SYS Technologies Announces Execution of Merger Agreement with San Diego-Based Defense and Security Solutions Provider Kratos Def

  
    
  
  
    
      SYS Technologies, Inc. (“SYS”) 
      (AMEX:SYS), a leading provider of information connectivity solutions 
      that enable situational awareness and real-time collaboration, announced 
      today that it has entered into a definitive merger agreement with Kratos 
      Defense & Security Solutions, Inc. (“Kratos”) 
      (Nasdaq: KTOS), a leading national defense and security solutions 
      provider, in an all-stock transaction. Under the terms of the agreement, 
      SYS will become a wholly owned subsidiary of Kratos and all of SYS’ 
      outstanding common shares will be converted into Kratos common shares.
    
    
      Kratos will issue approximately 25 million shares of KTOS common stock 
      for 100 percent of SYS’ shares. The 
      transaction is subject to customary closing conditions, including 
      approval by the shareholders of both companies. The transaction is 
      expected to close towards the end of the second calendar quarter, and is 
      expected to be accretive to Kratos’ 2008 
      operating and EBITDA (Earnings Before Interest, Taxes, Depreciation and 
      Amortization) margins. The annualized revenue run rate of the combined 
      company is expected to be nearly $400 million by the end of 2008.
    
    
      The combined company will provide the Department of Defense, Department 
      of Homeland Security and other government customers with an expanded 
      portfolio of command, control, communications, computing, combat 
      systems, intelligence, surveillance and reconnaissance (C5ISR) services 
      and solutions. Additionally, the combined company will have 
      significantly enhanced customer relationships, portfolio of contract 
      vehicles, and past performance qualifications which will further 
      position Kratos to capture a larger share of its target markets as a 
      prime contractor.
    
    
      Under the agreement, which has been unanimously approved by both boards 
      of directors, SYS stock will be converted into Kratos stock at an 
      exchange ratio of 1.2582 shares of Kratos common stock for each 
      outstanding share of SYS common stock. Upon closing, SYS shareholders 
      will own approximately 23 percent and current Kratos shareholders 
      approximately 77 percent of the combined company, which includes the 
      estimated hold-back shares to be issued to Haverstick shareholders as 
      part of the recent acquisition of Haverstick Consulting. The transaction 
      is expected to be tax-free to shareholders of both companies for U.S. 
      federal income tax purposes.
    
    
      The combined company will operate under the Kratos name. Eric DeMarco 
      will continue as president and Chief Executive Officer of Kratos. Cliff 
      Cooke, president and Chief Executive Officer of SYS Technologies, will 
      assume a new role overseeing all of Kratos’ 
      Corporate Development and Strategic Business Development initiatives. 
      Additionally, a significant portion of the SYS management team is 
      expected to either maintain their positions or have a new or expanded 
      role within Kratos. The current Kratos Board of Directors will remain 
      unchanged.
    
    
      “In an ever-increasing competitive 
      environment, it is absolutely critical that we increase scale and 
      critical mass for a number of reasons,” said 
      Cliff Cooke, president and CEO of SYS Technologies. ”This 
      merger allows SYS to continue its successful growth plan and offers our 
      customers a broader range of complementary services and solutions. 
      Although SYS is successfully executing its strategic plan, industry 
      conditions, competitive factors and financial considerations make this 
      merger with Kratos an extremely positive move from a strategic, 
      industry, customer and employee perspective, especially since the SYS 
      business is a smaller size public company, with its operating margins 
      negatively impacted by the high costs associated with operating as a 
      public company. Together we are creating a combined entity that is 
      stronger than either company is on its own. We look forward to this next 
      phase of growth with Kratos.”
    
    
      “The merger of Kratos and SYS, we believe, is 
      clearly a win-win for both companies and our respective shareholders,” 
      said Eric DeMarco, president and CEO of Kratos Defense & Security 
      Solutions, Inc. “The Kratos and SYS 
      businesses are highly complementary with virtually no competitive 
      overlap. With both businesses being located in San Diego and being small 
      public companies, in addition to having operational synergies, there 
      will be a significant amount of cost savings realized from the 
      combination. This will result in increased competitiveness and improved 
      financial performance. Additionally, with Cliff Cooke’s 
      demonstrated history of building businesses, we are very excited to have 
      his leadership for Kratos’ Corporate and 
      Business Development initiatives which, from a strategic level, is 
      something our company has not previously had.”
    
    
      The merger announced today opens up a range of new opportunities for 
      both companies, including:
    
    
      
        Expanded customer footprint – The combined 
        company will have a sizeable customer presence with the Department of 
        Defense, SPAWAR in San Diego, NAVSEA in the Oxnard Plain, NASA, DISA, 
        and with several other customers in the Washington, D.C. and Northern 
        Virginia areas;
      
      
        Enhanced past performance qualifications – 
        The cumulative experience and differentiated expertise of the combined 
        company in the areas of C5ISR, along with its sizable employee base 
        with government security clearances, will allow it to qualify for and 
        bid on larger projects in the prime contractor role;
      
      
        Strategic new geographies – Kratos is 
        strategically focused on key BRAC locations such as Huntsville, 
        Alabama, San Diego, California, Keyport, Washington and the Pacific 
        Missile Range Facilities in Hawaii, while SYS has a presence in 
        Northern Virginia, the Pentagon, San Diego, and Colorado Springs.
      
    
    
      SYS management will host an analyst and investor conference call on 
      Thursday, February 21, 2008 at 4:30 p.m. ET (1:30 p.m. PT) to discuss 
      the transaction and to answer questions. Participating in the call will 
      be Cliff Cooke, chief executive officer, and Ed Lake, chief financial 
      officer. To participate in the live call, please dial [phone] 
      from the US or, for international callers, please dial [phone] 
      passcode #89474509 approximately 15 minutes before the start time. A 
      telephone replay will be available for one week by dialing (888) 
      286-8010 from the US, or [phone] for international callers, and 
      entering passcode #80709145. To listen to the conference call live via 
      the Internet, visit the SYS web site at www.systechnologies.com. 
      Please go to the web site 15 minutes prior to its start to register, 
      download, and install the necessary audio software. A replay will be 
      available on SYS’ web site for two weeks.
    
    
      Imperial Capital, LLC served as the exclusive financial advisor to SYS 
      and rendered a fairness opinion to the Board of Directors of SYS in 
      conjunction with this transaction. Luce Forward Hamilton & Scripps LLP 
      served as SYS’ legal counsel. Wachovia 
      Securities acted as exclusive financial advisor to Kratos, and DLA 
      Piper, US LLP served as legal counsel.
    
    
      About SYS Technologies
    
    
      SYS (AMEX: SYS), is a leading provider of information connectivity 
      solutions that capture, analyze and present real-time information to its 
      customers in the Department of Defense, Department of Homeland Security, 
      other government agencies and to commercial companies. Using 
      interoperable communications software, sensors, digital video broadcast 
      and surveillance technologies, wireless networks, network management, 
      decision-support tools and Net-centric technologies, SYS technical 
      experts enhance complex decision-making. The company also provides 
      solution lifecycle support with program, financial, test and logistical 
      services and training. Founded in 1966, SYS is headquartered in San 
      Diego and has principal offices in California and Virginia. For 
      additional information, visit www.systechnologies.com.
    
    
      About Kratos Defense & Security Solutions
    
    
      Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS) provides 
      mission critical engineering, IT services and war fighter solutions for 
      the U.S. federal government and for state and local agencies. Principle 
      services include C5ISR, weapon systems lifecycle support, military 
      weapon range and technical services, network engineering services, 
      advanced IT services, security and surveillance systems, and critical 
      infrastructure design and integration. The Company is headquartered in 
      San Diego, California, with resources throughout the U.S. and in key 
      strategic military locations. News and information are available at http://www.KratosDefense.com.
    
    
      Notice Regarding Forward-Looking Statements
    
    
      This news release contains certain forward-looking statements 
      including, without limitation, expressed or implied statements 
      concerning the Company’s expectations 
      regarding the timing of closing of the acquisition, anticipated benefits 
      to be realized from the acquisition, future financial performance and 
      cash flows and market developments that involve risks and uncertainties. 
      Such statements are only predictions, and the Company’s 
      actual results may differ materially. Factors that may cause the Company’s 
      results to differ include, but are not limited to: risks that the 
      closing will be delayed or that the conditions to closing will not be 
      satisfied; risks that the integration will prove more costly, take more 
      time, or be more distracting than currently anticipated; risks 
      that the transaction will cause disruption of the Company’s 
      operations and distraction of its management; risks of adverse 
      regulatory action or litigation; risks associated with debt leverage; 
      risks that changes or cutbacks in spending by the U.S. Department of 
      Defense may occur, which could cause delays or cancellations of key 
      government contracts; failure to successfully consummate acquisitions or 
      integrate acquired operations and competition in the marketplace which 
      could reduce revenues and profit margins. The Company undertakes no 
      obligation to update any forward-looking statements. These and other 
      risk factors are more fully discussed in the Company’s 
      Securities and Exchange Commission filings.
    
    
      This communication is being made in respect of the proposed transaction 
      involving Kratos and SYS. In connection with the proposed transaction, 
      Kratos plans to file with the SEC a Registration Statement on Form S-4 
      containing a Joint Proxy Statement/Prospectus and each of Kratos and SYS 
      plan to file with the SEC other documents regarding the proposed 
      transaction. The definitive Joint Proxy Statement/Prospectus will be 
      mailed to stockholders of Kratos and SYS. INVESTORS AND SECURITY 
      HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER 
      DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY 
      BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT 
      THE PROPOSED TRANSACTION.
    
    
      Investors and security holders will be able to obtain free copies of the 
      Registration Statement and the Joint Proxy Statement/Prospectus (when 
      available) and other documents filed with the SEC by Kratos and SYS 
      through the web site maintained by the SEC at www.sec.gov. 
      In addition, investors and security holders will be able to obtain free 
      copies of the Registration Statement and the Joint Proxy 
      Statement/Prospectus (when available) and other documents filed with the 
      SEC from Kratos by directing a request to Kratos Defense & Security 
      Solutions, Inc, ATTN: Investor Relations, 4810 Eastgate Mall, San Diego, 
      CA 92121, or going to Kratos’s corporate 
      website at www.kratosdefense.com, 
      or from SYS by directing a request to ATTN: Investor Relations, 5050 
      Murphy Canyon Road, Ste. 200, San Diego, CA, 92123, or going to SYS’ 
      corporate website at www.systechnologies.com.
    
    
      Kratos and SYS, and their respective directors and executive officers, 
      may be deemed to be participants in the solicitation of proxies in 
      respect of the proposed transaction. Information regarding Kratos’s 
      directors and executive officers is contained in its annual proxy 
      statement filed with the SEC on October 10, 2007. Information regarding 
      SYS’ directors and executive officers is 
      contained in SYS’ annual proxy statement 
      filed with the SEC on October 29, 2007. Additional information regarding 
      the interests of such potential participants will be included in the 
      Joint Proxy Statement/Prospectus and the other relevant documents filed 
      with the SEC (when available).