company is engaged include technical skills, management and
marketing expertise and price.
The Company is also one of many manufacturers offering computer-related
products and systems in the United States. These products are part of the
even larger data processing industry, in which the Company is not a
significant factor. Digital systems and microcomputers are subject to
technological obsolescence that could result from improvements in technology
or from the development of more advanced products.
Employees
At the end of fiscal 1995, the Company employed approximately 895 employees,
predominantly located in the United States.
Item 2. Properties
The Company's operations occupy approximately 636,120 square feet of space
located throughout the United States. The large majority of the space is
office space. All of the Company's facilities are leased. For lease
commitment information, reference is made to Note 7 to the accompanying
financial statements.
It is management's policy to maintain the Company's facilities and equipment
in good condition and at a high level of efficiency. Existing facilities are
considered to be generally suitable and adequate for the Company's present
needs. Substantially all of the machinery and equipment employed by Titan in
its business is owned by the Company.
The locations of the principal operating facilities of the Company and its
consolidated subsidiaries at the end of 1995 were as follows:
Communications Systems Software Systems
San Diego, California San Diego, California
Reston, Virginia
Colorado Springs,
Colorado
Tampa, Florida
Dallas, Texas
Boston, Massachusetts
Defense Systems Emerging Technologies
San Diego, California San Diego, California
Reston, Virginia San Leandro, California
Orlando, Florida Dublin, California
Denver, Colorado Chatsworth, California
Colorado Springs, Colorado Albuquerque, New Mexico
Boston, Massachusetts Denver, Colorado
Dayton, Ohio Bozeman, Montana
Huntsville, Alabama Princeton, New Jersey
Item 3. Legal Proceedings
In the ordinary course of business, the Company's defense business is subject
to many levels of audit and investigation by various government agencies.
Further, the Company and its subsidiaries are subject to claims and from time-
to-time are named as defendants in legal proceedings. In the opinion of
management, the amount of ultimate liability with respect to these pending
actions will not materially affect the financial position or results of
operations of the Company.
The Company is a party to three separate lawsuits in the United States
District Court for the Eastern District of Virginia, Alexandria Division filed
by three female former Company employees. Each action arises from the course
of the plaintiff's employment with and termination from the Company, and seeks
monetary damages due to alleged gender discrimination, constructive discharge
and/or wrongful termination and related claims. The cases are scheduled for
trial in March and April of 1996. The Company intends to continue to defend
the cases vigorously. While it is not feasible to predict the outcome of
these cases, management believes that their ultimate disposition will not have
a material adverse effect on the financial position or results of operations
of the Company. A fourth lawsuit was settled in March 1996 through an offer of
judgment and did not have a material effect on the financial position or
results of the operation of the Company.
The Company is also a party to a lawsuit filed by a male former Company
employee seeking monetary damages due to alleged wrongful termination and
intentional infliction of emotional distress arising out of his termination of
employment in March 1994. The case was originally filed in the Circuit Court
of Fairfax County Virginia and in March 1996 was removed to the United States
District Court of the Eastern District of Virginia, Alexandria Division. The
case is scheduled for trial in June 1996. The Company intends to defend the
case vigorously. While it is not feasible to predict the outcome of this
case, management believes that its ultimate disposition will not have a
material adverse effect on the financial position or results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock and preferred stock are traded on the New York
Stock Exchange ("NYSE") and the Chicago Stock Exchange. As of March 1, 1996,
there were approximately 3,475 holders of record of the Company's common stock
and 959 holders of record of the Company's preferred stock, excluding
beneficial owners of shares held in the names of brokers or other nominees.
The closing prices for the common and preferred stock on the New York Stock
Exchange as of March 1, 1996, were $7.00 and $12.38, respectively. The
quarterly market price ranges for the Company's common and preferred stock on
the New York Stock Exchange in 1995 and 1994 were as follows:
Common Stock 1995 1994
Fiscal Quarter High Low High Low
First $ 7.13 $5.63 $8.00 $2.88
Second 9.38 6.25 6.88 4.75
Third 10.38 8.50 5.88 4.50
Fourth 9.63 6.63 6.38 4.50
Preferred Stock 1995 1994
Fiscal Quarter High Low High Low
First $11.88 $10.88 $13.00
$11.00
Second 12.25 11.63 12.13
11.50
Third 13.25 11.75 11.63
10.88
Fourth 12.88 11.88 11.13
10.50
No dividends were paid on the Company's common stock in 1995 or 1994. Regular
quarterly dividends of $.25 per share were paid on preferred stock in both
years.
Item 6. Selected Financial Data
(in thousands of dollars,
except per share data) 1995 1994 1993 1992
1991
Operating Results:
Revenues $133,967 $136,206 $149,414 $148,762
$146,484
Net income (loss) (3,807) 5,953 (7,906) 3,631
3,359
Net income (loss) per common
share (.33) .40 (.73) .26
.25
Financial Position:
Cash and cash equivalents 5,833 5,129 5,374 4,344
188
Total assets 95,170 81,903 93,214 90,679
75,644
Long-term debt 4,281 765 -- 9,500
10,500
Stockholders' equity 38,639 38,768 29,321 36,016
30,650
Preferred dividends 695 695 695 695
695
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition (The following should be read in conjunction
with the consolidated financial statements and related notes. Dollar
amounts are expressed in thousands.)
COMPANY OVERVIEW
Throughout 1995, Titan pursued its strategy of investing in its emerging
commercial businesses. Investment dollars were provided primarily by drawing
upon the Company's bank line of credit and through internally generated funds.
The investments included, among other things, the construction of the Titan
Scan medical device sterilization facility in San Diego, California, hardware
and software development related to the secure television business and
increased selling, marketing and research and development expenditures.
Significant accomplishments achieved by Titan's emerging commercial businesses
this year included the award of a $10 million fixed price rural telephony
development contract in Indonesia, the completion of a $2 million contract in
Thailand to integrate a satellite network, delivery of the first products in
the secure television business and the sale of a turnkey medical device
sterilization system in Austria. These accomplishments marked significant
progress for Titan. However, the need to speed up product development and the
commercialization process heightened the challenge of internally funding these
start-up activities. As such, management continued the process of critically
examining Titan's long-term operating and financing strategy.
In response, the Board of Directors adopted a strategy to reshape the Company
in order to make it more attractive to external funding sources within the
capital marketplace. A formal plan of restructuring was adopted which
redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. As
part of this strategy, management has determined that the restructuring would
require dispositions of certain of Titan's businesses as well as significant
reorganizations of its Software Systems segment and sterilization business,
reductions of personnel, and other actions associated with reorganizing the
structure of the Company. A charge of approximately $5.4 million was recorded
in 1995 to reflect these restructuring activities. Titan's strategic plan now
focuses on the pursuit of various financing alternatives including, but not
limited to, public and private offerings of minority interests in certain of
its subsidiaries and the sale of non-core businesses, in order to provide
additional funding for the development and commercialization of new products
and services.
The Company is currently involved in a number of start-up ventures, most
notably secure television, commercial satellite communications, and medical
device sterilization. Certain investments made in these start-up ventures
have been capitalized and are included in the balance sheet, primarily within
the captions of Property and Equipment and Other Assets which includes
capitalized software costs. At December 31, 1995, these capitalized
investments aggregate approximately $12.5 million. These start-up ventures
are in various growth stages and have not yet generated sufficient revenues to
achieve profitability. Management plans to continue to invest, primarily in
the Communications Systems segment, while at the same time carefully
monitoring its return on investment from all of its start-up ventures.
An essential element of the Company's long-term operating plan is the growth
associated with its well established Defense Systems segment. This segment
offers a variety of opportunities for Titan. Management intends to grow this
segment's businesses relying on Titan's proven technological capabilities and
reputation for performance. During 1995, achievements in this segment
included a $12 million award for low rate initial production for Mini-DAMA
satellite communications terminals, a $5.2 million contract with the U.S. Navy
for engineering services in the C3I area, and a $2.8 million production order
for satellite communication modems to be installed in Motorola's LST-5
tactical radios.
OPERATING RESULTS
The table below sets forth Titan's consolidated revenues, operating profit
(loss), net interest expense, provision for income taxes (benefit) and net
income (loss) for each of the three years ended December 31, 1995:
1995 1994 1993
Revenues $ 133,967 $ 136,206 $ 149,414
Operating profit (loss) (3,955) 9,635 (14,647)
Interest expense, net 1,059 632 1,506
Income tax provision (benefit) (1,207) 3,050 (6,547)
Net income (loss) (3,807) 5,953 (7,906)
Titan's consolidated revenues were $133,967, $136,206 and $149,414 in 1995,
1994 and 1993, respectively. Excluding revenues from Titan's Applications
Group, which was sold in April 1994, Titan's pro forma 1995-1993 revenues were
$133,967, $124,293 and $117,714 reflecting a compound annual growth rate of
6.6%. This revenue growth was achieved primarily in the Communications
Systems and Software Systems segments, while the Defense Systems segment,
excluding the Applications Group, and Emerging Technologies segment revenues
were relatively stable over the three year period.
Titan's consolidated operating profit (loss) has been significantly impacted
by a number of factors in each of the three years shown above. Combined
selling, marketing, and research and development expenses were $12,008, $9,686
and $7,557 in 1995, 1994 and 1993, respectively, reflecting Titan's efforts to
expand commercial applications of its technologies and to continue developing
certain defense communication technologies. General and administrative
expenses decreased from $18,164 in 1994 to $17,434 in 1995 after having been
reduced significantly from the 1993 level of $21,930. The decrease in 1994
resulted from specific actions taken to reduce headcount as well as more
selective bid and proposal activity primarily in Titan's Defense Systems
segment. Restructuring charges were recorded in both 1995 and 1994 reflecting
management's efforts to adapt to both internal and external forces impacting
Titan's long-term operating strategy. The 1994 charge was offset by a $12,700
pre-tax gain resulting from the sale of Titan's Applications Group. Lastly,
in 1993, operating profit was significantly impacted by the recording of an
increase in estimated cost at completion of approximately $9,950 on the
Company's Mini-DAMA fixed price development contract with the U.S. Navy.
Net interest expense has fluctuated significantly over the three year period
ended December 31, 1995. Generally, the principal component of interest
expense is the Company's borrowings under its bank line of credit. Borrowings
from this source averaged $6,400, $4,180 and $14,200 at weighted average
interest rates of 8.8%, 7.6% and 5.5% during 1995, 1994 and 1993,
respectively. Also affecting interest expense is interest on the Company's
deferred compensation and retiree medical obligations. Interest expense
related to these items was $726, $529 and $441 for 1995, 1994 and 1993,
respectively. Interest on the deferred compensation obligation will continue
to increase as the total obligation increases, while interest on the retiree
medical obligation is expected to decrease.
Income taxes reflect a benefit of $1,207 in 1995 or a 24% effective tax rate.
The difference between the actual provision and the expected provision (based
on the United States statutory tax rates applicable each year) is due to the
alternative minimum tax and to permanent differences between financial
statement income and taxable income. The provision for taxes in 1994 was
$3,050, or a 34% effective tax rate, while the benefit for taxes in 1993 was
$6,547 or a 41% effective rate. The differences between the actual effective
rate and the expected rate in both these years was largely due to the effects
of research credits and operating loss carryforwards. Also with respect to
taxes, in 1993 Titan recorded a $1,700 benefit representing the cumulative
effect of a change in accounting principal as a result of the Company's
adoption of SFAS No. 109 "Accounting for Income Taxes".
Business Segments
Communications Systems: The Communications Systems segment contains two
business units, both targeting rapidly growing commercial markets. The first
business unit, secure television, specializes in providing complete turnkey
security for television delivery systems. The second business unit is
satellite communications, which develops, manufactures and sells satellite
earth station networks and related subsystems.
Revenues in this segment were $7,490, $6,319 and $6,492 in 1995, 1994 and
1993, respectively. The composition of the revenues was significantly
different over the three year period. Revenues in 1995 included approximately
$2,400 of secure television revenues from the Company's first contract in this
business area. There were no secure television revenues in 1994 or 1993.
Revenues in the satellite communications business unit were approximately
$5,100 in 1995, $6,000 in 1994 and $6,400 in 1993. However, in early 1995,
Titan sold its transceiver manufacturing division which was part of this
business unit. On a pro forma basis, excluding the sold division, this
segment's revenues were approximately $7,000, $2,500 and $1,300 in 1995, 1994
and 1993, respectively. The increase in pro forma revenues from 1994 to 1995
resulted from obtaining and performing on a contract to develop and integrate
a satellite communications network in Thailand as well as from the addition of
secure television revenues previously mentioned. The change from 1993 to 1994
was primarily due to increased sales of voice digitizing cards.
The segment's operating loss was $4,488 in 1995 compared to $7,927 in 1994 and
$7,413 in 1993. The loss in 1995 reflects the start-up nature of this
segment's businesses which require significant selling, marketing and research
and development activities disproportionate to the level of revenues generated
to date. Management intends to continue investing in these businesses and, as
a result, expects that significant losses will also be experienced in 1996.
The loss in 1994 includes approximately $5,400 of losses and restructuring
charges associated with Titan exiting its transceiver manufacturing business
which was primarily responsible for this segment's 1993 operating loss.
Software Systems: The Software Systems segment provides custom and semi-
custom software development services to assist customers in moving from older
mainframe systems to distributed computing systems utilizing client/server
software.
Revenues in this segment were $33,175 for 1995, $28,868 in 1994 and $13,713 in
1993. One customer accounted for approximately $24,000 of this segment's
revenue in both 1995 and 1994, and $9,700 in 1993. In the second half of
1995, this segment experienced reduced demand from this customer and
management expects this trend to continue in 1996. The 1995 revenue increase
was generated from new customers. As shown above, the increase from 1993 to
1994 resulted from increased business with the one significant customer.
Segment income margin (segment operating income as a percentage of segment
revenues) was 11.5% in 1995 and 21.6% in 1994. The 1995 decrease was
principally due to the effect of restructuring charges for severance and other
reorganization costs and the impact of reduced sales volume from the one
previously mentioned customer. Segment income margin was 6.7% in 1993. The
results for 1993 included losses on certain now completed fixed price
contracts which significantly lowered overall segment profitability.
Defense Systems: The Defense Systems segment includes two business units,
communications and information systems, which provide information systems
solutions primarily to U.S. and allied government and defense customers. The
defense communications business develops and produces advanced satellite
terminals and associated voice/data processing modems. These products are
specifically tailored to meet defense requirements, provide highly secure
communications and are produced in relatively small amounts. The defense
information systems business supports high priority government programs by
providing information systems engineering services as well as development and
integration of systems and specialized products.
Revenues in this segment were $67,948, $78,780 and $103,071 for 1995, 1994 and
1993, respectively. However, excluding revenues attributable to the Company's
Applications Group, pro forma segment revenues were $67,948, $66,867 and
$71,371 for 1995, 1994 and 1993, respectively. The decrease from 1993 to 1994
was due to reduced shipments in the Electronics division. Revenues in 1995
and 1994 included approximately $18,300 and $9,700, respectively, for work
subcontracted to the buyer of the Applications Group. There was no operating
profit associated with these revenues. This contract is expected to conclude
in mid-1996. Furthermore, 1995 revenues and operating profit included
approximately $1,400 recovered from a termination for convenience claim with
the U.S. Government for work performed in prior years.
Segment income margin for 1995 was 6.6%, compared with 6.0% in 1994. In 1993
there was an operating loss of $2,804. Operating results for 1994 include
$2,500 of profit resulting from a favorable settlement and from improved
contract performance on the Company's Mini-DAMA fixed price development
contract. This profit was offset by a charge of approximately $3,200 for
restructuring this segment's Electronics division. The loss in 1993 was
primarily the result of recording an increase in estimated costs to complete
the Company's Mini-DAMA fixed price development contract which was the subject
of a contract dispute with the customer, the U.S. Navy.
Emerging Technologies: Emerging Technologies contains a group of mature
businesses generally involved in Department of Defense (DoD) funded research
and development contracts and start-up commercial businesses, including
medical product sterilization services and systems and environmental
consulting services. The Company's strategy is to use the research and
development activities as a source of additional DoD and commercial products,
systems and services.
Revenues in this segment were $25,354, $22,239 and $26,138 in 1995, 1994 and
1993, respectively. Approximately $7,400 of 1995 revenue was generated by the
segment's start-up businesses. Substantially all remaining revenue for all
periods presented was derived from the various established business lines.
This segment's operating profit (loss) has not been material in relation to
Titan's consolidated operating results. Generally losses experienced by the
start-up operations have offset profits contributed by the segment's other
lines of business.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company used cash for increased operating requirements,
investing in its emerging businesses which included significant capital
expenditures as well as investments in capitalized software costs, and payment
of dividends. The operating cash requirements resulted primarily from an
increase in accounts receivable and inventories along with payment of certain
compensation obligations and funding of restructuring activities. Cash was
provided from a variety of sources. The Company utilized $9,200 of its bank
line of credit, obtained $4,600 as a result of secured debt financing for the
San Diego Scan facility, received $2,325 through a private placement of common
stock and $1,835 from the sale of businesses. In January 1996, the Company
obtained $1,784 in cash as a result of the replacement of a maturing secured
obligation with a new secured financing transaction.
Cash requirements in 1996 are expected to continue to be significant. Cash
generation varies from quarter to quarter and in most years the Company has
experienced higher cash requirements in the first quarter than in other
quarters. Management expects this pattern to continue in the first quarter of
1996. During 1996, the Company expects to invest up to $11 million primarily
in the further development of business ventures within the Communications
Systems segment. Funding is planned to be from operations, the bank line of
credit, and the sale of non-core businesses. Titan's line of credit agreement
requires the Company to have annual net income, as defined, prohibits two
consecutive quarterly losses and contains other financial covenants which
require the Company to maintain stipulated levels of tangible net worth, a
minimum debt service coverage ratio and a specified quick ratio. The Company
has obtained a waiver from the bank for the 1995 net loss. In order to
provide additional funding for further and/or accelerated growth, the Company
continues to explore various other financing alternatives. Should the Company
be unable to successfully obtain outside financing, the investment in these
start-up ventures could change.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Management's Discussion and Analysis of
Results of Operations and Financial Condition that are not related to
historical results are forward looking statements. Actual results may differ
materially from those stated or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of
future events which may not prove to be accurate. These forward looking
statements involve risks and uncertainties including but not limited to those
referred to below.
Entry Into Commercial Business. Prior to 1992, the Company's revenues had
been derived principally from business with the Department of Defense and
other government agencies. Since that time, the Company has pursued a
strategy of using the technology from its defense business to build commercial
businesses. This strategy presents both significant opportunities and
significant risks for the Company. Many of the Company's commercial
businesses, such as secure television, satellite communications and medical
sterilization, remain in an early stage. As such, the Company is subject to
all the risks inherent in the operation of a start-up venture, including the
need to develop and maintain marketing, sales and customer support
capabilities, to secure appropriate third party manufacturing arrangements, to
respond to the rapid technological advances inherent in these markets and to
secure the necessary financing to support these activities. In addition, many
of the opportunities in the secure television and satellite communications
businesses are large, international projects which require long lead times in
the contract process. The Company's efforts to address these risks have
required, and will continue to require, significant expenditures and dedicated
management time and other resources. There can be no assurance that the
Company will be successful in addressing these risks.
Reliance on Major Software Customer. The Company's Software Systems business
is substantially dependent on business from a major telecommunications company
to develop and support access carrier client/server software applications.
Revenues from this customer totalled approximately $24.5 million, $24.3
million and $9.7 million, or 18%, 18% and 7% of total Company revenues in
1995, 1994 and 1993, respectively. In the second half of 1995, the Company
experienced reduced demand from this customer and management expects this
trend to continue in 1996. The loss of this customer, or a substantial delay
or decrease in the amount of its business, could have a material adverse
effect on the Company's results of operations and financial condition.
Dependence on Defense Spending. The Company's Defense Systems segment is
dependent upon continued funding of U.S. Department of Defense programs.
Titan, like other companies doing business with the U.S. Department of
Defense, has been affected by declining defense budgets and has experienced
increased competition in certain of its defense business areas. The size and
scope of any reductions in future defense budgets is uncertain, and management
anticipates that competition in most defense-related areas will continue to be
intense.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement Schedules
Page
Report of Independent Public
Accountants....................................... 15
Financial Statements
Consolidated Statements of
Operations....................................... 16
Consolidated Balance
Sheets................................................. 17
Consolidated Statements of Cash
Flows....................................... 18
Consolidated Statements of Stockholders'
Equity............................. 19
Notes to Consolidated Financial
Statements.................................. 20-30
Supporting Financial Statement Schedule Covered by the Foregoing Report of
Independent Accountants:
Schedule II - Valuation and Qualifying
Accounts................................. 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Titan Corporation:
We have audited the accompanying consolidated balance sheets of The Titan
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995,
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 5 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Diego, California
February 28, 1996
The Titan Corporation
Consolidated Statements of Operations
(in thousands of dollars, except per share data)
For the years ended
December 31,
1995 1994
1993
Revenues $133,967 $136,206
$149,414
Costs and expenses:
Cost of revenues 102,231 99,921
134,574
Selling, general and administrative expense 23,538 22,511
27,230
Research and development expense 5,904 5,339
2,257
Restructuring and other (income) expense, net 6,249
(1,200) --
Total costs and expenses 137,922 126,571
164,061
Operating profit (loss) (3,955) 9,635
(14,647)
Interest expense (1,154)
(923) (1,590)
Interest income 95 291
84
Income (loss) before income taxes and cumulative
effect of change in accounting (5,014) 9,003
(16,153)
Income tax provision (benefit) (1,207) 3,050
(6,547)
Net income (loss) before cumulative effect of
change in accounting (3,807) 5,953
(9,606)
Cumulative effect as of January 1, 1993,
of change in accounting for income taxes -- --
1,700
Net income (loss) (3,807) 5,953
(7,906)
Dividend requirement on preferred stock (695)
(695) (695)
Net income (loss) applicable to common stock $ (4,502) $ 5,258
$ (8,601)
Per Average Common Share:
Income (loss) before cumulative effect of
change in accounting $ (.33) $ .40
$ (.87)
Cumulative effect of change in accounting for
income taxes -- --
.14
Net income (loss) $ (.33) $ .40
$ (.73)
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Balance Sheets
(in thousands of dollars, except par values)
As of
December 31,
1995
1994
Assets
Current Assets:
Cash and cash equivalents $ 5,833
$ 5,129
Accounts receivable - net 39,360
36,164
Inventories 10,399
7,155
Prepaid expenses and other current assets 2,872
2,430
Deferred income taxes 4,809
4,769
Total current assets 63,273
55,647
Property and equipment - net 18,295
12,932
Goodwill - net of accumulated amortization of $3,842 and $3,289 3,550
4,103
Other assets 10,052
9,221
Total assets $95,170
$81,903
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $10,184
$ 7,402
Line of credit 9,200
- --
Current portion of long-term debt 1,019
556
Accrued compensation and benefits 9,192
11,000
Other accrued liabilities 13,803
15,250
Total current liabilities 43,398
34,208
Long-term debt 4,281
765
Other non-current liabilities 8,852
8,162
Commitments and contingencies
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: none issued --
- --
Common stock: $.01 par value; authorized 30,000,000
shares; issued and outstanding: 15,087,087 and
14,632,458 shares 151
146
Capital in excess of par value 31,148
27,860
Retained earnings 10,169
14,671
Treasury stock (1,161,147 and 1,521,534 shares), at cost (3,524)
(4,604)
Total stockholders' equity 38,639
38,768
Total liabilities and stockholders' equity $95,170 $
81,903
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the years ended
December 31,
1995 1994
1993
Cash Flows from Operating Activities:
Net income (loss) $(3,807) $ 5,953
$(7,906)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring activities (486) (1,200)
- --
Cumulative effect of accounting change -- --
(1,700)
Depreciation and amortization 4,117 3,424
4,495
Deferred income taxes and other 178 681
(3,354)
Change in operating assets and liabilities
(net of effects of sale of businesses):
Accounts receivable (3,196) 8,091
1,850
Inventories (3,287) (494)
3,332
Prepaid expenses and other assets 811 160
(406)
Accounts payable 2,782 (44)
2,347
Income taxes payable -- --
(1,688)
Accrued compensation and benefits (1,808) 1,559
892
Other liabilities (1,249) (12,218)
8,150
Net cash provided by (used for) operating
activities (5,945) 5,912
6,012
Cash Flows from Investing Activities:
Proceeds, net of transaction costs, from sale
of businesses 1,835 16,766
- --
Capital expenditures (8,988) (6,244)
(6,301)
Capitalized software costs (1,957) (1,345)
(22)
Other 117 33
139
Net cash provided by (used for) investing activities (8,993) 9,210
(6,184)
Cash Flows from Financing Activities:
Additions to debt 13,800 --
2,500
Retirements of debt (621) (16,871)
(958)
Proceeds from stock issuances 3,158 2,199
355
Dividends paid (695) (695)
(695)
Net cash provided by (used for) financing activities 15,642 (15,367)
1,202
Net increase (decrease) in cash and cash equivalents 704 (245)
1,030
Cash and cash equivalents at beginning of year 5,129 5,374
4,344
Cash and cash equivalents at end of year $ 5,833 $ 5,129
$ 5,374
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars, except per share data)
Capital
Preferred Common in Excess of Retained
Treasury
Stock Stock Par Value Earnings Stock
Total
Balances at December 31, 1992 $ 695 $ 136 $24,618 $18,014
$ (7,447)
$36,016
Exercise of stock options
and other -- 2 356 -- (3)
355
Shares contributed to
employee benefit plans -- -- -- -- 1,551
1,551
Dividends on preferred
stock - $1 per share -- -- -- (695) --
(695)
Net loss -- -- -- (7,906) --
(7,906)
Balances at December 31, 1993 695 138 24,974 9,413
(5,899)
29,321
Exercise of stock options -- 8 2,191 -- --
2,199
Shares contributed to employee
benefit plans and other -- -- -- -- 1,295
1,295
Income tax benefit from
employee stock transactions -- -- 695 -- --
695
Dividends on preferred stock -
$1 per share -- -- -- (695) --
(695)
Net income -- -- -- 5,953 --
5,953
Balances at December 31, 1994 695 146 27,860 14,671
(4,604)
38,768
Stock issuance -- -- 1,413 -- 912
2,325
Exercise of stock options -- 5 1,209 -- (381)
833
Shares contributed to employee
benefit plans -- -- 322 -- 549
871
Income tax benefit from employee
stock transactions -- -- 344 -- --
344
Dividends on preferred stock -
$1 per share -- -- -- (695) --
(695)
Net loss -- -- -- (3,807) --
(3,807)
Balances at December 31, 1995 $ 695 $ 151 $31,148 $ 10,169
$ (3,524)
$ 38,639
The accompanying notes are an integral part of these consolidated
financial statements.
The Titan Corporation
Notes to Consolidated Financial Statements
(in thousands of dollars, except per share data)
Note 1. Summary of Significant Accounting Policies
Nature of Operations. The Titan Corporation provides engineering, technical,
management and consulting services in the areas of national security, software
systems, communication systems, advanced research and development,
sterilization and the environment. The Company also develops, designs,
manufactures and markets satellite communications subsystems, secure
television security systems, pulse power products including linear
accelerators, and hardened electronic subsystems.
Principles of Consolidation. The consolidated financial statements include
the accounts of The Titan Corporation ("Titan" or "the Company") and its
subsidiaries. All significant intercompany transactions and balances have
been eliminated. Also, certain prior year amounts have been reclassified to
conform to the 1995 presentation.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Start-up Activities. The Company is involved in a number of start-up
ventures, most notably secure television, commercial satellite communications
and medical device sterilization. Certain investments made in these start-up
ventures are reflected in the balance sheet, primarily within the captions of
Property and Equipment and Other Assets, which includes capitalized software
costs. These capitalized investments aggregate approximately $12,500 at
December 31, 1995. These start-up ventures are in various early growth stages
and have not yet generated sufficient revenues to achieve profitability. At
this time, management plans to continue to invest in these ventures and will
review and evaluate the realizability of the related assets.
Revenue Recognition. A majority of the Company's revenue, both commercial and
government, is derived from products manufactured and services performed under
cost-reimbursement and fixed-price contracts wherein revenues are generally
recognized using the percentage-of-completion method. Certain other revenues
are recognized as units are delivered. Estimated contract losses are fully
charged to operations when identified.
Cash Equivalents. All highly liquid investments purchased with a maturity of
three months or less are classified as cash equivalents.
Inventories. Inventories include the cost of material, labor and overhead,
and are stated at the lower of cost, determined on the first-in, first-out
(FIFO) and weighted average methods, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with estimated useful
lives of 2 to 15 years for leasehold improvements and 3 to 7 years for
machinery and equipment and furniture and fixtures. Certain machinery and
equipment in the Company's medical sterilization business is depreciated based
on units of production.
Goodwill. The excess of the cost over the fair value of net assets of
purchased businesses ("goodwill") is amortized on a straight-line basis over
varying lives ranging from 5 to 20 years. The Company periodically re-
evaluates the original assumptions and rationale utilized in the establishment
of the carrying value and estimated lives of these assets. The criteria used
for these evaluations include management's estimate of the asset's continuing
ability to generate positive income from operations and positive cash flow in
future periods as well as the strategic significance of the intangible asset
to the Company's business objectives.
Capitalized Software Costs. The Company's policy is to amortize capitalized
software costs over the greater of (a) the ratio that current gross revenues
for a product bears to the total of current and amortized future gross
revenues for that product, or (b) the straight-line method over the remaining
estimated economic life of the product including the period being reported on.
Notwithstanding the above, the maximum amortization period is four years. It
is reasonably possible that those estimates of anticipated future gross
revenues, the remaining estimated economic life of the product, or both, could
be reduced in the future which could significantly impact the carrying amount
of the capitalized software costs.
Income Taxes. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires the use of the liability method of accounting for
deferred income taxes. Under this method, deferred income taxes are recorded
to reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
year-end. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
Per Share Information. Per share information is based on the weighted average
number of common shares and all dilutive common share equivalents outstanding
(13,445,000 in 1995, 13,288,000 in 1994, and 11,739,000 in 1993). Common
stock equivalents consist primarily of shares issuable upon the exercise of
stock options. Conversion of preferred stock has not been assumed as the
effect of the conversion would not be dilutive in any of the periods
presented.
Recent Accounting Pronouncements. The Financial Accounting Standards Board
("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". This statement establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
goodwill related to those assets to be held and used, and for long-lived
assets and certain identifiable intangibles to be disposed of. The FASB has
also issued SFAS No. 123 "Accounting for Stock-Based Compensation". This
Statement (No. 123) provides companies the option to account for employee
stock compensation awards based on their estimated fair value at the date of
grant, resulting in a charge to income in the period the awards are granted,
or to present pro forma footnote disclosure describing the effect to the
Company's net income and net income per share data as if the Company had
adopted SFAS 123. SFAS 121 and SFAS 123 are effective for companies with
fiscal years beginning after December 15, 1995. The Company has not yet
determined what impact, if any, the adoption of SFAS 121 or SFAS 123 will have
on the Company's financial statements or related disclosures thereto.
Note 2. Restructuring
In early 1994, Titan sold its Applications Group (its Army training and
simulation service business) as part of a formal plan of restructuring adopted
at that time. The sale resulted in a pre-tax gain of approximately $12,700
and generated net cash proceeds of approximately $17,000. The gain on sale
was substantially offset by provisions made for the estimated costs of planned
disposals and/or consolidations of certain operations deemed not compatible
with the Company's long range strategy at that time. Such strategy was
primarily reliant upon Titan internally funding the product development
efforts and commercialization activities relating to its start-up ventures.
The Board of Directors adopted a new formal plan of restructuring for 1995
that redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies.
Implementation of this restructuring plan provides for further disposition of
businesses not central to the Company's long-term strategy as currently
defined. Management believes these actions will better position the Company
for growth and strategic transactions designed to increase shareholder value.
The restructuring charge of $5,431 also provides for significant
reorganization of the Software Systems segment and the sterilization business,
reductions of personnel, and other actions associated with reorganizing the
structure of the Company.
As explained above, Titan has historically funded growth for new business
areas with internally generated funds, its bank line of credit and certain
secured long-term debt. Presently, the Company intends to pursue various
financing alternatives in order to provide additional funding for the
development and commercialization of its emerging business areas. In
management's opinion, the need for and the timing of these further
restructuring activities were largely driven by management's plan to gain
access to capital markets as a significant source of continued development
funding. Should the Company be unable to successfully obtain outside funding,
the level of investment in these emerging businesses could change.
The restructuring charge of $5,431 includes approximately $2,000 for severance
which provides for the termination of a total of 84 employees throughout the
Company. As of December 31, 1995, 12 employees had been terminated and a
total of $318 had been charged against the accrual. The restructuring charge
also includes approximately $3,400 for the exiting of businesses, which is net
of a $1,450 pre-tax gain on the sale in September 1995 of the Company's
shaped-charge munitions business. The charge includes estimates for direct
costs of the planned disposals, termination of certain agreements, and other
costs associated with selling or closing certain businesses. A total of $461
had been charged against the accrual as of December 31, 1995. This group of
businesses had revenues of $19,384 and an operating loss of $298 in 1995.
Note 3. Other Financial Data
Following are details concerning certain balance sheet accounts:
1995 1994
Accounts Receivable:
U.S. Government - billed $ 14,449 $ 20,176
U.S. Government - unbilled 10,758 9,224
Trade 14,447 7,176
Less allowance for doubtful accounts (294)
(412)
$ 39,360 $ 36,164
Unbilled receivables include approximately $5,000 at December 31, 1995 and
1994 representing work-in-process which will be billed in accordance with
contract terms and delivery schedules. Also included in unbilled receivables
are amounts billable upon final execution of contracts, contract completion,
milestones or completion of rate negotiations. Generally, unbilled receivables
are expected to be collected within one year. Payments to the Company for
performance on certain U.S. Government contracts are subject to audit by the
Defense Contract Audit Agency. Revenues have been recorded at amounts
expected to be realized upon final settlement.
1995 1994
Inventories:
Materials $ 3,152 $ 2,921
Work-in-process 4,159 1,287
Finished goods 3,088 2,947
$ 10,399 $ 7,155
Property and Equipment:
Machinery and equipment $ 23,429 $ 21,619
Furniture and fixtures 3,207 3,307
Leasehold improvements 3,503 2,818
Construction in progress 6,041 1,968
36,180 29,712
Less accumulated depreciation and
amortization (17,885) (16,780)
$ 18,295 $ 12,932
Deferred income taxes of $5,904 and $5,501 and capitalized software costs of
$3,088 and $1,345 are included in Other Assets at December 31, 1995 and 1994,
respectively. At December 31, 1995 and 1994, respectively, other liabilities,
current and non-current, include $958 and $2,185 related to estimated losses
on contracts. In addition, these captions include liabilities for post-
retirement benefits for employees of previously discontinued operations of
$3,016 and $3,134 at December 31, 1995 and 1994, respectively. Also included
in other accrued liabilities are customer advance payments of approximately
$1,653 and $1,503 at December 31, 1995 and 1994, respectively, and $4,914 and
$3,814 related to restructuring activities at December 31, 1995 and 1994,
respectively.
Note 4. Segment Information
In 1995, Titan classified its businesses in four industry segments,
Communications Systems, Software Systems, Defense Systems, and Emerging
Technologies. This change from prior years more clearly reflects the nature
of the Company's operations after restructuring. All prior year segment data
have been restated to conform to the 1995 presentation. The Communications
Systems segment contains two start-up business units, both targeting rapidly
growing commercial markets. The first business unit, secure television,
specializes in providing complete turnkey security for television delivery
systems. The second business unit is satellite communications, which
develops, manufactures and sells satellite earth station networks and related
subsystems. The Software Systems segment provides custom and semi-custom
software development services to assist customers in moving from older
mainframe systems to distributed computing systems utilizing client/server
software. The Defense Systems segment, serving primarily the U.S. Government,
includes satellite communications products; test and evaluation of complex
systems; management and technical consulting; training and simulation support;
and other consulting and engineering services. The Defense Systems segment
also provides militarized computers. The Emerging Technologies segment
contains a group of businesses including the start-up medical product
sterilization services and systems and environmental consulting services
businesses as well as several established businesses generally involved in
broad-based technology development primarily for the U.S. Government.
Substantially all operations are located in the United States. Export revenues
amounted to approximately $14,240, $8,498, and $16,289 in 1995, 1994 and 1993,
respectively, primarily to countries in Western Europe and the Far East.
The following tables summarize industry segment data for 1995, 1994 and 1993.
1995 1994 1993
Revenues:
Communications Systems $ 7,490 $ 6,319 $ 6,492
Software Systems 33,175 28,868 13,713
Defense Systems 67,948 78,780 103,071
Emerging Technologies 25,354 22,239 26,138
$133,967 $136,206 $149,414
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 $81,632 in 1995, $93,107 in 1994, and $112,001 in 1993. In the
Defense Systems segment, revenues in 1995 and 1994 included approximately
$18,300 and $9,700, respectively, for work subcontracted to the buyer of the
Applications Group which was sold in April 1994. There was no operating
profit associated with these revenues. This contract is expected to conclude
in mid-1996. Furthermore, 1995 Defense Systems revenues and operating profit
included approximately $1,400 recovered from a termination for convenience
claim with the U.S. Government for work performed in prior years. Within the
Software Systems segment, sales to one customer, a telephone company, totalled
$24,451, $24,323, and $9,712, in 1995, 1994 and 1993, respectively. No other
single customer accounted for 10% or more of the consolidated revenues for
these years. Intersegment sales were not significant in any year.
1995 1994 1993
Operating Profit (Loss):
Communications Systems $ (4,488) $ (7,927) $ (7,413)
Software Systems 3,803 6,237 915
Defense Systems 4,456 4,725 (2,804)
Emerging Technologies 14 (305) 947
Corporate (7,740) 6,905 (6,292)
$(3,955) $ 9,635 $(14,647)
The Defense Systems segment includes Applications Group revenue of $11,913 and
$31,700 and operating profit of $919 and $3,300 in 1994 through the date of
sale and in the full year 1993, respectively.
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.
1995 1994 1993
Identifiable Assets:
Communications Systems $ 8,287 $ 4,813 $ 3,649
Software Systems 8,945 6,084 3,458
Defense Systems 39,587 38,859 58,625
Emerging Technologies 19,191 12,165 9,866
General corporate assets 19,160 19,982 17,616
$95,170 $81,903 $93,214
General corporate assets are principally cash, prepaid expenses, deferred
income taxes, and other assets.
1995 1994 1993
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems $ 366 $ 387 $ 177
Software Systems 1,044 533 715
Defense Systems 1,744 1,838 2,813
Emerging Technologies 712 630 756
Corporate 251 36 34
$ 4,117 $ 3,424 $ 4,495
Capital Expenditures:
Communications Systems $ 697 $ 397 $ 56
Software Systems 1,709 1,784 562
Defense Systems 1,431 2,003 1,598
Emerging Technologies 5,007 1,963 4,046
Corporate 144 97 39
$ 8,988 $ 6,244 $ 6,301
Note 5. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
statement changed the criteria for the recognition and measurement of deferred
tax assets and liabilities, including net operating loss carryforwards. Prior
years' financial statements were not restated to apply the provisions of SFAS
109. The cumulative effect of the adoption of the accounting change was an
increase in 1993 net income of $1,700 ($0.14 per share) relating to the
recognition of additional net deferred tax assets.
The components of the income tax provision (benefit) are as follows:
1995 1994 1993
Current:
Federal $(2,232) $1,377 $(2,334)
State (220) 203 --
(2,452) 1,580 (2,334)
Deferred 1,245 1,470 (4,213)
$(1,207) $3,050 $(6,547)
Following is a reconciliation of the income tax provision (benefit) expected
(based on the United States federal income tax rate applicable in each year)
to the actual tax provision (benefit) on income (loss):
1995 1994 1993
Expected Federal tax provision
(benefit) $(1,705) $3,061 $(5,492)
State income taxes, net
of Federal income tax
benefits (44) 450 (540)
Loss carryforwards/carrybacks -- (216) --
Research credit -- (338) (570)
Goodwill amortization 160 149 15
Alternative minimum tax 100 -- --
Keyman life insurance 75 83 60
Other 207 (139) (20)
Actual tax provision (benefit) $(1,207) $ 3,050 $(6,547)
During 1993, the Revenue Reconciliation Act of 1993 was signed into law which
reinstated research tax credits retroactive to July 1, 1992. The retroactive
application of the law increased the Company's 1992 research credit by $570
which is reflected in the income tax provision for the year ended December 31,
1993.
The deferred tax assets as of December 31, 1995 and 1994, result from the
following temporary differences:
1995 1994
Inventory and contract loss reserves $ 3,005 $ 4,102
Employee benefits 4,289 4,518
Restructuring 2,786 2,534
Tax credit carryforwards 815 1,315
Depreciation (1,875) (1,664)
Loss carryforward 1,680 429
Other 1,213 236
11,913 11,470
Valuation allowance (1,200) (1,200)
Net deferred tax assets $10,713 $10,270
Realization of certain components of the net deferred tax asset is dependent
on Titan generating sufficient taxable income prior to expiration of loss and
credit carryforwards. Although realization is not assured, management believes
it is more likely than not that the net deferred tax asset will be realized.
The amount of the net deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are changed. Also, under Federal tax law, certain
potential changes in ownership of the Company which may not be within the
Company's control may limit annual future utilization of these carryforwards.
Net tax refunds in 1995 were $828. Cash paid for income taxes was $1,252 and
$309 in 1994 and 1993, respectively.
Note 6. Debt
At December 31, 1995, the Company had debt outstanding of $9,200 under an
unsecured bank line of credit at a weighted average interest rate of 8.13%.
The Company also had commitments under letters of credit at December 31, 1995
of $1,070 which reduced availability of the line of credit. In May 1995, this
bank line of credit was increased to $17,000 from $10,000 and the maturity
date was extended from May 1996 to May 1997. The Company has the option to
borrow at prime or at LIBOR plus 2 percent. The line of credit agreement
requires Titan to have annual net income, as defined, prohibits two
consecutive quarterly losses and contains other financial covenants which
require the Company to maintain stipulated levels of tangible net worth, a
minimum debt service coverage ratio and a specified quick ratio. A waiver was
received relating to the 1995 net loss. No borrowings were outstanding under
this agreement at December 31, 1994. Borrowings under the Company's lines of
credit averaged $6,400, $4,180, and $14,200 at weighted average interest rates
of 8.8%, 7.6% and 5.5% during 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994 the Company had $5,300 and $1,321, respectively,
outstanding under two promissory notes, secured by certain machinery and
equipment. The interest rates of the notes are 8.5% and 8.56%. In January
1996, the Company entered into another loan agreement for $2,500 at an
interest rate of 7.42%, also secured by machinery and equipment. Part of the
proceeds from this agreement were used to repay one of the promissory notes
outstanding at December 31, 1995 with a principal balance of $765.
Cash paid for interest, primarily on these borrowings, was $572, $578, and
$1,274 in 1995, 1994 and 1993, respectively.
Note 7. Commitments and Contingencies
Titan is obligated for aggregate rentals of $41,609 under operating lease
agreements, principally for facilities. These leases generally include
renewal options and require minimum payments of $5,426 in 1996, $4,936 in
1997, $4,452 in 1998, $3,810 in 1999, $3,475 in 2000 and $19,510 for the years
thereafter. Rental expense under these leases was $7,496 in 1995, $7,367 in
1994 and $6,294 in 1993. The Company has entered into a long-term lease
agreement for facilities which are owned by an entity in which the Company has
a minority ownership interest. Rental expense in 1995, 1994 and 1993 includes
$868, $838, and $824, respectively, paid under this agreement.
The Company is a party to four separate lawsuits filed by former employees
claiming, among other things, wrongful termination and discrimination. The
cases are scheduled for trial in March, April and June of 1996. The Company
intends to continue to defend the cases vigorously. While it is not feasible
to predict the outcome of these cases, management believes that their ultimate
disposition will not have a material adverse effect on the financial position
or results of operations of the Company.
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further,
the Company and its subsidiaries are subject to claims and from time to time
are named as defendants in legal proceedings. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
Note 8. 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 9. Common Stock
At December 31, 1995, aggregate common shares reserved for future issuance for
conversion of preferred stock, all stock incentive plans and warrants were
2,792,568.
On August 17, 1995, the Board of Directors adopted a Shareholder Rights
Agreement and subsequently distributed one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. Each
Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Preferred Shares") at a price of $42.00 per one
one-hundredth of a Preferred Share, subject to adjustment. The Rights become
exercisable if a person or group acquires, in a transaction not approved by
the Company's Board of Directors ("Board"), 15% or more of the Company's
common stock or announces a tender offer for 15% or more of the stock.
If a person or group acquires 15% or more of the Company's common stock, each
Right (other than Rights held by the acquiring person or group which become
void) will entitle the holder to receive upon exercise a number of shares of
Company common stock having a market value of twice the Right's exercise
price. If the Company is acquired in a transaction not approved by the Board,
each Right may be exercised for common shares of the acquiring company having
a market value of twice the Right's exercise price. The Company may redeem
the Rights at $.01 per Right, subject to certain conditions. The Rights
expire on August 17, 2005.
In September 1995, the Company completed a private placement of 300,000 shares
of its common stock, receiving net proceeds of $2,325. Treasury shares were
used for the issuance. The Company's shares were placed with offshore
institutional investors pursuant to Regulation S under the Securities Act of
1933, as amended.
Note 10. Stock Incentive Plans
At December 31, 1995, 1,218,811 shares of common stock were reserved for
options granted under Titan's stock option plans for officers, directors and
key employees. Options vest ratably over 4 years and expire up to 10 years
from the date granted. The option price must not be less than the fair market
value on the date of grant, and the provisions covering exercise are
established at the date of grant by the option committee.
A summary of changes in the shares under option is shown below:
Shares Issuable
Under Options
Outstanding Price Range
Balance at December 31, 1992 1,837,014 $ 1.63 - 4.25
Options granted 536,500 2.63 - 3.50
Options exercised (129,716) 1.63 - 3.25
Options terminated (223,436) 1.63 - 4.25
Balance at December 31, 1993 2,020,362 1.63 - 4.25
Options granted 369,000 2.63 - 6.63
Options exercised (855,212) 1.63 - 4.25
Options terminated (104,694) 1.63 - 4.25
Balance at December 31, 1994 1,429,456 1.63 - 6.63
Options granted 429,000 5.75 - 9.50
Options exercised (454,629) 1.63 - 7.13
Options terminated (185,016) 1.63 - 6.63
Balance at December 31, 1995 1,218,811 2.13 - 9.50
At December 31, 1995, and 1994, respectively, options for 451,521 and 568,816
shares were exercisable, and 509,944 and 814,706 shares were reserved for the
granting of additional options in the future.
Note 11. Benefit Plans
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $2,514, $2,291,
and $2,713 in 1995, 1994 and 1993, respectively. The Company's discretionary
contributions to its Employee Stock Ownership Plan were $339 and $487 in 1994
and 1993, respectively. There were no discretionary contributions for 1995.
During 1995, 1994 and 1993, the Company utilized treasury stock of $871,
$1,267, and $1,551, 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
$970, $668, and $680 in 1995, 1994, and 1993, respectively. At December 31,
1995 and 1994, respectively, Other Non-current Liabilities include $2,975 and
$2,466 for obligations under this plan. Interest expense for the years ended
December 31, 1995, 1994, and 1993 includes $486, $229, and $191, respectively,
related to the plan. The Company also has performance bonus plans for certain
of its employees. Related expense amounted to approximately $2,679, $5,220
and $1,708 in 1995, 1994 and 1993, respectively.
The Company has previously provided for post-retirement benefit obligations of
operations discontinued in prior years. The Company has no post-retirement
benefit obligations for any of its continuing operations.
Note 12. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Total
1995 Quarter Quarter Quarter Quarter(b)
Year .
Revenues $ 30,165 $ 34,307 $ 34,983 $ 34,512
$133,967
Gross profit 8,464 9,222 7,346 6,704
31,736
Net income (loss) 535 719 470 (5,531)
(3,807)
Net income (loss) per
common share .03 .04 .02 (.41)
(.33)
First Second Third Fourth
Total
1994 Quarter Quarter(a) Quarter Quarter
Year .
Revenues $ 39,689 $ 28,804 $ 29,541 $ 38,172 $
136,206
Gross profit 8,249 7,400 9,382 11,254
36,285
Net income 751 1,773 1,514 1,915
5,953
Net income per common share .05 .12 .10 .13
.40
(a) Net income in the second quarter of 1994 includes a net restructuring
credit of $1,200.
(b) Net loss in the fourth quarter of 1995 includes a net restructuring
charge (see Note 2 of Notes to Consolidated Financial Statements).
The above financial information for each quarter reflects all normal and
recurring adjustments.
Item 9. Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to the directors and the
executive officers of the Company is incorporated herein by this reference to
such information in the definitive proxy statement for the 1996 Annual Meeting
of Stockholders.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by this reference
to such information in the definitive proxy statement for the 1996 Annual
Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by this reference
to such information in the definitive proxy statement for the 1996 Annual
Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by this reference
to such information in the definitive proxy statement for the 1996 Annual
Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2. Financial statements being filed as part of this report are
listed in the index in Item 8 on page 14.
(b) The Company filed a current report on Form 8-K dated October 19, 1995 to
report an amendment to the Company's bylaws.
3. Exhibits
3.1 Titan's Restated Certificate of Incorporation dated as of November 6,
1986 which was Exhibit 3.1 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference. Titan's Certificate of
Amendment of Restated Certificate of Incorporation dated as of June 30,
1987 which was Exhibit 3.2 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to Registrant's
Quarterly Report on Form 10-Q dated November 13, 1995 is incorporated
herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 9, L.P., a Delaware limited partnership, which was
Exhibit 4.1 to Registrant's Form 8-K dated July 11, 1991 is incorporated
herein by this reference.
4.2 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 10 Incorporated, a Maryland corporation, which was
Exhibit 4.2 to Registrant's Form 8-K dated July 11, 1991 is incorporated
herein by this reference.
4.3 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.
10.1 Stock Option Plan of 1983, as amended though January 1, 1987, which was
Exhibit 10.2 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1, 1987, which was
Exhibit 10.3 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990 definitive proxy
statement and was Exhibit 10.11 to Registrant's 1989 Annual Report on
Form 10-K is incorporated herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994 definitive proxy
statement and was Exhibit 10.17 to Registrant's 1993 Annual Report on
Form 10-K is incorporated herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the 1990 definitive
proxy statement and was Exhibit 10.12 to Registrant's 1989 Annual Report
on Form 10-K is incorporated herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the 1993 definitive
proxy statement and was Exhibit 10.14 to Registrant's 1992 Annual Report
on Form 10-K is incorporated herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan.
10.8 Supplemental Retirement Plan for Key Executives which was filed in the
1990 definitive proxy statement and was Exhibit 10.13 to Registrant's
1989 Annual Report on Form 10-K is incorporated herein by this
reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to Registrant's
Form S-8 dated December 18, 1995, is incorporated herein by this
reference.
10.10 Lease Agreement dated as of July 9, 1991 by and between Torrey Pines
Limited Partnership, a California limited partnership, as landlord, and
Registrant, as tenant, which was Exhibit 10.1 to Registrant's Form 8-K
dated July 11, 1991 is incorporated herein by this reference.
10.11 Secured Promissory Note and Security Agreement dated as of April 14,
1993 by and between Fleet Credit Corporation and Registrant, which was
Exhibit 10.16 to Registrant's 1993 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.12 Asset Purchase Agreement as of March 5, 1994, by and between Registrant
and Cubic Corporation which was Exhibit 2 to Registrant's Form 8-K dated
March 5, 1994 is incorporated herein by this reference.
10.13 Line of Credit Agreement dated as of August 8, 1994, by and between
Sumitomo Bank of California and Registrant, which was Exhibit 10.16 to
Registrant's 1994 Annual Report on Form 10-K, is incorporated herein by
this reference.
10.14 Executive Severance Plan entered into by the Company with Gene W. Ray,
John E. Koehler, Ronald B. Gorda, David A. Hahn, Roger Hay, Cornelius L.
Hensel, Frederick L. Judge and Stephen P. Meyer, 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 First Amendment to Commercial Loan Agreement dated May 25, 1995 by and
between Registrant and Sumitomo Bank of California.
10.16 Second Amendment to Commercial Loan Agreement dated December 29, 1995 by
and between Registrant and Sumitomo Bank of California.
10.17 Loan and Security Agreement, dated December 29, 1995 by and between
Registrant and Capital Associates International, Inc.
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.
21. Titan Subsidiaries as of December 31, 1995.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
THE TITAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
Balance
Balance
at
at
beginning
end
of year Additions Deductions
of year
1995:
Allowance for doubtful accounts $ 412 $ 193 $ 311 $
294
1994:
Allowance for doubtful accounts 764 1 353
412
1993:
Allowance for doubtful accounts 555 561 352
76
EXHIBIT 21
SUBSIDIARIES OF THE TITAN CORPORATION
State or
Jurisdiction
Name of
Incorporation
Federal Services, Inc.......................................... California
Pulse Sciences, Inc............................................ California
Titan Environmental Corporation................................ Delaware
Titan Information Systems Corporation.......................... Delaware
Titan Beam International Group................................. Delaware
Tomotherapeutics, Inc.......................................... Delaware
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated February 28, 1996, into the Company's previously filed
Registration Statements (as amended, as applicable) File Numbers 33-4830, 33-
4041, 33-9570, 33-12119, 33-15680, 33-15892, 33-37827, 33-56762, 33-65123, and
33-83402.
ARTHUR ANDERSEN LLP
San Diego, California
March 29, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf
by the undersigned, thereunto duly authorized.
THE TITAN CORPORATION
By /s/
Gene W. Ray
President and Chief Executive
Officer
March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Chairman of the March 29, 1996
J.S. Webb Board of Directors
/s/ President, Chief March 29, 1996
Gene W. Ray Executive Officer and
Director
/s/ Senior Vice President and March 29, 1996
Roger Hay Chief Financial Officer
(Principal Financial Officer)
/s/ Vice President and March 29, 1996
Jane E. Judd Corporate Controller
(Principal Accounting Officer)
/s/ Director March 29, 1996
Charles R. Allen
/s/ Director March 29, 1996
Joseph F. Caligiuri
/s/ Director March 29, 1996
Daniel J. Fink
/s/ Director March 29, 1996
Robert E. La Blanc
/s/ Director March 29, 1996
Thomas G. Pownall
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of the 31st
day of January, 1996, by and between SANWA GENERAL EQUIPMENT LEASING, A
DIVISION
OF SANWA BUSINESS CREDIT CORPORATION, its successors and assigns ("Lender"),
and
THE TITAN CORPORATION ("Borrower").
Borrower is desirous of obtaining a loan from Lender and Lender is willing
to make the loan to Borrower upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in
hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties do hereby agree as follows:
1. Advance of Loan.
(a) On the terms and conditions hereinafter set forth, the
parties
agree that Lender shall lend to Borrower certain sums (the "Loan") on the terms
specified pursuant to that certain commitment letter dated January 3 , 1996
(the
"Commitment Letter"; which is incorporated herein by reference). Time is of
the
essence.
(b) The obligation to repay the Loan hereunder shall be
evidenced
by one or more promissory notes payable by Borrower to the order of Lender in
substantially the form attached hereto as Exhibit No. 1 (hereinafter
collectively
referred to as the "Promissory Note"). The Promissory Note shall bear
interest,
be payable and mature as set forth in Exhibit No. 1.
(c) The commitment of Lender to make the Loan herein shall
expire
on the date specified in the Commitment Letter, provided, however, that such
commitment shall terminate (at Lender's option) upon the occurrence of any
Default (as such term is hereinafter defined) or of any event which, with the
giving of notice or lapse of time, or both, would become a Default hereunder.
2. Security. As security for the payment as and when due of the
indebtedness of Borrower to Lender hereunder and under Borrower's
Promissory Note
(and any renewals, extensions and modifications thereof) and under any other
agreement or instrument, both now in existence and hereafter created related to
the transaction described in this Agreement (as the same may be renewed,
extended
or modified), and the performance as and when due of all other obligations of
Borrower to Lender, both now in existence and hereafter created related to the
transaction described in this Agreement (as the same may be renewed,
extended or
modified) (the "Obligations"), Borrower hereby grants to Lender a purchase
money
security interest in the items of equipment (the "Equipment") described on the
collateral schedule(s) in substantially the form attached hereto as Exhibit
No. 2
(hereinafter collectively referred to as the "Collateral Schedule") now or
hereafter executed in connection with the Promissory Note, and all
replacements,
substitutions and alternatives therefor and thereof and accessions thereto and
all proceeds (cash and non-cash), including the proceeds of all insurance
policies, thereof (the "Collateral"). Borrower agrees that with respect to the
Collateral Lender shall have all of the rights and remedies of a secured party
under the Maryland Uniform Commercial Code (the "UCC"). Borrower may not
dispose
of any of the Collateral without the prior written consent of Lender,
notwithstanding the fact that proceeds constitute a part of the Collateral.
3. Conditions Precedent to Lender's Obligation. The obligation of
lender to make the Loan as set forth in Section 1 hereof is expressly
conditioned
upon compliance by Borrower, to the reasonable satisfaction of Lender and its
counsel, of the following conditions precedent:
(a) Concurrently with the execution hereof, or on or prior
to the
date on which Lender is to advance the Loan hereunder, Borrower shall
cause to be
provided to Lender the following:
(1) Resolutions of the Board of Directors or validly
authorized Executive Committee of Borrower, certified by the Secretary or an
Assistant Secretary of Borrower, duly authorizing the borrowing of funds
hereunder and the execution, delivery and performance of this Agreement and all
related instruments and documents.
(2) An opinion of counsel for Borrower satisfactory as to
form and substance to Lender, as to each of the matters set forth in sub-parts
(a) through (e) of Section 4 hereof and as to such other matters as Lender may
reasonably request.
(3) Uniform Commercial Code Financing Statements duly
executed on behalf of Borrower.
(b) On each date on which Lender is to advance funds hereunder,
(1) Borrower shall cause to be provided to Lender the
following:
a. A certificate executed by the Secretary or an
Assistant Secretary of Borrower, certifying that the representations and
warranties of Borrower contained herein remain true and correct as of such
date, and that no Default or event which, with the giving of notice or
the lapse of
time, or both, would become a Default hereunder, has then occurred.
b. Evidence satisfactory to Lender as to due
compliance with the insurance provisions of Section 5(f) hereof.
c. A Promissory Note in the amount of the Loan to be
advanced on such date, duly executed on behalf of Borrower, pursuant to
Section 1
hereof.
d. Photocopies of the invoice(s) or other evidence
reasonably satisfactory to Lender and its counsel, related to the acquisition
cost of the Collateral to which such advance of the Loan relates.
e. A Collateral Schedule describing the Collateral to
which such advance of the Loan relates.
(2) Such filings shall have been made and other actions
taken as reasonably may be required by Lender and its counsel to perfect a
valid,
first priority security interest granted by Borrower to Lender with respect to
the Collateral.
(3) No Default or event which, with the giving of notice or
lapse of time, or both, would become a Default hereunder, shall have occurred.
4. Representations and Warranties. Borrower hereby represents and
warrants that:
(a) Borrower is a corporation duly organized, and validly existing
in good standing under the laws of the state of its incorporation; and is duly
qualified and authorized to transact business as a foreign corporation in good
standing in each state in which the Collateral is to be located.
(b) Borrower has the corporate power and authority to own or hold
under lease its properties and to enter into and perform its obligations
hereunder; and the borrowing hereunder by Borrower from Lender, the execution,
delivery and performance of this Agreement and all related instruments and
documents, (1) have been duly authorized by all necessary corporate action on
the
part of Borrower; (2) do not require any stockholder approval or approval or
consent of any trustee or holders of any indebtedness or obligations of
Borrower
except such as have been duly obtained; and (3) do not and will not contravene
any law, governmental rule, regulation or order now binding on Borrower, or the
certificate of incorporation or by-laws of Borrower, or contravene the
provisions
of, or constitute a default under, or result in the creation of any lien or
encumbrance upon the property of Borrower under any agreement to which Borrower
is a party or by which it or its property is bound.
(c) Neither the execution and delivery by Borrower of this
Agreement and all related instruments and documents, nor the consummation
of any
of the transactions by Borrower contemplated hereby or thereby, requires the
consent or approval of, the giving of notice to, the registration with, or the
taking of any other action in respect of, any Federal, state or foreign
governmental authority or agency, except as provided herein.
(d) This Agreement constitutes, and all related instruments and
documents when entered into will constitute, the legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with the
terms
hereof and thereof, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or
affecting the enforcement of creditors' rights generally, and by applicable
laws
(including any applicable common law and equity) and judicial decisions which
may
affect the remedies provided herein and therein.
(e) Other than as set forth in Schedule 4(e) hereto, there
are no
pending or threatened actions or proceedings to which Borrower is a party, and
there are no other pending or threatened actions or proceedings of which
Borrower
has knowledge, before any court, arbitrator or administrative agency, which,
either individually or in the aggregate, would materially adversely affect the
financial condition of Borrower, or the ability of Borrower to perform its
obligations hereunder. Further, Borrower is not in default under any material
obligation for the payment of borrowed money, for the deferred purchase
price of
property or for the payment of any rent which, either individually or in the
aggregate, would have the same such effect.
(f) Under the laws of the state(s) in which the Equipment
is to be
located, the Equipment consists solely of personal property and not fixtures
(with the exception of the cell).
(g) Upon payment in full of the acquisition cost of the
Equipment,
Borrower will have good and marketable title to the Equipment, free and
clear of
all liens and encumbrances (excepting only the lien of Lender). Upon the
last to
occur of: (1) delivery of an item of Equipment, (2) payment to the vendor
of the
acquisition cost of such item of the Equipment, (3) advance by Lender to
Borrower
of the Loan relating to such item of the Equipment, and (4) filing in the
appropriate public offices of Uniform Commercial Code financing statements or
statements of amendment naming Borrower as debtor, and Lender as secured party,
and describing such item of the Equipment, Lender will have a valid, perfected,
first priority security interest in such item of the Equipment.
(h) The financial statements of Borrower (copies of which have
been furnished to Lender) have been prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"), and fairly
present
Borrower's financial condition and the results of Borrower's operations
as of the
date of and for the period covered by such statements, and since the date of
such
statements there has been no material adverse change in such conditions.
(i) Borrower has filed or has caused to have been filed all
federal, state and local tax returns which, to the knowledge of Borrower, are
required to be filed, and has paid or caused to have been paid all taxes as
shown
on such returns or on any assessment received by it, to the extent that such
taxes have become due, unless and to the extent only that such taxes,
assessments
and governmental charges are currently contested in good faith and by
appropriate
proceedings by Borrower and adequate reserves therefor have been established as
required under GAAP. To the extent Borrower believes it advisable to do so,
Borrower has set up reserves which are believed by Borrower to be adequate for
the payment of additional taxes for years which have not been audited by the
respective tax authorities.
(j) Borrower is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject and the violation of
which
would have a material adverse effect on the conduct of its business, and
Borrower
has obtained any and all licenses, permits, franchises or other governmental
authorizations necessary for the ownership of its properties and the conduct of
its business, the violation of which would have a material adverse effect
on the
conduct of its business.
(k) None of the proceeds of the Loan will be used, directly or
indirectly, by Borrower for the purpose of purchasing or carrying, or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to
purchase or carry, any "margin security" within the meaning of Regulation G (12
CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR
Part
221), of the Board of Governors of the Federal Reserve System (herein called
"margin security" and "margin stock") or for any other purpose which might make
the transactions contemplated herein a "purpose credit" within the meaning of
Regulation G or Regulation U, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities Exchange Act of 1934 or the Small Business Investment Act of 1958,
as
amended, or any rules or regulations promulgated under any of such statutes.
(l) The address stated below the signature of Borrower is the
chief place of business and chief executive office of Borrower.
5. Covenants of Borrower. Borrower covenants and agrees as follows:
(a) The proceeds of the Loan will be used exclusively for business
or commercial purposes and to refinance the indebtedness secured by the
Equipment.
(b) Borrower shall use the Collateral solely in the conduct of its
business and in a careful and proper manner; and shall not change the location
of
any item of the Collateral, as specified on the applicable Collateral Schedule,
without the prior written consent of Lender, which shall not unreasonably be
withheld.
(c) Borrower shall not dispose of or further encumber its interest
in the Collateral without the prior written consent of Lender.
(d) Borrower, at its own expense, will pay or cause to be paid all
taxes and fees relating to the ownership and use of the Equipment and will keep
and maintain, or cause to be kept and maintained, the Equipment in accordance
with the manufacturer's recommended specifications, and in as good operating
condition as on the date of execution hereof (or on the date on which acquired,
if such date is subsequent to the date of execution hereof), ordinary wear and
tear resulting from proper use thereof alone excepted, and will provide all
maintenance and service and make all repairs necessary for such purpose. In
addition, if any parts or accessories forming part of the Equipment shall from
time to time become worn out, lost, destroyed, damaged beyond repair or
otherwise
permanently rendered unfit for use, Borrower, at its own expense, will within a
reasonable time replace such parts or accessories or cause the same to be
replaced, with replacement parts or accessories which are free and clear of all
liens, encumbrances or rights of others and have a value and utility at least
equal to the parts or accessories replaced. All accessories, parts and
replacements for or which are added to or become attached to the Equipment
shall
immediately be deemed incorporated in the Equipment and subject to the security
interest granted by Borrower herein. Upon reasonable advance notice, Lender
shall have the right to inspect the Equipment and all maintenance records
thereto, if any, at any reasonable time.
(e) The parties intend that the Equipment shall remain personal
property, notwithstanding the manner in which it may be affixed to any real
property, and Borrower shall obtain and deliver to Lender (to be recorded at
Borrower's expense) from the landlord and any mortgagee having an encumbrance
or
lien on the property (the "Premises") where the Equipment is to be located,
waivers of any lien, encumbrance or interest which such person might have or
hereafter obtain or claim with respect to the Equipment. Borrower shall
maintain
the Equipment free from all claims, liens and legal processes of creditors of
Borrower other than liens (1) for fees, taxes, or other governmental charges of
any kind which are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof (provided,
however,
that such proceedings do not involve any substantial danger of the sale,
forfeiture or loss of the Equipment or any interest therein); (2) liens of
mechanics, materialmen, laborers, employees or suppliers and similar liens
arising by operation of law incurred by Borrower in the ordinary course of
business for sums that are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which suspend the
collection
thereof (provided, however, that such contest does not involve any substantial
danger of the sale, forfeiture or loss of the Equipment or any interest
therein);
and (3) liens arising out of any judgments or awards against Borrower which
have
been adequately bonded to protect Lender's interests or with respect to which a
stay of execution has been obtained pending an appeal or a proceeding for
review.
Borrower shall notify Lender immediately upon receipt of notice of any lien,
attachment or judicial proceeding affecting the Equipment in whole or in part.
(f) At its own expense, Borrower shall keep the Equipment or cause
it to be kept insured against loss or damage due to fire and the risks normally
included in extended coverage, malicious mischief and vandalism, for the full
replacement value thereof. All insurance for loss or damage shall provide that
losses, if any, shall be payable to Lender. The proceeds of such insurance
payable as a result of loss of or damage to the Equipment shall be applied, at
Lender's reasonable option, (x) toward the replacement, restoration or
repair of
the Equipment which may be lost, stolen, destroyed or damaged, or (y) toward
payment of the balance outstanding on the Promissory Note or the Obligations.
In
addition, Borrower shall also carry public liability insurance, both personal
injury and property damage. All insurance required hereunder shall be in form
and amount and with companies reasonably satisfactory to Lender. Borrower
shall pay or cause to be paid the premiums therefor and deliver to Lender
evidence
satisfactory to Lender of such insurance coverage. Borrower shall cause to be
provided to Lender, not less than fifteen (15) days prior to the scheduled
expiration or lapse of such insurance coverage, evidence satisfactory to Lender
of renewal or replacement coverage. Each insurer shall agree, by endorsement
upon the policy or policies issued by it, or by independent instrument
furnished
to Lender, that (1) it will give Lender thirty (30) days' (10 days notice for
non-payment of premium) prior written notice of the effective date of any
material alteration or cancellation of such policy; and (2) insurance as to the
interest of any named loss payee other than Borrower shall not be
invalidated by
any actions, inactions, breach of warranty or conditions or negligence of
Borrower with respect to such policy or policies.
(g) Borrower shall promptly and duly execute and deliver to Lender
such further documents, instruments and assurances and take such further action
as Lender may from time to time reasonably request in order to carry out the
intent and purpose of this Agreement and to establish and protect the rights
and
remedies created or intended to be created in favor of Lender hereunder;
including, without limitation, the execution and delivery of any Uniform
Commercial Code Financing Statement or other document reasonably required, and
payment of all necessary costs to record such documents (including payment of
any
documentary or stamp tax), to perfect and maintain perfected the security
interest granted under this Agreement.
(h) Borrower shall provide written notice to Lender (1) thirty
(30) days prior to any contemplated change in the name or address of Borrower
or
of Borrower's corporate structure such that a filed financing statement would
become seriously misleading (within the meaning of the UCC); and (2) promptly
upon the occurrence of any event which constitutes a Default (as hereinafter
defined) hereunder or which, with the giving of notice, lapse of time or both,
would constitute a Default hereunder.
(i) Borrower shall furnish Lender (1) within one hundred twenty
(120) days after the end of each fiscal year of Borrower, its 10-K Report and
balance sheet as at the end of such year, and the related statement of income
and statement of changes in financial position for such fiscal year, prepared
in
accordance with GAAP, all in reasonable detail and certified by independent
certified public accountants of recognized standing selected by Borrower (which
shall be a "Big 6" accounting firm); (2) within ninety (90) days after the
end of
each quarter of Borrower's fiscal year, its 10-Q Report and balance sheet as at
the end of such quarter and the related statement of income and statement of
changes in financial position for such quarter, prepared in accordance with
GAAP;
and (3) within thirty (30) days after the date on which they are filed, all
reports, forms and other filings required to be made by Borrower to the
Securities and Exchange Commission, if any.
(j) Borrower shall at all times maintain its corporate existence
except as expressly permitted herein. Borrower shall not consolidate with,
merge
into, or convey, transfer or lease substantially all of its assets as an
entirety
to (such actions being referred to as an "Event"), any Person (which term, for
the purposes of this paragraph means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, or government or any agency or political subdivision thereof),
unless (not less than sixty (60) days before the Event):
(1) such Person shall be an entity organized and existing
under the laws of the United States of America or any state or the District of
Columbia, and shall execute and deliver to Lender an agreement containing an
effective assumption by such Person of the due and punctual performance and
observance of each covenant and condition of this Agreement to be performed or
observed by Borrower; and
(2) Lender is reasonably satisfied as to the
creditworthiness of such Person.
(k) Borrower shall provide written notice to Lender of the
commencement of proceedings under the Federal bankruptcy laws or other
insolvency
laws (as now or hereafter in effect) involving Borrower as a debtor.
(l) Borrower shall indemnify and defend Lender, its successors
and
assigns, and their respective directors, officers and employees, from and
against
any and all claims, actions and suits (including, without limitation, related
attorneys' fees) of any kind, nature or description whatsoever arising,
directly
or indirectly, in connection with any of the Collateral, including (without
limitation) any rent paid to the landlord of the Premises, and all costs of
repair or restoration of the Premises (in each case, (other than such as may
result from the gross negligence or willful misconduct of Lender, its
successors
and assigns, and their respective directors, officers and employees).
(m) Borrower has conducted, and will continue to conduct its
business operations, and so long as any Obligations remains outstanding will
use
the Collateral, so as to comply with all Environmental Laws in all material
respects; as of the date hereof, and as of the date of execution of each
Collateral Schedule, except as have been previously disclosed in writing by
Borrower to Lender, there are no Hazardous Substances generated, treated,
handled, stored, transported, discharged, emitted, released or otherwise
disposed
of in connection with Borrower's use of the Collateral resulting in any
material
liability or obligations; and Borrower has, and so long as any Obligations
remains outstanding will continue to have in full force and effect all federal,
state and local licenses, permits, orders and approvals required to operate the
Collateral in compliance with all Environmental Laws in all material respects.
As used herein, the following terms shall have the following meaning:
(A) "Adverse Environmental Condition" shall mean (i) the existence or the
continuation of the existence of an Environmental Contamination
(including, without limitation, a sudden or non-sudden accidental or
non-accidental Environmental Contamination), or exposure to any
substance, chemical, material, pollutant, Hazardous Substance, odor
or audible noise or other release or emission in, into or onto the
environment (including without limitation, the air, ground, water or
any surface) at, in, by, from or related to any Collateral, (ii) the
environmental aspect of the transportation, storage, treatment or
disposal of materials in connection with the operation of any
Collateral, or (iii) the violation, or alleged violation, of any
Environmental Law, permits or licenses of, by or from any
governmental authority, agency or court relating to environmental
matters connected with any of the Collateral.
(B) "Environmental Claim" shall mean any accusation, allegation, notice of
violation, claim, demand, abatement or other order on direction
(conditional or otherwise) by any governmental authority or any
Person for personal injury (including sickness, disease or death),
tangible or intangible property damage, damage to the environment or
other adverse affects on the environment, or for fines, penalties or
restrictions, resulting from or based upon any Adverse Environmental
Condition.
(C) "Environmental Contamination" shall mean any actual or threatened
release, spill, emission, leaking, pumping, injection, presence,
deposit, abandonment, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, or into or out of
any of the Collateral, including, without limitation, the movement
of any Hazardous Substance or other substance through or in the air,
soil, surface water, groundwater or property which is not in
compliance with applicable Environmental Laws.
(D) "Environmental Law" shall mean any present or future federal, foreign,
state or local law, ordinance, order, rule or regulation and all
judicial, administrative and regulatory decrees, judgments and
orders, pertaining to health, industrial hygiene, the use, disposal
or transportation of Hazardous Substances, Environmental
Contamination, or pertaining to the protection of the environment,
including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C.
1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. 6901 et seq.), the Clean Air Act (42 U.S.C. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.),
the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
1361 et seq.), the Occupational Safety and Health Act (19 U.S.C.
651 et seq.), the Hazardous and Solid Waste Amendments (42 U.S.C.
2601 et seq.),
as these laws have been or may be amended or supplemented, and any successor
thereto, and any analogous foreign, state or local statutes, and the rules,
regulations and orders promulgated pursuant thereto.
(E) "Environmental Loss" shall mean any loss, cost, damage, liability,
deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees, engineering and other professional or
expert fees), investigation, removal, cleanup and remedial costs
(voluntarily or involuntarily incurred) and damages to, loss of the
use of or decrease in value of the Collateral arising out of or
related to any Adverse Environmental Condition.
(F) "Hazardous Substances" shall mean and include hazardous substances as
defined in CERCLA; oil of any kind, petroleum products and their by-
products, including, but not limited to, sludge or residue; asbestos
containing materials; polychlorinated biphenyls; any and all other
hazardous or toxic substances; hazardous waste, as defined in
CERCLA; medical waste; infectious waste; those substances listed in
the United States Department of Transportation Table (49 C.F.R.
172.101); explosives; radioactive materials; and all other
pollutants, contaminants and other substances regulated or
controlled by the Environmental Laws and any other substance that
requires special handling in its collection, storage, treatment or
disposal under the Environmental Laws.
(G) "Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency
thereof and any other entity.
6. Default. Borrower shall be deemed to be in default hereunder
("Default") if (a) Borrower shall fail to make any payment of the
Obligations as
and when due, and such failure shall continue unremedied for a period of ten
(10)
days after the same shall have become due; or (b) Borrower shall fail to
provide
the insurance required pursuant to Section 5(f) hereof; or (c) Borrower's Net
Worth shall not be equal to or exceed Thirty-Five Million Dollars
($35,000,000.00) as of the end of each of Borrower's fiscal quarters
(i.e. March
31, June 30, September 30 and December 31) during the term of this
Agreement; or
(d) Borrower shall fail to perform or observe in timely fashion any other
covenant, condition or agreement to be performed or observed by it hereunder
or
under the Promissory Note and such failure shall continue unremedied for a
period
of thirty (30) days after written notice thereof to Borrower by Lender; or (e)
Borrower shall (1) be generally not paying its debts as they become due, (2)
take
action for the purpose of invoking the protection of any bankruptcy or
insolvency
law, or any such law is invoked against or with respect to Borrower or its
property, and any such petition filed against Borrower is not dismissed within
sixty (60) days; or (f) any certificate, statement, representation, warranty or
audit contained herein or heretofore or hereafter furnished with respect hereto
by or on behalf of Borrower proving to have been false in any material
respect at
the time as of which the facts therein set forth were stated or certified, or
having omitted any substantial contingent or unliquidated liability or claim
against Borrower; or (g) Borrower shall be in default under any obligation for
the payment of borrowed money, for the deferred purchase price of property or
for
the payment of any rent, and the applicable grace period with respect thereto
shall have expired; or (h) an individual, group of individuals or entity, who
did
not own fifty (50) percent or more of Borrower's capital stock as of the date
hereof, becomes the owner of fifty (50) percent or more of Borrower's capital
stock and at such time Borrower's Debt to Tangible Net Worth equals or exceeds
twice the ratio of Borrower's Debt to Tangible Net Worth as of the date of this
Agreement, without the prior written consent of Lender. As used herein, "Debt"
shall mean Borrower's total liabilities which, in accordance with GAAP, would
be
included in the liability side of a balance sheet; and "Tangible Net Worth"
shall
mean Borrower's tangible net worth including the sum of the par or stated value
of all outstanding capital stock, surplus and undivided profits, less any
amounts
attributable to goodwill, patents, copyrights, mailing lists, catalogs,
trademarks, bond discount and underwriting expenses, organization expense and
other intangibles. Accounting terms used herein shall be as defined, and all
calculations hereunder shall be made, in accordance with GAAP.
The occurrence of a Default with respect to any Promissory Note
shall, at the sole discretion of Lender (as set forth in a written declaration
to
Borrower), constitute a Default with respect to any or all of the other
Promissory Notes. Notwithstanding anything to the contrary set forth herein,
Lender or its assignee(s) (as applicable) may exercise all rights and remedies
hereunder or under a Promissory Note independently with respect to each
Promissory Note and/or with respect to the Collateral collateralizing such
Promissory Note.
7. Remedies. Upon the occurrence of a Default hereunder, Lender
may, at its option, declare this Agreement to be in default with respect to any
or all of the Promissory Notes, and at any time thereafter may do any one or
more
of the following, all of which are hereby authorized by Borrower:
(a) Exercise any and all rights and remedies of a secured
party under the UCC in effect in the State of Maryland at the date of this
Agreement and in addition to those rights, at its sole discretion, may require
Borrower (at Borrower's sole expense) to forward promptly any or all of the
Collateral to Lender at such location as shall reasonably be required by
Lender,
or enter upon the premises where any such Collateral is located (without
obligation for rent) and take immediate possession of and remove the
Collateral
by summary proceedings or otherwise, all without liability from Lender to
Borrower for or by reason of such entry or taking of possession, whether for
the
restoration of damage to property caused by such taking or otherwise (other
than
liability caused by the gross negligence or willful misconduct of Lender or its
agents).
(b) Subject to any right of Borrower to redeem the
Collateral, sell, lease or otherwise dispose of any or all of the Collateral
in a
commercially reasonable manner at public or private sale with notice to
Borrower
(the parties agreeing that ten (10) days' prior written notice shall constitute
adequate notice of such sale) at such price as it may deem best, for cash,
credit, or otherwise, with the right of Lender to purchase and apply the
proceeds:
First, to the payment of all reasonable expenses and charges,
including the expenses of any sale, lease or other disposition, the
reasonable expenses of any taking, attorneys' fees, court costs and
any other reasonable expenses incurred or advances made by Lender in
the protection of its rights or the pursuance of its remedies, and
to provide adequate indemnity to Lender against all taxes and liens
which by law have, or may have, priority over the rights of Lender
to the monies so received by Lender;
Second, to the payment of the Obligations; and
Third, to the payment of any surplus thereafter remaining to
Borrower or to whosoever may be entitled thereto;
and in the event that the proceeds are insufficient to pay the amounts
specified
in clauses "First" and "Second" above, Lender may collect such deficiency from
Borrower.
(c) Lender may exercise any other right or remedy available to
it under this Agreement, the Promissory Note, or applicable law, or proceed by
appropriate court action to enforce the terms hereof or to recover damages for
the breach hereof or to rescind this Agreement in whole or in part.
In addition, Borrower shall be liable for any and all unpaid additional sums
due hereunder or under the Promissory Note, before, after or during the
exercise
of any of the foregoing remedies; for all reasonable legal fees and other
reasonable costs and expenses incurred by reason of any default or of the
exercise of Lender's remedies with respect thereto. No remedy referred to in
this Section is intended to be exclusive, but each shall be cumulative, and
shall
be in addition to any other remedy referred to above or otherwise available at
law or in equity, and may be exercised concurrently or separately from time to
time. Borrower hereby waives any and all existing or future claims to any
offset
against the sums due hereunder or under the Promissory Note and agrees to make
the payments regardless of any offset or claim which may be asserted by
Borrower
or on its behalf in connection with this Agreement.
The failure of Lender to exercise, or delay in the exercise of, the rights
granted hereunder upon any Default by Borrower shall not constitute a waiver of
any such right upon the continuation or recurrence of any such Default. Lender
may take or release other security; may release any party primarily or
secondarily liable for the Obligations; may grant extensions, renewals or
indulgences with respect to the Obligations and may apply any other security
therefor held by it to the satisfaction of the Obligations without prejudice to
any of its rights hereunder.
8. Notices. All notices (excluding billings and communications in
the ordinary course of business) hereunder shall be in writing, personally
delivered, sent by overnight courier service, sent by facsimile telecopier, or
sent by certified mail, return receipt requested, addressed to the other
party at
its respective address stated below the signature of such parties or at such
other addresses as such parties shall from time to time designate in writing to
the other parties; and shall be effective from the date of receipt.
9. Lender's Right to Perform for Borrower. If Borrower fails to
perform or comply with any of its agreements contained herein, Lender
shall have
the right, but shall not be obligated, to effect such performance or
compliance,
and the amount of any reasonable out-of-pocket expenses (including reasonable
outside attorney's fees) thereby incurred, together with interest thereon
at the
Late Charge Rate (as defined in the Promissory Note), shall be due and
payable by
Borrower upon demand.
Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact (which power shall be deemed coupled with an interest) to
execute, endorse and deliver any deed, conveyance, assignment or other
instrument
in writing as may be required to vest in Lender any right, title or power which
by the terms hereof are expressed to be conveyed to or conferred upon Lender,
including, without limitation, Uniform Commercial Code financing statements
(including continuation statements), real property waivers, and documents and
checks or drafts relating to or received in payment for any loss or
damage under
the policies of insurance required by the provisions of Section 5(f)
hereof, but
only to the extent that the same relates to the Collateral.
10. Successors and Assigns. This Agreement shall inure to the
benefit of Lender, its successors and assigns, and shall be binding upon the
successors of Borrower. This Agreement may not be assigned by Borrower without
the consent of Lender, which consent shall not be unreasonably withheld;
provided
however, that Borrower may assign this Agreement to any subsidiary which
succeeds
to the operations of the business utilizing the Collateral provided that the
Borrower shall remain primarily liable for all obligations hereunder and such
subsidiary shall execute an agreement evidencing such assignment in form and
content reasonably satisfactory to the Lender. Lender reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any
part of,
or any interest in, Lender's rights and obligations hereunder, in the
Promissory
Notes, in the Collateral and/or the Obligations held by it to others at any
time
and from time to time, provided, however, that Lender cannot assign to a direct
competitor of Borrower; and Lender may disclose to any such purchaser,
assignee,
transferee or participant (the "Participant"), or potential Participant, this
Agreement and all information, reports, financial statements and documents
executed or obtained in connection with this Agreement which Lender now or
hereafter may have relating to the Loan, Borrower, or the business of
Borrower.
Borrower hereby grants to any Participant all liens, rights and remedies of
Lender under the provisions of this Agreement or any other documents relating
hereto or under applicable laws. Borrower agrees that any Participant may
enforce such liens and exercise such rights and remedies in the same manner
as if
such Participant were Lender and a direct creditor of Borrower.
11. MARYLAND LAW GOVERNS. THIS AGREEMENT AND ALL OTHER
RELATED
INSTRUMENTS AND DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER
AND THEREUNDER SHALL, IN ALL RESPECTS, BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MARYLAND (WITHOUT
REGARD TO
THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF
THE
COLLATERAL.
The parties agree that any action or proceeding arising out of or
relating to this Agreement may be commenced in any state or Federal court of
competent jurisdiction in the State of Maryland, and each party submits to the
jurisdiction of such court and agrees that a summons and complaint
commencing an
action or proceeding in any such court shall be properly served and
shall confer
personal jurisdiction if served personally or by certified mail to it at its
address designated pursuant hereto, or as otherwise provided under the laws of
the State of Maryland.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO
WHICH BORROWER AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY
PERTAINING
TO THIS AGREEMENT OR THE PROMISSORY NOTE. BORROWER AUTHORIZES LENDER
TO FILE
THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM.
IT IS
HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY
JURY OF ALL CLAIMS AGAINST PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING
CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS
WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND BORROWER
HEREBY
ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN
MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY
OR
NULLIFY ITS EFFECT. BORROWER FURTHER ACKNOWLEDGES THAT IT HAS BEEN
REPRESENTED
IN THE SIGNING OF THIS AGREEMENT AND THE PROMISSORY NOTE AND IN THE
MAKING OF
THIS WAIVER BY LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
12. Miscellaneous. This Agreement, the Promissory Note all other
related instruments and documents executed pursuant hereto, and the
Commitment
Letter, constitute the entire agreement between the parties with respect to the
subject matter hereof and shall not be amended or altered in any manner
except by
a document in writing executed by both parties.
All representations, warranties, and covenants of Borrower
contained
herein or made pursuant hereto shall survive closing and continue
throughout the
term hereof and until the Obligations are satisfied in full.
Any provision of this Agreement or of any instrument or document
executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition
or unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
To the extent permitted by applicable law, Borrower hereby waives any provision
of law which renders any provision hereof or thereof prohibited or
unenforceable
in any respect. The captions in this Agreement are for convenience of
reference
only and shall not define or limit any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, under seal, as of the day and year first above written.
SANWA GENERAL EQUIPMENT LEASING, THE TITAN CORPORATION
A DIVISION OF SANWA BUSINESS Borrower
CREDIT CORPORATION
Lender
By: /S/ (SEAL) By: /S/
(SEAL)
Name: H. Duane Steelberg Name: Roger Hay
Title: Senior Vice President Title:Sr. V.P. & CFO
502 Washington Avenue 3033 Science Park Road
Suite 800 San Diego, California 92121
Towson, Maryland 21204 Facsimile: 619-552-9471
Facsimile: 410-821-8775
FIRST AMENDMENT TO
COMMERCIAL LOAN AGREEMENT
This First Amendment to the Commercial Loan Agreement ("Amendment") is
entered into as of this 25th day of May, 1995 by and between SUMITOMO BANK OF
CALIFORNIA ("Bank") and THE TITAN CORPORATION, a Delaware Corporation
("Borrower"), with reference to the following:
RECITALS
A. Borrower and Bank entered into that certain Commercial Loan
Agreement dated August 8, 1994 ("Agreement") pursuant to which Bank has agreed
to lend up to Ten Million Dollars ($10,000,000) to Borrower.
B. Borrower and Bank desire to amend the Agreement on the terms and
conditions set forth herein.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings given such terms in the
Agreement.
2. Amendments. The Agreement is hereby amended as follows:
A. 1.1 Line of Credit Amount. Section 1.1 is hereby amended in
its entirety and replaced with the following:
(a) Unsecured Line of Credit. During the Availability
Period, Bank will provide an unsecured line of credit (the "Revolving Line of
Credit") to Borrower. The maximum amount of this Revolving Line of Credit
(the "Commitment") is Seventeen Million Dollars ($17,000,000). Borrower's
obligation to repay this Revolving Line of Credit is evidenced by a promissory
note substantially in the form of Exhibit A attached hereto (the "Unsecured
Line Note").
(b) Revolving/Subline Facilities. This is a revolving line
of credit with a subline facility for letters of credit. The subline is not
to exceed Five Million Dollars ($5,000,000). During the Availability Period,
Borrower may repay principal amounts and reborrow them.
(c) Maximum Loan Balance. Borrower agrees not to permit the
outstanding principal balance of the Revolving Line of Credit plus the
outstanding amounts of any letters of credit, including any amounts drawn on
letters of credit and not yet reimbursed (such sum is the "Loan Balance") to
exceed the Commitment.
B. SECTION 1.2 is hereby amended in its entirety and replaced
with the following:
1.2 Availability Period
The period under which Borrower may draw on the Revolving Line of
Credit ("Availability Period") is between the date of this Agreement and May
31, 1997 (the "Maturity Date") unless Borrower is in default, in which event
Bank need not make any advances.
1.5 Letter of Credit Line
C. SECTION 1.5 (a) is hereby amended in its entirety and replaced
with the following:
(a) The amount of outstanding letters of credit, including amounts
drawn on letters of credit and not yet reimbursed, may not exceed at any one
time Five Million Dollars ($5,000,000) in the aggregate.
6.2 Financial Information
D. SECTION 6.2 (d) is hereby amended in its entirety and
replaced with the following:
(d) Borrower will submit a 2 year operating plan for the new
fiscal year within 60 days of the end of the old fiscal year. Such plan will
detail, on a quarterly basis for the then current fiscal year and on an annual
basis for the subsequent year, management's best estimate of revenue, expenses
and balance sheet categories and will be presented in the customary form of
Balance Sheets, Income Statements, and Cash Flow Statements.
6.3 Quick Ratio
E. SECTION 6.3 is hereby amended as follows:
Quick Ratio. To maintain on a consolidated basis as of the last
day of each quarter, a ratio of quick assets to current liabilities of at
least .85:1.00. Facility direct advances to be defined as a current
liability.
6.4 Current Ratio
F. SECTION 6.4 Current Ratio. This covenant has been
eliminated in its entirety and replaced with the following:
Minimum Debt Service Coverage Ratio To maintain on a
consolidated basis as of the last day of each quarter a Minimum Debt Service
Coverage Ratio of 1.50:1.00, increasing to 2.50:1.00 as of December 31, 1996.
"Debt Service Coverage Ratio" to be defined as EBIT* for the
previous four fiscal quarters to the sum of Cash Interest Expense for the
previous four fiscal quarters, plus the Current Portion of Long Term Debt,
plus 20% of Facility cash advances as of the date of calculation.
*Defined as earnings before interest and taxes.
6.5 Tangible Net Worth
G. SECTION 6.5, Tangible Net Worth is hereby amended as
follows:
Tangible Net Worth To maintain on a consolidated basis as
of the last day of each quarter, Tangible Net Worth equal to at least Twenty
Eight Million Dollars ($28,000,000) plus 50% of Net Income realized after
December 31, 1994.
6.10 Capital Expenditures
H. SECTION 6.10, Capital Expenditures, is hereby amended
in its entirety and replaced with the following:
Capital Expenditures Borrower to limit capital
expenditures to Twelve Million Dollars ($12,000,000) during each fiscal year.
If Borrower's capital expenditures are less than Twelve Million Dollars
($12,000,000) in any fiscal year, the difference between actual capital
expenditures and the Twelve Million Dollar ($12,000,000) covenant will be
added to the following year's covenant level, to a maximum covenant level of
Fifteen Million Dollars ($15,000,000).
"BORROWER" "BANK"
THE TITAN CORPORATION SUMITOMO BANK OF CALIFORNIA
A Delaware Corporation
By: /S/ By: /S/ .
Gene Ray, President & CEO Johanna L. Dragner, V.P.
By: /S/ .
Roger Hay, Sr. V.P. & CFO
LOAN AND SECURITY AGREEMENT Number: 2566
______________________________________________________________________________
_________________
Name of Debtor The Titan Corporation d/b/a Titan Scan Systems Name of
Secured Party: Capital Associates Address : 3033 Science
Park Road
International, Inc. San Diego,
CA 92121 Address
: 7175 West Jefferson Ave
Lakewood, CO 80235.
______________________________________________________________________________
_________________
Quantity DESCRIPTION OF PERSONAL PROPERTY (Show: Manufacturer, Model No.,
Serial No., Other Identification)
______________________________________________________________________________
_________________
All of Debtor s nowowned, or hereafter acquired, machinery, equipment,
furniture, fixtures and vehicles, at the location referenced belowwheresoever
the same may be situated, together with all acccessories, atttachments,
substitutions, replacements, renewals, additions, alterations, betterments,
repairs and proceeds (including, without limitation, insurance proceeds) of
the foregoing; including but not limited to Titan Beta TB10/15 E-Beam Medical
Device Sterilization System consisting of a 10MEV/15KW S/N 2927 Conveyor
System SN:1Y5537564 Control System SN:22B65600.
______________________________________________________________________________
_________________
Location of Equipment: Titan Scan Systems
9020 Activity Road, Suite D
San Diego, CA 92121
______________________________________________________________________________
_________________
SCHEDULE OF OBLIGATIONS
______________________________________________________________________________
_________________
Loan Amount ( Unpaid Cash Price Balance ) $ 4,600,000.00
Documentation Fees $ 1,500.00
Interest ( Finance Charge ) $ 1,600,308.00
Time Balance $ 6,200,308.00
Term of Loan 85 Months
Number of Payments 85
Payments Payable Monthly in Advance
Amount of Each Payment 1-84: $68,337.00 EACH
85th: $460,000.00
Debtor agrees to pay the Time Balance to Secured Party in eighty-five
(85) installments commencing on January 1, 1996 and continuing on the 1st of
each month thereafter until and including January 1, 2003. The first
installment shall be in the amount of $68,337.00 the next eighty-three (84)
installments shall each be in the amount of $68,337.00, and the last payment
shall be in the amount of $460,000.00.
______________________________________________________________________________
_________________
ADDITIONAL TERMS AND CONDITIONS
______________________________________________________________________________
_________________
1. Grant of Security Interest. Debtor hereby grants to Secured Party a
security interest in the personal property described above (hereinafter with
all renewals, substitutions and replacements and all parts, repairs,
improvements, additions and accessories incorporated therein or affixed
thereto referred to as the Equipment ), together with any and all proceeds
thereof and any and all insurance policies and proceeds with respect thereto.
2. Obligations Secured. The aforesaid security interest is granted by
Debtor as security for (a) the payment of the Time Balance (as set forth in
the Schedule of Obligations) and the payment and performance of all other
indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind of description, arising hereunder or in
connection herewith, howsoever evidenced, and any and all renewals and
extensions of the foregoing, and all interest, fees, charges, expenses and
attorneys fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the Liabilities ) and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to any
assignee of Secured Party, of any and every kind and description, howsoever
arising or evidenced (all of which indebtedness and obligations are
hereinafter referred to as the Other Liabilities ). Subject to Paragraph 15,
any nonpayment of installment or other amounts due hereunder shall result in
the obligation on the part of Debtor promptly to pay also an amount equal to
five per cent (5%), (or the maximum rate permitted by law, whichever is less)
of the installment or other amounts overdue.
3. Warranties. DEBTOR ACKNOWLEDGES THAT SECURED PARTY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT OF THE EQUIPMENT, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR
ANY
PARTICULAR PURPOSE. EXCEPT AS MAY BE SET FORTH IN A WARRANTY RIDER
ANNEXED TO
THIS AGREEMENT. Secured Party shall not be liable to Debtor for any loss,
damage or expense of any kind or nature caused, directly or indirectly, by any
Equipment secured hereunder or the use or maintenance thereof or the failure
of operation thereof, or the repair, service or adjustment thereof, or by any
delay or failure to provide any such maintenance, repairs, service or
adjustment, or by any interruption of service or loss of use thereof or for
any loss of business howsoever caused. The Equipment shall be shipped
directly to Debtor by the supplier thereof and Debtor agrees to accept such
delivery. No defect or unfitness of the Equipment, nor any failure or delay
on the part of the manufacturer or the shipper of the Equipment to deliver the
Equipment or any part thereof to Debtor, shall relieve Debtor of the
obligation to pay the Time Balance or any other obligation under this
Agreement. Secured Party shall have no obligation under this Agreement in
respect of the Equipment and shall have no obligation to install, erect, test,
adjust or service the Equipment. Secured Party agrees, so long as they shall
not have occurred or be continuing any Event of Default hereunder or event
which with lapse of time or notice, or both, might become an Event of Default
hereunder, that Secured Party will permit Debtor to enforce in Debtor's own
name at Debtor's sole expense any supplier's or manufacturer's warranty or
agreement in respect of the Equipment to the extent that such warranty or
agreement is assignable.
4. Assignment. This Agreement shall be assignable by Secured Party, and
by its assigns. without the consent of Debtor, but Debtor shall not be
obligated to any assignee except upon written notice of such assignment from
Secured Party or such assignee. The obligation of Debtor to pay and perform
the Liabilities to such assignee shall be absolute and unconditional and shall
not be affected by any circumstance whatsoever, and such payments shall be
made without interruption or abatement notwithstanding any event or
circumstance whatsoever, including, without limitation, the late delivery,
non-delivery, destruction or damage of or to the Equipment, the deprivation or
limitation of the use of the Equipment, the bankruptcy or insolvency of
Secured Party or Debtor or any disaffirmance of this Agreement by or on behalf
of Debtor and notwithstanding any defense, set-off, recoupment or counterclaim
or any other right whatsoever, whether by reason of breach of this Agreement
or of any warranty in respect of the Equipment or otherwise which Debtor may
now or hereafter have against Secured Party, and whether any such event shall
be by reason of any act or omission of Secured Party (including, without
limitation, any negligence of Secured Party) or otherwise; provided, however,
that nothing herein contained shall affect any right of Debtor to enforce
against Secured Party any claim which Debtor may have against Secured Party in
any manner other than by abatement, attachment or recoupment of, interference
with, or set-off, counterclaim or defense against, the aforementioned payments
to be made to such assignee. Debtor s undertaking herein to pay and perform
the Liabilities to an assignee of Secured Party shall constitute a direct,
independent and unconditional obligation of Debtor to said assignee. Said
assignee shall have no obligations under this Agreement or in respect of the
Equipment and shall have no obligation to install, erect, test, adjust or
service the Equipment. Debtor also acknowledges and agrees that any assignee
of Secured Party s interest in this Agreement shall have the right to exercise
all rights, privileges and remedies (either in its own name or in the name of
Secured Party) which by the terms of this Agreement are permitted to be
exercised by Secured Party.
5. Damage to or Loss of the Equipment; Requisition. Debtor assumes and
shall bear the entire risk of loss or damage to the Equipment from any and
every cause, whatsoever. No loss or damage to the Equipment or any part
thereof shall affect any obligation of Debtor with respect to the Liabilities
and this Agreement, which shall continue in full force and effect. Debtor
shall advise Secured Party in writing promptly of any item of Equipment lost
or damaged and of the circumstances and extent of such damage. If the
Equipment is totally destroyed, irreparably damaged, lost, stolen or title
thereto shall be requisitioned or taken by any governmental authority under
the power of eminent domain or otherwise, Debtor shall, at the option of
Secured Party, replace the same with like equipment in good repair, condition
and working order, or pay to Secured Party all Liabilities due and to become
due, less the net amount of the recovery, if any, actually received by Secured
Party from insurance or otherwise for such destruction, damage, loss, theft,
requisition or taking. Whenever the Equipment is destroyed or damaged and, in
the sole discretion of Secured Party, such destruction or damage can be
repaired, Debtor shall, at its expense, promptly effect such repairs as
Secured Party shall deem necessary for compliance with clause (a) of paragraph
7 below. Any proceeds of insurance received by Secured Party with respect to
such reparable damage to the Equipment shall, at the election of Secured
Party, be applied either to the repair of the Equipment by payment by Secured
Party directly to the party completing the repairs, or to the reimbursement of
Debtor for the cost of such repairs; provided, however, that Secured Party
shall have no obligation to make such payment or any part thereof until
receipt of such evidence as Secured Party shall deem satisfactory that such
repairs have been completed and further provided that Secured Party may apply
such proceeds to the payment of any of the Liabilities or the Other
Liabilities due if at the time such proceeds are received by Secured Party
there shall have occurred and be continuing any Event of Default hereunder or
any event which with lapse of time or notice, or both, would become an Event
of Default. Debtor shall, when and as requested by Secured Party, undertake,
by litigation or otherwise, in Debtor's name, the collection of any claim
against any person for such destruction, damage, loss, theft, requisition or
taking, but Secured Party shall not be obligated to undertake, by litigation
or otherwise, the collection of any claim against any person for such
destruction, damage, loss, theft, requisition or taking.
6. Representations and Warranties of Debtor. Debtor represents and
warrants that: it has the right, power and authority to enter into and carry
out the terms and provisions of this Agreement; this Agreement constitutes a
valid obligation of the Debtor and is enforceable in accordance with its
terms; and entering into this Agreement and carrying out its terms and
provisions will not violate the terms or constitute a breach of any other
agreement to which Debtor is a party.
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the Equipment
to be kept in good condition and use the Equipment only in the manner for
which it was designed and intended so as to subject it only to ordinary wear
and tear and cause to be made all needed and proper repairs, renewals and
replacements thereto; (b) maintain at all times property damage, fire, theft
and comprehensive insurance for the full replacement value of the Equipment,
with loss payable provisions in favor of Secured Party and any assignee of
Secured Party as their interests may appear, and maintain public liability
insurance in amounts satisfactory to Secured Party, naming Secured Party and
any assignee of Secured Party as insureds with all of said insurance and loss
payable provisions to be in form, substance and amount and written by
companies approved by Secured Party, and deliver the policies therefor, or
duplicates thereof, to Secured Party; (c) pay or reimburse Secured Party for
any and all taxes, assessments and other governmental charges of whatever kind
or character, however designated (together with any penalties, fines or
interest thereon) levied or based upon or with respect to the Equipment, the
Liabilities or this Agreement or upon the manufacture, purchase, ownership,
delivery, possession, use, storage, operation, maintenance, repair, return or
other disposition of the Equipment, or upon any receipts or earnings arising
therefrom, or for titling or registering the Equipment, or upon the income or
other proceeds received with respect to the Equipment or this Agreement
provided, however, that Debtor shall pay taxes on or measured by the net
income of Secured Party and franchise taxes of Secured Party only to the
extent that such net income taxes or franchise taxes are levied or assessed in
lieu of any other taxes, assessments or other governmental charges hereinabove
described; (d) pay all shipping and delivery charges and other expenses
incurred in connection with the Equipment and pay all lawful claims, whether
for labor, materials, supplies, rents or services, which might or could if
unpaid become a lien on the Equipment; (e) comply with all governmental laws,
regulations, requirements and rules, all instructions and warranty
requirements of Secured Party or the manufacturer of the Equipment, and with
the conditions and requirements of all policies of insurance with respect to
the Equipment and this Agreement; (f) mark and identify the Equipment with all
information and in such manner as Secured Party may request from time to time
and replace promptly any such marking or identification which are removed,
defaced or destroyed; (g) at any and all times during business hours, grant to
Secured Party free access to enter upon the premises wherein the Equipment
shall be located and permit Secured Party to inspect the Equipment; (h)
reimburse Secured Party for all charges, costs and expenses (including
attorneys' fees) incurred by Secured Party in defending or protecting its
interests in the Equipment, in the attempted enforcement or enforcement of the
provisions of this Agreement or in the attempted collection or collection of
any of the Liabilities; (i) indemnify and hold any assignee of Secured Party,
and Secured Party, harmless from and against all claims, losses, liabilities,
damages, judgments, suits, and all legal proceedings, and any and all costs
and expenses in connection therewith (including attorneys' fees) arising out
of or in any manner connected with the manufacture, purchase, ownership,
delivery, possession, use, storage, operation, maintenance, repair, return or
other disposition of the Equipment or with this Agreement, including, without
limitation, claims for injury to or death of persons and for damage to
property, and give Secured Party prompt notice of any such claim or liability,
provided, however, that the foregoing shall not affect or impair any warranty
made by Secured Party; and (j) maintain a system of accounts established and
administered in accordance with generally accepted accounting principles and
practices consistently applied, and, within thirty (30) days after the end of
each fiscal quarter, deliver to Secured Party a balance sheet as at the end of
such quarter and statement of operations for such quarter, and, within one
hundred and twenty (120) days after the end of each fiscal year, deliver to
Secured Party a balance sheet as at the end of such year and statement of
operations for such year, in each case prepared in accordance with generally
accepted accounting principles and practices consistently applied and
certified by Debtor's chief financial officer as fairly presenting the
financial position and results of operation of Debtor, and, in the case of
year end financial statements, certified by an independent accounting firm
acceptable to Secured Party.
8. Negative Covenants of Debtor. Debtor shall not (a) create, incur,
assume or suffer to exist any mortgage, lien, pledge or other encumbrance or
attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor s interests hereunder; (b) make
any changes or alterations in or to the Equipment except as necessary for
compliance with clause (a) of paragraph 7 above; (c) permit the name of any
person, association or corporation other than Secured Party to be placed on
the Equipment as a designation that might be interpreted as a claim of
interest in the Equipment; (d) part with possession or control of or suffer or
allow to pass out of its possession or control any of the Equipment or change
the location of the Equipment or any part thereof from the location shown
above; (e) assign or in any way dispose of all or any part of its rights or
obligations under this Agreement or enter into any lease of all or any part of
the Equipment; or (f) change its name or address from that set forth above
unless it shall have given Secured Party no less than thirty (30) days prior
written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part
thereof may now be, or hereafter become, in any manner affixed or attached to,
or imbedded in, or permanently resting upon, real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor
will obtain and deliver to Secured Party waivers of interest or liens in
recordable form, satisfactory to Secured Party, from all persons claiming any
interest in the real property on which such item of Equipment is installed or
located.
10. Events of Default and Remedies. If any one or more of the following
events ( Events of Default ) shall occur:
(a) Debtor shall fail to make any payment in respect of the
Liabilities when due; or
(b) any certification, statement, representation, warranty or
financial report or statement heretofore or hereafter furnished by or on
behalf of Debtor or any guarantor of any or all of the Liabilities proves to
have been false in any material respect at the time as of which the facts
therein set forth were stated or certified or has omitted any material
contingent or unliquidated liability or claim against Debtor or any such
guarantor; or
(c) Debtor or any guarantor of any or all of the Liabilities shall
fail to perform or observe any covenant, condition or agreement to be
performed or observed by it hereunder or under any guaranty agreement; or
(d) Debtor or any guarantor of any or all of the Liabilities shall be
in breach of or in default in the payment and performance of any obligation
relating to any of the Other Liabilities; or
(e) Debtor or any guarantor of any or all of the Liabilities shall
cease doing business as a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as they become due,
file a petition commencing a voluntary case under any chapter of Title 11 of
the United States Code entitled Bankruptcy (the Bankruptcy Code ), be
adjudicated an insolvent, file a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law,
rule or regulation or file an answer admitting the material allegations of a
petition filed against it in any such proceeding, consent to the filing of
such a petition or acquiescence in the appointment of a trustee, receiver or
liquidator of it or of all or any part of its assets or properties, or take
any action looking to its dissolution or liquidation; or
(f) an order for relief against Debtor or any guarantor of any or all
of the Liabilities shall have been entered under any chapter of the Bankruptcy
Code or a decree or order by a court having jurisdiction in the premises shall
have been entered approving as properly filed a petition seeking
reorganization, arrangement, readjustment, liquidation, dissolution or similar
relief against Debtor or any guarantor of any or all of the Liabilities under
any present or future statute, law, rule or regulation, or within thirty (30)
days after the appointment without Debtor's or such guarantor's consent or
acquiescence of any trustee, receiver or liquidator of it or such guarantor or
of all or any part of its or such guarantor s assets and properties, such
appointment shall not be vacated, or an order, judgment or decree shall be
entered against Debtor or such guarantor by a court of competent jurisdiction
and shall continue in effect for any period of ten (10) consecutive days
without a stay of execution, or any execution or writ or process shall be
issued under any action or proceeding against Debtor whereby the Equipment or
its use may be taken or restrained; or
(g) Debtor or any guarantor of any or all of the Liabilities shall
suffer an adverse material change in its financial condition as compared to
such condition as at the date hereof, and as a result of such change in
condition Lessor deems itself or any of the Equipment to be insecure;
then and in any such event, Secured Party may, at the sole discretion of
Secured Party, without notice or demand and without limitation of any rights
and remedies of Secured Party under the Uniform Commercial Code, take any one
or more of the following steps:
(1) Declare all of the Time Balance to be due and payable, whereupon
the same shall forthwith mature and become due and payable less the credit for
unearned interest provided for in paragraph 15 below, provided, however, upon
the occurence of any of the events specified in subparagraphs (e) and (f)
above, all sums as specified in this clause (1) shall immediately be due and
payable without notice to Debtor (the date on which Secured Party declares all
of the Time Balance to be due and payable is hereinafter referred to as the
Declaration Date );
(2) proceed to protect and enforce its rights by suit in equity,
action at law or other appropriate proceedings, whether for the specific
performance of any agreement contained herein, or for an injunction against a
violation of any of the terms hereof, or in aid of the exercise of any other
right, power or remedy granted hereby or by law, equity or otherwise; and
(3) at any time and from time to time, with or without judicial
process and the aid or assistance of others, enter upon any premises wherein
any of the Equipment may be located and, without resistance or interference by
Debtor, take possession of the Equipment on any such premises, and require
Debtor to assemble and make available to Secured Party at the expense of
Debtor any part or all of the Equipment at any place or time designated by
Secured Party; and remove any part or all of the Equipment from any premises
wherein the same may be located for the purpose of effecting the sale or other
disposition thereof; and sell, resell, lease, assign and deliver, grant
options for or otherwise dispose of any or all of the Equipment in its then
condition or following any commercially reasonable preparation or processing,
at public or private sale or proceedings, by one or more contracts, in one or
more parcels, at the same or different times, with or without having the
Equipment at the place of sale or other disposition, for cash and/or credit,
and upon any terms, at such place(s) and time(s) and to such persons, firms or
corporations as Secured Party shall deem best, all without demand for
performance or any notice or advertisement whatsoever, except that Debtor
shall be given five (5) business days' written notice of the place and time of
any public sale or of the time after which any private sale or other intended
disposition is to be made, which notice Debtor hereby agrees shall be deemed
reasonable notice thereof. If any of the Equipment is sold by Secured Party
upon credit or for future delivery, Secured Party shall not be liable for the
failure of the purchaser to pay for same and in such event Secured Party may
resell such Equipment. Secured Party may buy any part or all of the Equipment
at any public sale and if any part or all of the Equipment is of a type
customarily sold in a recognized market or which is the subject of widely
distributed standard price quotations Secured Party may buy at private sale
and may make payment therefor by application of all or a part of the
Liabilities (after giving effect to any credit for unearned interest pursuant
to clause (1) above) and of all or a part of any Other Liabilities. Any
personalty in or attached to the Equipment when repossessed may be held by
Secured Party without any liability arising with respect thereto, and any and
all claims in connection with such personalty shall be deemed to have been
waived unless notice of such claim is made by certified or registered mail
upon Secured Party within three business days after repossession.
Secured Party shall apply the cash proceeds from any sale or other disposition
of the Equipment first, to the reasonable expenses of re-taking, holding,
preparing for sale, selling, leasing and the like, and to reasonable
attorneys' fees and other expenses which are to be paid or reimbursed to
Secured Party pursuant hereto, and second, to all outstanding portions of the
Liabilities (after giving effect to any credit for unearned interest pursuant
to clause (1) above) and to any Other Liabilities in such order as Secured
Party may elect, and third, any surplus to Debtor, subject to any duty of
Secured Party imposed by law to the holder of any subordinate security
interest in the Equipment known to Secured Party; provided however, that
Debtor shall remain liable with respect to unpaid portions of the Liabilities
owing by it and will pay Secured Party on demand any deficiency remaining with
interest as provided for in paragraph 15 below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails to
perform or comply with any of its agreements contained herein Secured Party
may perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in
paragraph 15 below, shall be deemed a part of the Liabilities and shall be
payable by Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party for
the purpose of protecting the interests of Secured Party in the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any
assignee of Secured Party are each authorized to the extent permitted by
applicable law to file one or more Uniform Commercial Code financing
statements disclosing any security interest in the Equipment without the
signature of Debtor or signed by Secured Party or any assignee of Secured
Party as attorney-in-fact for Debtor. Debtor will pay all costs of filing any
financing, continuation or termination statements with respect to this
Agreement, including, without limitation, any documentary stamp taxes relating
thereto. Debtor will do whatever may be necessary to have a statement of the
interest of Secured Party and of any assignee of Secured Party in the
Equipment noted on any certificate of title relating to the Equipment and will
deposit said certificate with Secured Party or such assignee. Debtor shall
execute and deliver to Secured Party, upon request, such other instruments and
assurances as Secured Party deems necessary or advisable for the im-
plementation, effectuation, confirmation or perfection of this Agreement and
any rights of Secured Party hereunder.
13. Non-Waiver; Etc. No course of dealing by Secured Party or Debtor or
any delay or omission on the part of Secured Party in exercising any rights
hereunder shall operate as a waiver of any rights of Secured Party. No waiver
or consent shall be binding upon Secured Party unless it is in writing and
signed by Secured Party. A waiver on any one occasion shall not be construed
as a bar to or a waiver of any right and/or remedy on any future occasion. To
the extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of, and covenants not to assert against Secured Party, any
valuation, inquisition, stay, appraisement, extension or redemption laws now
existing or which may hereafter exist which, but for this provision, might be
applicable to any sale or other disposition made under the judgment, order or
decree of any court or under the powers of sale and other disposition
conferred by this Agreement or otherwise. Debtor hereby waives any right to a
jury trial with respect to any matter arising under or in connection with this
Agreement.
14. Entire Agreement; Severability; Etc. This Agreement constitutes the
entire agreement between Secured Party and Debtor and all conversations,
agreements and representations relating to this Agreement or to the Equipment
are integrated herein. If any provision hereof or any remedy herein provided
for shall be invalid under any applicable law, such provision or remedy shall
be inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof. Neither
this Agreement nor any term hereof may be changed, discharged, terminated or
waived except in an instrument in writing signed by the party against which
enforcement of the change, discharge, termination or waiver is sought. This
Agreement shall in all respects be governed by and construed in accordance
with the internal laws of the State of New York, including all matters of
construction, validity and performance, and shall be deemed a purchase money
security agreement within the meaning of the Uniform Commercial Code. The
captions in this Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. This Agreement shall
inure to the benefit of and be binding upon Secured Party and Debtor and their
respective successors and assigns, subject, however, to the limitations set
forth in this Agreement with respect to Debtor's assignment hereof. No right
or remedy referred to in this Agreement is intended to be exclusive but each
shall be cumulative and in addition to any other right or remedy referred to
in this Agreement or otherwise available to Secured Party at law or in equity,
and shall be in addition to the provisions contained in any instrument
referred to herein and any instrument supplemental hereto. Debtor shall be
liable for all costs and expenses, including attorneys fees and
disbursements, incurred by reason of the occurrence of any Event of Default or
the exercise of Secured Party's remedies with respect thereto. Time is of the
essence with respect to this Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment payments
of the Time Balance as set forth in the Schedule of Obligations, the Debtor
may not prepay the Time Balance, in whole or in part, at any time. In the
event Secured Party declares all of the Time Balance to be due and payable
pursuant to clause (1) of paragraph 10 above, Debtor shall be entitled to a
credit against such Time Balance of an amount equal to (a) that portion of the
Finance Charge (as shown in the Schedule of Obligations) unearned by Secured
Party as of the Declaration Date computed in accordance with the Rule of 78's,
less (b) a sum equal to 7.5% of the Unpaid Cash Price Balance, provided that
the amount of the Finance Charge earned by Secured Party computed as aforesaid
shall not exceed the highest amount permitted by applicable law. The Time
Balance as reduced in accordance with the preceding sentence shall bear
interest from and after the Declaration Date, and all other Liabilities due
and payable under the Agreement (including past due installments) shall bear
interest from and after their respective due dates, at the lesser of 1% per
month or the highest rate permitted by applicable law, provided, however, that
Debtor shall have no obligation to pay any interest on interest except to the
extent permitted by applicable law.
16. Consent to Jurisdiction. Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby. Any
such action or proceeding will be maintained in the United States District
Court for the Southern District of New York or in any court of the State of
New York located in the County of New York and Debtor waives any objections
based upon venue or forum non conveniens in connection with any such action or
proceeding. Debtor consents that process in any such action or proceeding may
be served upon it by registered mail directed to Debtor at its address set
forth at the head of this Agreement or in any other manner permitted by
applicable law or rules of court. Debtor hereby irrevocably appoints
Secretary of State of the State of New York as its agent to receive service of
process in any such action or proceeding.
17. Notices. Notice hereunder shall be deemed given if served
personally or by certified or registered mail, return receipt requested, to
Secured Party and Debtor at their respective addresses set forth at the head
of this Agreement. Any party hereto may from to time by written notice to the
other change the address to which notices are to be sent to such party. A
copy of any notice sent by Debtor to Secured Party shall be concurrently sent
by Debtor to any assignee of Secured Party of which Debtor his notice.
The Debtor agrees to all the provisions set forth above. This Agreement is
executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT OF A
SIGNED TRUE COPY OF THIS AGREEMENT.
Accepted on December 29, 1995 Date December
29 , 1 995
CAPITAL ASSOCIATES INTERNATIONAL, INC. THE TITAN CORPORATION d/b/a TITAN
SCAN SYSTEMS (Debtor)
(Secured Party) (Signature of Proprietor or name of
Corporation or Partnership)
By_______________/S/_____________________
By____________/S/________________ ______
Its_______John A. Reed______________ ____ Its_____V.P./Corporate
Controller_________________
(Title of Officer) (if Corporation, President or
Vice President should sign and
give official title; if
Partnership, state partner)
BH:l-share-dd-titan.agr
RIDER TO LOAN AND SECURITY AGREEMENT NO. 2566
DATED 12/29/95 ( AGREEMENT ) BETWEEN THE TITAN CORPORATION d/b/a TITAN
SCAN
SYSTEMS AS DEBTOR AND CAPITAL ASSOCIATES INTERNATIONAL, INC. AS SECURED
PARTY
In addition to the terms and conditions set forth in the printed portion of
the Loan and Security Agreement, Debtor and Secured Party agree as follows:
1. In the seventh (7th) line of Section two (2) of the Agreement,
after the words every kind and description , add the words
arising hereunder or in connection herewith , .
2. In the eighth (8th) line of Section two (2) of the Agreement,
after the words or other amounts , add the words within five (5)
days of when .
3. In the ninth (9th) line of Section five (5) of the Agreement,
after the words in the sole , add the word reasonable .
4. In the seventeenth (17th) line of Section five (5) of the
Agreement, after the words when and as , add the word
reasonably .
5. In the seventh (7th) line of Section seven (7) of the Agreement ,
after the initial word companies , add the word reasonably .
6. In the twentieth (20th) line of Section seven of the Agreement
preceding the words at any and all times , add the words upon
forty-eight (48) hours prior notice to Debtor, .
7. In the thirtieth (30th) line of Section seven (7) of the Agreement
, change thirty (30) to fifty-five (55) .
8. In clause (a) of Section ten (10) of the Agreement, after the
words of the Liabilities , add the words within five (5) days of
.
9. In second (2nd) line of clause (c) of Section ten (10) of the
Agreement, after the words or under any guaranty agreement , add
the words and such failure continues for ten (10) or more days
after Debtor is given notice thereof .
10. In the second (2nd) line of clause (g) of Section ten (10) of
the Agreement , change the word Lessor to Secured Party .
11. In the second (2nd) line of Section fifteen (15) of the Agreement,
after the words at any time , add the words except as otherwise
provided in the Prepayment Agreement of even date herewith
executed by Secured Party and Debtor .
THE TITAN CORPORATION CAPITAL ASSOCIATES
INTERNATIONAL, INC.
d/b/a TITAN SCAN SYSTEMS
By: /S/ By /S/
Title: V.P. Title: V.P./Corporate
Controller
Date: December 29, 1995 Date: December 29,
1995
DESCRIPTION
All of Debtor s now owned, or hereafter acquired, machinery, equipment,
furniture, fixtures and vehicles at the location referenced below, wheresoever
the same may be situated, together with all accessories, attachments,
substitutions, replacements, renewals, additions, alterations, betterments,
repairs and proceeds (including, without limitation, insurance proceeds) of
the foregoing; including but not limited to Titan Beta TB10/15 E-Beam Medical
Device Sterilization System consisting of a 10MEV/15KW S/N 2727 Conveyor
System SN: 1Y5537564 Control System SN: 22B65600.
LOCATION OF EQUIPMENT: TITAN SCAN SYSTEMS
9020 ACTIVITY ROAD
SAN DIEGO, CALIFORNIA 92126
THE TITAN CORPORATION d/b/a TITAN SCAN SYSTEMS
BY:
SECOND AMENDMENT TO
COMMERCIAL LOAN AGREEMENT
This Second Amendment to the Commercial Loan Agreement ("Amendment") is
entered into as of this 29th day of December, 1995 by and between SUMITOMO
BANK OF CALIFORNIA ("Bank") and THE TITAN CORPORATION, a Delaware Corporation
("Borrower"), with reference to the following:
RECITALS
A. Borrower and Bank entered into that certain Commercial Loan Agreement
("Agreement") dated August 8, 1994 and subsequently amended on May 25, 1995
pursuant to which Bank has agreed to lend up to Seventeen Million Dollars
($17,000,000) to Borrower.
B. Borrower and Bank desire to amend the Agreement on the terms and
conditions set forth herein.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank agree as follows:
1. Defined Terms Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings given such terms in the
Agreement.
2. Amendments This Agreement is hereby amended as follows:
A. 1.5 Letter of Credit Line Section 1.5 of the Agreement is hereby
amended and replaced with the following:
Letter of Credit Line This Revolving Line of Credit may be used for
financing (a) commercial letters of credit with a maximum maturity of two
years but not to extend more than 365 days beyond the Maturity Date. Each
commercial letter of credit will require drafts payable at sight; or (b)
standby letters of credit with a maximum maturity of two years but not to
extend more than 365 days beyond the Maturity Date.
B. 6.4 Minimum Debt Service Coverage Ratio Section 6.4 of the
Agreement is hereby amended and replaced with the following:
Debt Service Coverage Ratio. To maintain on a consolidated basis as
of the last day of each quarter beginning December 31, 1996 a Debt Service
Coverage Ratio of at least 1.50:1.
"Debt Service Coverage Ratio" to be defined as Earnings before
Interest and Taxes for the previous four fiscal quarters to the sum of Cash
Interest Expense for the previous four fiscal quarters, plus the Current
Portion of Long Term Debt, plus 20% of Facility cash advances as of the date
of calculation.
C. 6.24 Interest Coverage Ratio Section 6.24, Interest Coverage
Ratio is hereby added to the Agreement as follows:
Interest Coverage Ratio To maintain on a consolidated basis as of
the last day of each quarter an Interest Coverage Ratio of at least the
following:
Quarter Ending 3/31/96 1.25:1.00
Quarter Ending 6/30/96 1.25:1.00
Quarter Ending 9/30/96 3.50:1.00
"Interest Coverage Ratio" to be defined as Earnings Before Interest
and Taxes to Cash Interest Expense for the applicable year-to-date period.
"BORROWER" "BANK"
THE TITAN CORPORATION SUMITOMO BANK OF CALIFORNIA
BY: /S/ BY: /S/ .
Roger Hay, Sr.V.P./CFO Johanna L. Dragner, V.P. .
THE TITAN CORPORATION
1996 DIRECTORS' STOCK OPTION
AND EQUITY PARTICIPATION PLAN
1. Purpose of the Plan. Under this 1996 Directors' Stock Option and
Equity Participation Plan (the "Plan") of The Titan Corporation (the
"Company"), (i) options shall be granted to directors who are not Employees of
the Company to purchase shares of the Company's capital stock, and (ii)
directors who are not Employees of the Company may elect to receive shares of
the Company's Common Stock in lieu of cash payment of Director Fees. The Plan
is designed to enable the Company to attract and retain outside directors of
the highest caliber and experience. Certain capitalized terms used in this
Plan are defined in Section 12 hereof.
2. Stock Subject to Plan. The maximum number of shares of stock for
which options granted hereunder may be exercised or which may be issued under
stock grants in lieu of Director Fees shall be 125,000 shares of the Company's
Common Stock, par value $.01 per share ("Common Stock"), subject to the
adjustments provided in Section 6. The shares of Common Stock to be issued
under the Plan may be either previously authorized but unissued shares or
treasury shares. Shares of stock subject to the unexercised portions of any
options granted under this Plan which expire or terminate or are canceled may
again be subject to options or stock grants under the Plan.
3. Participating Directors. The directors of the Company who shall
participate in this Plan are those directors who are not, at the time they
receive options or stock grants hereunder, Employees of the Company or any of
its subsidiaries.
4. Grant of Options. Each participating director shall be granted the
following options, the date of each of which being a "date of grant":
(a) 5,000 shares of stock (subject to the adjustments provided in
Section 6) on the later to occur (the "date of initial grant") of (i) the date
on which he or she first takes office as a director of the Company, or (ii)
the date on which this Plan was adopted by the Board of Directors of the
Company;
(b) 5,000 shares of stock (subject to adjustments provided in
Section 6) on the date that is one year after the date of initial grant; and
(c) 5,000 shares of stock (subject to the adjustments provided in
Section 6) on the date that is two years after the date of initial grant.
Notwithstanding any other provision of this Plan, no option
hereunder shall be granted unless sufficient shares (subject to said
adjustments) are then available therefor under Sections 2 and 7. In
consideration of the granting of the options, the option holder shall be
deemed to have agreed to remain as a director of the Company for a period of
at least one year after each date of grant. Nothing in this Plan shall,
however, confer upon any option holder any right to continue as a director of
the Company or shall interfere with or restrict in any way the rights of the
Company or the Company's shareholders, which are hereby expressly reserved, to
remove any option holder at any time for any reason whatsoever, with or
without cause, to the extent permitted by the Company's bylaws and applicable
law.
5. Option Provisions. Each option granted under the Plan shall contain
such terms and provisions as the President of the Company may authorize,
including in any event the following:
(a) The exercise price of each option shall be equal to the
aggregate Fair Market Value of the shares of stock optioned on the date of
grant of such option. Fair Market Value means the closing price of stock of
the same class on the day in question (or, if such day is not a trading day in
the U.S. securities markets or if no sales of stock of that class were made on
such day, on the nearest preceding trading day on which sales of stock of that
class were made), as reported with respect to the market (or the composite of
the markets, if more than one) in which such stock is then traded; or if no
such closing prices are reported the lowest independent offer quotation
reported, for such day in Level 2 of NASDAQ; or if no such quotations are
reported, it means the value established by what the Board of Directors of the
Company in its judgment then deems to be the most nearly comparable valuation
method.
(b) Payment for stock purchased upon any exercise of the option
shall be made in full in cash concurrently with such exercise.
(c) The option shall become exercisable in installments as
follows: It may be exercised as to up to but no more than 25% of the total
number of shares optioned on the first anniversary of the date of grant; up to
but no more than 50% of the total number of shares optioned on the second
anniversary of the date of grant; up to but no more than 75% of the total
number of shares optioned on the third anniversary of the date of grant; and
up to 100% of the total number of shares optioned on the fourth anniversary of
the date of grant; in each case to the nearest whole share.
(d) When the option holder ceases to be a director of the Company,
whether because of death, resignation, removal, expiration of his or her term
of office or any other reason, the option shall terminate ninety (90) days
after the date such option holder ceases to be a director of the company and
may thereafter no longer be exercised; except that (i) upon the option
holder's death his or her legal representative(s) or the person(s) entitled to
do so under the option holder's last will and testament or under applicable
intestate laws shall have the right to exercise the option within one year
after the date of death (but not after the expiration date of the option), but
only for the number of shares as to which the option holder was entitled to
exercise the option on the date of his or her death and (ii) upon the option
holder's ceasing to be a director by reason of disability her or she (or his
or her guardian) shall have the right to exercise the option within one year
after the date of the option holder ceased to be a director (but not after the
expiration date of the option), but only for the number of shares as to which
the option holder was entitled to exercise the option on the date of his or
her ceasing to be a director.
(e) Notwithstanding any other provision herein, such option may
not be exercised prior to shareholder approval of this Plan at an annual
meeting of shareholders by a majority of the shares represented at such
meeting; nor prior to the admission of the shares of stock issuable on
exercise of the option to listing on notice of issuance on any stock exchange
on which shares of the same class are then listed; nor unless and until, in
the opinion of counsel for the Company, such securities may be issued and
delivered without causing the Company to be in violation of or incur any
liability under any federal, state or other securities law, any requirement of
any securities exchange listing agreement to which the Company may be a party,
or any other requirement of law or of any regulatory body having jurisdiction
over the Company.
(f) The option shall not be transferable by the option holder
other than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code"), or Title I of the Employee Retirement Income
Security Act ("ERISA") or the rules thereunder; may not be pledged or
hypothecated; and shall be exercisable during the option holder's lifetime
only by the option holder or by his or her guardian or legal representative.
6. Adjustments. If the outstanding shares of the Company's Common
Stock are increased or decreased, or are changed into or exchanged for a
different number or kind of shares or securities of the Company, as a result
of one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities as to which options may
thereafter be granted under this Plan and for which options then outstanding
under this Plan may thereafter be exercised. Any such adjustment in
outstanding options shall be made without change in the aggregate purchase
price applicable to the unexercised portion of such options, but with a
corresponding adjustment in the purchase price for each share or other unit of
any security covered by the option. No fractional shares of stock shall be
issuable under any option granted under this Plan or as a result of any such
adjustment.
7. Corporate Reorganizations. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
as a result of which the outstanding shares of the Company's Common Stock are
changed or exchanged for cash or property or securities not of the Company's
issue, or upon a sale of substantially all the property of the Company to
another corporation or person, the Plan shall terminate, and all options
thereto granted hereunder shall terminate, unless provisions shall be made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of options theretofore granted, or the substitution
for such options of options covering the stock of a successor corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices, in which event the Plan and options theretofore
granted shall continue in the manner and under the terms so provided. If the
Plan and unexercised options shall terminate pursuant to the foregoing
sentence, all persons entitled to exercise any unexercised portions of options
then outstanding shall have the right, at such time prior to the consummation
of the transaction causing such termination as the Company shall designate, to
exercise the unexercised portions of their options, including the portions
thereof which would, but for this section entitled "Corporation
Reorganizations," not yet be exercisable.
8. Change in Control. Notwithstanding any other provisions of this
Plan, upon any Change in Control (as defined herein below) all then
outstanding options will become fully vested and exercisable. The term
"Change in Control" shall mean (a) any "person" (as such term is used in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934) becomes
the beneficial owner (as such term is used in Section 13(d)(1) of the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Company representing at least 25% of the combined voting power of the then
outstanding securities of the Company in a transaction which was not approved
by the Company's Board of Directors prior to its occurrence; or (b) during any
period of twenty-four (24) consecutive months, individuals who at the
beginning of such period constituted the Company's Board of Directors cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were directors
at the beginning of the period.
9. Granting of Stock. (a) Each participating Director may elect to
forego cash payment of all or any portion of his or her Director Fees (the
fees subject to such election are hereinafter referred to as "Elected Fees")
and receive, subject to provisions of subsection (c) hereof, on the date such
Elected Fees otherwise would be paid, or such other date specified by the
Board, shares of Common Stock. If the participating director elects to
receive shares of Common Stock, the number of shares issuable shall equal the
amount of the Elected Fees divided by the Fair Market Value per share of
Common Stock as of the issue date. No fractional shares of Common Stock shall
be issued and the value of such fractional share shall be paid to each
participating director in cash. An election pursuant to this Section 9 shall
be made prior to the commencement of any period of Board service to which the
grant relates, but in any event at least six months prior to the scheduled
payment of the Elected Fees, and such election shall be irrevocable.
(b) This Plan will be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial
adoption of this Plan. No grant of Common Stock pursuant to Section 9 hereof
shall be made prior to approval of this Plan by the Company's stockholders.
(c) The Company shall be entitled to require payment in cash or
deduction from other compensation payable to each participating director of
any sums required by federal, state or local tax law to be withheld with
respect to the issuance of Common Stock under the Plan.
(d) This Plan and the issuance and delivery of shares of Common
Stock hereunder are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
10. Duration, Termination and Amendment of the Plan. This Plan shall
become effective upon its adoption by the Board of Directors of the Company
and shall expire on February 22, 2001, so that no option may be granted
hereunder after that date although any option outstanding on that date may
thereafter be exercised in accordance with its terms. The Board of Directors
of the Company may alter, amend, suspend or terminate this Plan, provided that
no such action shall deprive an option holder, without his or her consent, of
any option previously granted pursuant to this Plan or of any of the option
holder's rights under such option. Except as herein provided, no such action
of the Board, unless taken with the approval of the stockholders of the
Company, may make any amendment to the Plan as to which approval by
stockholders is necessary for continued applicability of Rule 16b-3 of the
Securities and Exchange Commission.
Notwithstanding the foregoing, the Plan shall not be amended more
than once every six months other than to comport with changes in the Code,
ERISA or the rules thereunder.
11. Administration. (a) It shall be the duty of the Board to conduct
the general administration of this Plan in accordance with its provisions.
The Board shall have the power to interpret this Plan and to adopt such rules
for the administration, interpretation, and application of this Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
(b) All expenses and liabilities which members of the Board incur
in connection with the administration of this Plan shall be borne by the
Company. The Board may employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Board, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Board in good faith shall be
final and binding upon the Company and all other interested persons. No
members of the Board shall be personally liable for any action, determination
or interpretation made in good faith with respect to this Plan, and all
members of the Board shall be fully protected by the Company in respect of any
such action, determination or interpretation.
12. Certain Definitions. Wherever the following terms are used in this
Plan they shall have the meaning specified below, unless the context clearly
indicates otherwise.
(a) Director Fees. "Director Fees" shall mean the annual retainer
fee and regular meeting fees, including committee fees, if any, paid by the
Company to a participating director.
(b) Employee. "Employee" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
(c) Fair Market Value. Fair Market Value is defined in Section
5(a) hereof.