Registration No. 33-
As filed with the Securities and Exchange Commission on November 30, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2632319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(201) 898-1500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARK S. NEWMAN
5 SYLVAN WAY
PARSIPPANY, NEW JERSEY 07054
(201) 898-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
MARK N. KAPLAN, ESQ.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. (X)
If the Registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to
Item 11(a)(1) of this Form, check the following box. ( )
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of to be Price Per Offering Registrat-
Securities to be Registered Registered Security(1) Price (1) ion Fee
- ------------------------------------------------------------------------------
9% Senior Subordinated
Convertible Debentures Due
2003 $25,000,000 100% $25,000,000 $8,620.69
- ------------------------------------------------------------------------------
Class A Common Stock, $.01
par value(2) (3) --- --- (3)
- ------------------------------------------------------------------------------
________________
(1) Estimated solely for purposes of calculating the
registration fee pursuant to Rule 457. The price shown for
the Debentures is based on the offering price of the
Debentures on their initial issuance.
(2) Represents shares issuable upon conversion of the
Debentures.
(3) Such indeterminable number of shares of Class A Common Stock
as may be issuable upon conversion of the Debentures. No
additional consideration will be received for the shares of
Class A Common Stock upon exercise of the conversion
privilege and therefore no registration fee is required
pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Cross Reference Sheet Pursuant to
Rule 501(b) of Regulation S-K, Showing
Location in Prospectus of Information
Required by Part I of Form S-2
Item
No. Caption Location in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . Inside Front Cover
Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . Prospectus Summary;
Risk Factors; The
Company; Selected
Consolidated
Financial Data
4. Use of Proceeds . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . Plan of Distribution
6. Dilution . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . Selling Security
Holders
8. Plan of Distribution . . . . . . . . Outside Front Cover
Page; Plan of
Distribution
9. Description of Securities to be Registered. Description of the
Debentures; Description
of Capital Stock
10. Interests of Named Experts and Counsel. . Legal Matters
11. Information with Respect to the Registrant. .Prospectus Summary; The
Company; Capitalization;
Market Prices of Capital
Stock; Dividend Policy;
Selected Consolidated
Financial Data;
Management's Discussion
and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Description of the
Debentures; Description
of Capital Stock; Plan
of Distribution; Index
to Financial Statements
12. Incorporation of Certain Information
by Reference . . . . . . . . . . . . Incorporation of
Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . Not Applicable
[Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such State.]
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED NOVEMBER 30, 1995
PROSPECTUS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
$25,000,000 9% Senior Subordinated Convertible Debentures Due 2003
This Prospectus relates to $25,000,000 aggregate principal amount
of 9% Senior Subordinated Convertible Debentures Due 2003 (the
"Debentures") of Diagnostic/Retrieval Systems, Inc. (the "Company"), and
the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), of the Company which are issuable from time to time
upon conversion of the Debentures. The Debentures or Class A Common
Stock issued upon conversion may be offered from time to time for the
account of holders of the Debentures named herein (the "Selling Security
Holders"). The Debentures were originally issued by the Company on
September 29, 1995 in a private placement (including the over-allotment
option for $5,000,000 aggregate principal amount of the Debentures which
was exercised on November 3, 1995) (the "Debenture Offering"), and the
Company will not receive any proceeds from this offering.
Interest on the Debentures is payable semi-annually on April 1 and
October 1 of each year, commencing April 1, 1996. The Debentures are
convertible at any time prior to maturity, unless previously redeemed or
repurchased, into shares of Class A Common Stock of the Company, at a
conversion price of $8.85 per share, subject to adjustment under certain
circumstances. Prior to this offering there has not been any public
market for the Debentures. The Debentures are eligible for trading in
the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") Market. The Company intends to apply for listing of the
Debentures on the American Stock Exchange (the "AMEX"). The Company has
been advised by Forum Capital Markets L.P. (the "Initial Purchaser")
that it intends to make a market in the Debentures. The Initial
Purchaser is, however, under no obligation to do so and may discontinue
any such market making activity at any time without notice. There can
be no assurance that a secondary market in the Debentures will develop
or be maintained. The Company's Class A Common Stock is listed on the
AMEX under the symbol "DRSA." On November 24, 1995, the last reported
sale price of the Class A Common Stock on the AMEX was $7-1/8 per share.
The Debentures are unsecured and subordinate to all Senior
Indebtedness (as defined herein) and are effectively subordinated to all
obligations of the subsidiaries of the Company. The Indenture (as
defined herein) governing the Debentures provides that the Company
will not (i) issue or incur any Debt (other than Senior Indebtedness or
Capitalized Lease Obligations) unless such Debt is subordinate in right
of payment to the Debentures at least to the same extent that the
Debentures are subordinate to Senior Indebtedness or (ii) permit any of
its subsidiaries to issue or incur any Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) unless such Debt provides
that it will be subordinate in right of payment to distributions and
dividends from such subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures at least to the
same extent that the Debentures are subordinate to Senior Indebtedness.
At September 30, 1995, Senior Indebtedness (excluding current
installments) was approximately $3.2 million and the indebtedness
(excluding liability for income taxes) of the Company's subsidiaries was
approximately $16.4 million. The Debentures will mature on October 1,
2003. The Company may not redeem the Debentures prior to October 1,
1998. On or after such date, the Company may redeem the Debentures, in
whole or in part, at the redemption prices set forth herein plus accrued
but unpaid interest to the date of redemption. Upon a Change of Control
(as defined herein), the Company will offer to repurchase the Debentures
at 100% of the principal amount thereof plus accrued but unpaid interest
to the date of repurchase. In addition, upon a Net Worth Deficiency (as
defined herein), the Company will offer to repurchase up to 10% of the
aggregate principal amount of Debentures at 100% of the principal amount
thereof plus accrued but unpaid interest to the date of repurchase. See
"Description of the Debentures."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company has been advised by the Selling Security Holders that
the Selling Security Holders, acting as principals for their own
account, directly, through agents designated from time to time, or
through dealers or underwriters also to be designated, may sell all or a
portion of the Debentures or shares of Class A Common Stock offered
hereby from time to time on terms to be determined at the time of sale.
To the extent required, the aggregate principal amount of the Debentures
or the number of shares of Class A Common Stock to be sold, the names of
the Selling Security Holders, the purchase price, the name of any such
agent, dealer or underwriter and any applicable commissions with respect
to a particular offer will be set forth in an accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the
Registration Statement of which this Prospectus is a part. The
aggregate proceeds to the Selling Security Holders from the sale of
Debentures and Class A Common Stock offered by the Selling Security
Holders hereby will be the purchase price of such Debentures or Class A
Common Stock less any commissions. For information concerning
indemnification arrangements between the Company and the Selling
Security Holders, see "Plan of Distribution."
The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Debentures or shares of Class A Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), in which event any commissions
received by such broker-dealers, agents or underwriters and any profit
on the resale of the Debentures or shares of Class A Common Stock
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The date of this Prospectus is ___________, 1995
AVAILABLE INFORMATION
The Company is subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the
"SEC"). Such reports and other information filed by the Company
with the SEC in accordance with the Exchange Act may be
inspected, without charge, at the Public Reference Section of the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies
of all or any portion of the material may be obtained from the
Public Reference Section of the SEC upon payment of the
prescribed fees. Materials can also be inspected at the offices
of the AMEX, 86 Trinity Place, New York, New York 10006, on which
exchange the Company's Class A Common Stock is listed.
The Company is required, pursuant to the terms of the
Indenture under which the Debentures were issued, to deliver to
the Trustee and the holders of the Debentures, within 15 days
after the Company has filed the same with the SEC, copies of the
annual reports and information, documents and other reports which
the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act.
The Company has filed with the SEC a Registration Statement
on Form S-2 (the "Registration Statement") under the Securities
Act, with respect to the Debentures and shares of Class A Common
Stock offered pursuant to this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which
reference is hereby made. For further information with respect
to the Company, the Debentures and the Class A Common Stock,
reference is made to the Registration Statement, including the
exhibits and schedules filed therewith. Statements contained in
this Prospectus concerning the provisions of certain documents
filed with, or incorporated by reference in, the Registration
Statement are not necessarily complete, each statement being
qualified in all respects by such reference. Copies of all or
any part of the Registration Statement, including the document
incorporated by reference therein and exhibits thereto, may be
obtained, upon payment of the prescribed fees, at the offices of
the SEC as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed
with the SEC by the Company are hereby incorporated by reference
into this Prospectus:
1. The Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995;
2. The Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1995;
3. The Company's Current Report on Form 8-K, dated
July 5, 1995, as amended on August 8, 1995; and
4. The Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1995.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document
which also is incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
A copy of any document incorporated by reference other
than exhibits to such document (unless such exhibits are
specifically incorporated by reference in this Prospectus), will
be provided without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been
delivered upon the written or oral request of such person.
Requests for such copies should be made to Diagnostic/Retrieval
Systems, Inc., 5 Sylvan Way, Parsippany, New Jersey 07054,
Attention: Patricia Williamson, telephone number (201) 898-1500.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information
and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless the context otherwise
requires, all references herein to the "Company" include
Diagnostic/Retrieval Systems, Inc. and its consolidated
subsidiaries.
THE COMPANY
Diagnostic/Retrieval Systems,Inc. ("DRS" or the "Company")
designs, manufactures and markets high-technology computer
workstations for the United States (the "U.S.") Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6
million and earnings per share of $.50, representing increases of
20.9%, 61.2% and 66.7%, respectively, compared with the year
ended March 31, 1994. For the six months ended September 30,
1995 the Company had revenues of $40.1 million, net income of
$1.6 million and fully diluted earnings per share of $.28,
representing increases of 26.5%, 45.7% and 33.3%, respectively,
compared with the same six-month period ended September 30, 1994.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Six Months
Year Ended March 31, Ended September 30,
______________________________________________________________________ __________________________
1995 1994 1993 1992 1991 1995 1994
______________ _____________ _____________ _____________ _____________ ____________ _____________
SUMMARY OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 40,065,000 $ 31,662,000
Costs and Expenses 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 36,907,000 29,406,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Operating Income (Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 3,158,000 2,256,000
Interest and Related
Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (697,000) (677,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 114,000 216,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Earnings (Loss) before
Income Taxes (Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 2,575,000 1,795,000
Income Taxes (Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,004,000 717,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Net Earnings (Loss) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 1,571,000 $ 1,078,000
Net Earnings (Loss) per share
of Class A and Class B
Common Stock(1) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .28 $ .21
OTHER OPERATIONS DATA:
EBITDA(2) . . $ 7,574,000 $ 6,006,000 $ 5,513,000 $ (4,393,000) $ (973,000) $ 4,447,000 $ 3,508,000
Ratio of Earnings to Fixed
Charges(3)(4) 2.9x 2.3x 1.8x - - 3.3x 2.6x
Ratio of Earnings to Fixed
Charges, as adjusted(3)(5) 1.8x 2.0x
</TABLE>
September 30, 1995
__________________________________
Actual As Adjusted(6)
BALANCE SHEET DATA:
Working Capital $ 37,201,000 $ 39,431,000
Net Property, Plant
and Equipment $ 13,292,000 $ 13,292,000
Total Assets $ 83,840,000 $ 83,840,000
Long-Term Debt,
Excluding Current
Installments $ 30,690,000 $ 33,170,000
Net Stockholders'
Equity $ 24,252,000 $ 24,252,000
_______________________________________________________________________________
(1) No cash dividends have been distributed during any of the years in
the five-year period ended March 31, 1995 or the three months ended
June 30, 1995.
(2) EBITDA is defined as operating income (loss) plus depreciation and
amortization. EBITDA is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash
flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(3) Earnings used in computing the ratio of earnings to fixed charges
consist of earnings before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of debt issuance
costs and the portion of the Company's rent expense that the
Company believes is representative of the interest factor.
(4) Earnings were inadequate to cover fixed charges in fiscal 1992 and
fiscal 1991. Earnings (Loss) before Income Taxes (Benefit) in
fiscal 1992 and fiscal 1991 include fixed charges of approximately
$2.7 million and $2.9 million, respectively.
(5) Adjusted to reflect the Debenture Offering which was consummated on
September 29, 1995 (including the over-allotment option which was
exercised on November 3, 1995) and the initial application of the
proceeds therefrom. See "Use of Proceeds."
(6) Adjusted to give effect to the Debenture Offering which was
consummated on September 29, 1995 (including the over-allotment
option which was exercised on November 3, 1995) and the application
of the net proceeds therefrom (after deducting discounts and
commissions and estimated offering expenses payable by the Company
pursuant thereto). See "Use of Proceeds."
THE OFFERING
Debentures Offered . . . . . $25,000,000 principal amount
of Senior Subordinated
Convertible Debentures Due
2003.
Maturity Date . . . . . . . . October 1, 2003
Interest Payment Dates . . . April 1 and October 1
Interest . . . . . . . . . . 9.0% per annum
Conversion . . . . . . . . . Convertible into Class A
Common Stock at any time prior
to maturity, unless previously
redeemed or repurchased, at a
conversion price of $8.85 per
share, subject to adjustment
in certain circumstances.
Redemption at the Option of the
Company . . . . . . . . . . Redeemable at the option of the
Company, in whole or in part at any
time on or after October 1, 1998,
upon not less than 30 nor more than
60 days' notice, at the redemption
prices set forth herein plus
accrued but unpaid interest to the
date of redemption. See
"Description of the Debentures --
Redemption."
Redemption at the Option of
the Holders . . . . . . . . . Upon a Change of Control (as
defined herein), the Company will
offer to repurchase the Debentures
at 100% of the principal amount
thereof plus accrued but unpaid
interest to the date of repurchase.
See "Description of the Debentures
-- Change of Control."
In the event the Company's
Consolidated Net Worth (as
defined herein) at the end of
any two consecutive fiscal
quarters is below $18.0
million (a "Net Worth
Deficiency"), the Company will
offer to repurchase up to 10%
of the aggregate principal
amount of Debentures at 100%
of the principal amount
thereof plus accrued but
unpaid interest to the date of
repurchase. See "Description
of the Debentures --
Maintenance of Consolidated
Net Worth."
Ranking . . . . . . . . . . . The Debentures are
subordinated to all Senior
Indebtedness (as defined
herein) and will be
effectively subordinated to
all obligations of the
subsidiaries of the Company.
The Indenture (as defined
herein) governing the
Debentures provides that the
Company will not (i) issue or
incur any Debt (other than
Senior Indebtedness or
Capitalized Lease Obligations)
unless such Debt (other than
Senior Indebtedness or
Capitalized Lease Obligations)
is subordinate in right of
payment to the Debentures at
least to the same extent that
the Debentures are subordinate
to Senior Indebtedness or (ii)
permit any of its subsidiaries
to issue or incur any Debt
(other than Senior
Indebtedness or Capitalized
Lease Obligations) unless such
Debt (other than Senior
Indebtedness or Capitalized
Lease Obligations) provides
that it will be subordinate in
right of payment to
distributions and dividends
from such subsidiary to the
Company in an amount
sufficient to satisfy the
Company's obligations under
the Debentures at least to the
same extent that the
Debentures are subordinate to
Senior Indebtedness. At
September 30, 1995, Senior
Indebtedness (excluding
current installments) was
approximately $3.2 million and
the indebtedness (excluding
liability for income taxes) of
the Company's subsidiaries was
approximately $16.4 million.
See "Description of the
Debentures -- Ranking."
Registration Rights . . . . . Pursuant to a registration
rights agreement (the
"Registration Rights
Agreement") between the
Company and the Initial
Purchaser, the Company has
agreed to file a shelf
registration statement (the
"Shelf Registration
Statement") relating to the
Debentures and the shares of
Class A Common Stock which are
issuable from time to time
upon conversion of the
Debentures. The Company has
agreed to use its reasonable
best efforts to maintain the
effectiveness of the Shelf
Registration Statement until
the third anniversary of the
issuance of the Debentures,
except that it will be
permitted to suspend the use
of the Shelf Registration
Statement during certain
periods under certain
circumstances. Upon default
by the Company with respect to
certain of its obligations
under the Registration Rights
Agreement, liquidated damages
will be payable on the
Debentures and Class A Common
Stock affected by such
default. See "Description of
the Debentures -- Registration
Rights; Liquidated Damages."
Restrictive Covenants . . . . The indenture under which the
Debentures were issued (the
"Indenture") limits (i) the
issuance of additional debt by
the Company, (ii) the payment
of dividends on the capital
stock of the Company and
investments by the Company,
(iii) certain transactions
with affiliates, (iv)
incurrence of liens, (v)
issuance of preferred stock by
the Company or its
subsidiaries, (vi) stock
splits, consolidations and
reclassifications and (vii)
sales of assets and subsidiary
stock. The Indenture also
prohibits certain restrictions
on distributions from
subsidiaries. However, all
these limitations and
prohibitions are subject to a
number of important
qualifications. See
"Description of the Debentures
-- Certain Covenants of the
Company."
Use of Proceeds . . . . . . . The Company will not receive
any proceeds from the sale of
the Debentures or shares of
Class A Common Stock offered
pursuant to this Prospectus.
The Selling Security Holders
will receive all of the net
proceeds from any sale of the
Debentures or shares of Class
A Common Stock offered hereby.
See "Use of Proceeds" and
"Selling Security Holders."
RISK FACTORS
In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the
following factors before purchasing the Debentures offered
hereby.
AMOUNT AND RISKS OF GOVERNMENT BUSINESS
Substantially all the Company's revenues are derived from
contracts or subcontracts with domestic and foreign government
agencies of which a significant portion is attributed to United
States Navy (the "U.S. Navy") procurements. The development and
success of the Company's business in the future will depend upon
the continued willingness of the U.S. Government to commit
substantial resources to such U.S. Navy programs and, in
particular, upon continued purchases of the Company's products.
See "Business -- Company Organization and Products."
The Company's business with the U.S. Government is subject
to various risks, including termination of contracts at the
convenience of the U.S. Government; termination, reduction or
modification of contracts or subcontracts in the event of changes
in the U.S. Government's requirements or budgetary constraints;
shifts in spending priorities; and when the Company is a
subcontractor, the failure or inability of the prime contractor
to perform its prime contract. Certain contract costs and fees
are subject to adjustment as a result of audits by government
agencies. In addition, all defense businesses are subject to
risks associated with the frequent need to bid on programs in
advance of design completion (which may result in unforeseen
technological difficulties and/or cost overruns).
Multi-year U.S. Government contracts and related orders are
subject to cancellation if funds for contract performance for any
subsequent year become unavailable. In addition, if certain
technical or other program requirements are not met in the
developmental phases of the contract, then the follow-on
production phase may not be realized. Upon termination other
than for a contractor's default, the contractor normally is
entitled to reimbursement for allowable costs, but not
necessarily all costs, and to an allowance for the proportionate
share of fees or earnings for the work completed. Foreign
defense contracts generally contain comparable provisions
relating to termination at the convenience of the foreign
government. See "Business -- Contracts."
REDUCED SPENDING IN DEFENSE INDUSTRY
Reductions in U.S. Government expenditures for defense
products are likely to continue during the 1990's. These
reductions may or may not have an effect on the Company's
programs; however, in the event expenditures for products of the
type manufactured by the Company are reduced and not offset by
greater foreign sales or other new programs or products, there
will be a reduction in the volume of contracts or subcontracts
awarded to the Company. Unless offset, such reductions would
adversely affect the Company's earnings.
LIMITED TERM OF CONTRACTS
The Company's contracts with the U.S. Government are for
varying fixed terms, and there can be no assurance that a renewal
or follow-on contract will be awarded to the Company by the U.S.
Government upon the expiration of any such contract. Certain of
the Company's U.S. Government contracts account for a substantial
portion of the Company's revenues (i.e., the AN/UYQ-65 production
contract). The loss of revenue resulting from the failure to
obtain a renewal or follow-on contract with respect to any
significant contract or a number of lesser contracts, in either
case without the substitution of revenues from the award of new
contracts, would have a material adverse effect upon the
Company's results of operations and financial position. In
addition, from time to time the Company enters into U.S.
Government contracts with a full funded backlog but in which the
price per unit may not be determined at the time of award. If
the price per unit which is ultimately determined is
significantly less than anticipated by the Company, the net
revenues of the Company would be adversely affected.
HOLDING COMPANY STRUCTURE; SUBORDINATION
The Debentures are a direct obligation of DRS, which
derives a majority of its revenues from the operations of its
subsidiaries. The ability of DRS to make interest payments on or
redeem the Debentures and to pay dividends, if any, on the Class
A Common Stock will be primarily dependent upon the receipt of
dividends or other distributions from such subsidiaries. The
payment of dividends from the subsidiaries to the Company and the
payment of any interest on or the repayment of any principal of
any loans or advances made by the Company to any of its
subsidiaries may be subject to statutory or contractual
restrictions and are contingent upon the earnings of such
subsidiaries. Although the Company believes that distributions
and dividends from its subsidiaries will be sufficient to pay
interest on the Debentures as well as to meet the Company's other
obligations, there can be no assurance they will be sufficient.
The Debentures are subordinated in right of payment to
all existing and future Senior Indebtedness of the Company,
including all indebtedness under the Company's credit agreements.
By reason of such subordination, in the event of an insolvency,
liquidation or other reorganization of the Company, the Senior
Indebtedness must be paid in full before the principal of,
premium if any, and interest on the Debentures may be paid. At
September 30, 1995, Senior Indebtedness (excluding current
installments) was approximately $3.2 million. Because a majority
of the Company's operations are conducted through subsidiaries,
claims of the creditors of such subsidiaries will have priority
with respect to the assets and earnings of such subsidiaries over
the claims of the creditors of the Company, including holders of
the Debentures, even though such obligations do not constitute
Senior Indebtedness, except to the extent the Company is itself
recognized as a creditor of such subsidiary or such other
creditors have agreed to subordinate their claims to the payment
of the Debentures. The Company's subsidiaries had indebtedness
(excluding liability for income taxes) of approximately $16.4
million at September 30, 1995.
The Debentures are not secured by any of the assets of
the Company or its subsidiaries. In addition, certain
obligations of the Company are secured by pledges of certain
assets of the Company or its subsidiaries.
SUBSTANTIAL INDEBTEDNESS
Following the issuance of the Debentures, the Company
continues to have indebtedness that is substantial in relation to
its stockholders' equity. See "Capitalization." The Indenture
imposes significant operating and financial restrictions on the
Company. Such restrictions will affect, and in many respects
significantly limit or prohibit, among other things, the ability
of the Company to incur additional indebtedness and pay
dividends. These restrictions, in combination with the leveraged
nature of the Company, could limit the ability of the Company to
effect future financings or otherwise may restrict corporate
activities. See "Description of the Debentures." The Indenture
permits the Company to incur additional indebtedness under
certain conditions, and the Company expects to obtain additional
indebtedness as so permitted.
The Company's high degree of leverage could have
important consequences to the holders of the Debentures,
including the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes;
(iii) the Company's substantial degree of leverage may hinder its
ability to adjust rapidly to changing market conditions; and (iv)
could make it more vulnerable in the event of a downturn in
general economic conditions or its business. See "Description of
the Debentures."
COMPETITION
The military electronics industry is characterized by rapid
technological change. The Company's products are sold in markets
containing many competitors which are substantially larger than
the Company, devote substantially greater resources to research
and development and generally have greater resources. Certain of
such competitors are also suppliers to the Company. In the
military sector, the Company competes with many first- and
second-tier defense contractors on the basis of product
performance, cost, overall value, delivery and reputation. The
Company's future success will depend in large part upon its
ability to improve existing product lines and to develop new
products and technologies in the same or related fields. The
introduction by competitors of new products with greater
capabilities could adversely affect the Company's business.
RELIANCE ON SUPPLIERS
The Company's manufacturing process for its products,
excluding electro-optical products, consists primarily of the
assembly of purchased components and testing of the product at
various stages in the assembly process.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers
are the Company's sole source of certain components. If a
supplier should cease to deliver such components, other sources
probably would be available; however, added cost and
manufacturing delays might result. The Company has not
experienced significant production delays attributable to supply
shortages, but occasionally experiences procurement problems with
respect to certain components, such as semiconductors and
connectors. In addition, with respect to the Company's electro-
optical products, certain exotic materials, such as germanium,
zinc sulfide and cobalt, may not always be readily available.
ATTRACTING AND RETAINING TECHNICAL PERSONNEL
There is a continuing demand for qualified technical
personnel, and the Company believes that its future growth and
success will depend upon its ability to attract, train and retain
such personnel. An inability to maintain a sufficient number of
trained personnel could have a material adverse effect on the
Company's contract performance or on its ability to capitalize on
market opportunities.
FUNDING OF REPURCHASE OBLIGATIONS; ABSENCE OF SINKING FUND
There is no sinking fund with respect to the Debentures, and
at maturity the entire outstanding principal amount thereof will
become due and payable by the Company. Also, upon the occurrence
of certain events the Company will be required to offer to
repurchase all or a portion of the outstanding Debentures. The
source of funds for any such payment at maturity or earlier
repurchase will be the Company's available cash or cash generated
from operating or other sources, including, without limitation,
borrowings or sales of assets or equity securities of the
Company. There can be no assurance that sufficient funds will be
available at the time of any such event to pay such principal or
to make any required repurchase. See "Description of the
Debentures."
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts
of Class A Common Stock in the public market could adversely
affect the prevailing market price of the Debentures and the
Class A Common Stock into which the Debentures are convertible
and could impair the Company's ability to raise additional
capital through the sale of its securities. The Debentures
offered hereby are convertible at any time prior to maturity,
unless previously redeemed or repurchased, into shares of Class A
Common Stock, at a conversion price of $8.85 per share, subject
to adjustment under certain circumstances. As of November 24,
1995, there was an aggregate of 3,307,324 shares of Class A
Common Stock outstanding (excluding 432,639 shares of Class A
Common Stock in treasury) and an aggregate of 2,194,734 shares of
Class B Common Stock, par value $.01 per share (the "Class B
Common Stock") outstanding (excluding 21,619 shares of Class B
Common Stock in treasury). Of such shares, 754,819 shares of the
Class A Common Stock and 356,473 shares of the Class B Common
Stock are "restricted" under the Securities Act and are resalable
pursuant to the limitations of Rule 144 under the Securities Act.
After giving effect to the application of $5.0 million in net
proceeds acquired by the Company pursuant to the Debenture
Offering to repurchase $5.0 million in principal amount of the
Company's 8-1/2% Convertible Subordinated Debentures due August
1, 1998 (the "1998 Debentures"), the remaining outstanding 1998
Debentures will be convertible into an additional 330,866 shares
of Class B Common Stock at $15 per share. Each share of Class A
Common Stock is convertible at any time into one share of the
Class B Common Stock, subject to adjustment under certain
circumstances. See "Description of Capital Stock." The Company
is considering setting forth a proposal to its stockholders to
amend the Company's Certificate of Incorporation to convert the
Class A Common Stock and Class B Common Stock into a single class
of common stock, as well as to include certain other charter
amendments.
LACK OF PUBLIC MARKET; RESTRICTIONS ON RESALE
At present, the Debentures are owned by a small number of
institutional investors, and prior to this offering there has not
been any public market for the Debentures. The Company intends
to apply for listing of the Debentures on the AMEX. The
Debentures are eligible for trading in the PORTAL Market of the
National Association of Securities Dealers, Inc. There can be no
assurance regarding the future development of a market for the
Debentures or the ability of holders of the Debentures to sell
their Debentures or the price at which such holders may be able
to sell their Debentures. If such a market were to develop, the
Debentures could trade at prices that may be higher or lower than
the initial offering price depending on many factors, including
prevailing interest rates, the Company's operating results and
the market for similar securities. The Initial Purchaser has
advised the Company that it currently intends to make a market in
the Debentures. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to the Debentures may
be discontinued at any time without notice. Therefore, there can
be no assurance as to the liquidity of any trading market for the
Debentures or that an active public market for the Debentures
will develop.
The Class A Common Stock of the Company is listed on the
AMEX. The market for the Class A Common Stock has historically
been characterized by limited trading volume and a limited number
of holders. The Company is considering setting forth a proposal
to its stockholders to amend the Company's Certificate of
Incorporation to convert the Class A Common Stock and Class B
Common Stock into a single class of common stock, however, there
can be no assurance that such proposal will be approved by the
stockholders, or if approved, that a more active trading market
for the resulting class of common stock will develop.
THE COMPANY
GENERAL
The Company designs, manufactures and markets high-
technology computer workstations for the U.S. Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
Using COTS designs, the Company develops and delivers its
products with significantly less development time and expense
compared to traditional military product cycles, generally
resulting in shorter lead times, lower costs and the employment
of the latest information and computing technologies. The COTS
process entails the purchasing, refitting, upgrading (of both
hardware and software) and "ruggedization" (repackaging,
remounting and stress testing to withstand harsh military
environments) of readily available commercial components. The
design and manufacture of COTS-based products is a complex
process requiring specific engineering capabilities, extensive
knowledge of military platforms to which the equipment will be
applied and in-depth understanding of military operating
environments and requirements.
STRATEGY
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6 million
and earnings per share of $.50, representing increases of 20.9%,
61.2% and 66.7%, respectively, compared with the year ended March
31, 1994. For the six months ended September 30, 1995, the
Company had revenues of $40.1 million, net income of $1.6 million
and fully diluted earnings per share of $.28, representing
increases of 26.5%, 45.7% and 33.3%, respectively, compared with
the same six-month period ended September 30, 1994.
COMPANY ORGANIZATION
The Company is organized into three operating groups:
Electronic Systems Group ("ESG," 54% of fiscal 1995 revenues),
Electro-Optical Systems Group ("EOSG," 18% of fiscal 1995
revenues) and Media Technology Group ("MTG," 28% of fiscal 1995
revenues). See "Business -- Company Organization and Products."
ESG designs and manufactures COTS-based computer
workstations designed for military information processing
applications. This equipment is designed to cost-effectively
replace and upgrade anti-submarine warfare ("ASW") systems,
tactical (combat/attack) workstations and training equipment.
ESG's products are a direct outgrowth of the ASW and Naval
systems expertise that has formed the core of DRS' business base
since the Company's inception. Major products include: (i)
computer workstations used in ASW systems for ship and land-based
(harbors and coastal areas) detection networks, (ii) tactical
workstations used to coordinate and control personnel and weapons
systems on the military's most advanced ship, air and submarine-
based platforms, and (iii) military display emulators ("MDE"),
which are used for combat system operator training at a fraction
of the cost of fully-militarized, field-ready versions of the
display. ESG's workstation products, which are PC-based, open
architecture, networked systems designed for flexibility and
adaptability to a wide variety of applications, have been
developed to replace many of the mainframe-based systems
currently in use, while preserving the U.S. Navy's existing
investment in such technology. ESG's systems process incoming
sonar, radar and other information through complex customized
software, enabling operators to interpret data quickly and relay
information to command personnel. These workstations are an
integral part of the U.S. Navy's Aegis defense program and the
U.S. coastal defense strategy. MDE systems are used for training
of combat system operators and to maintain and improve the
operation skills of naval reserve personnel. ESG operates a
field service division for system maintenance, installation and
upgrade services and general product support. ESG's
manufacturing division (which is 80% owned through a partnership)
produces ESG's new generation products and also supplies complex
wire harness assemblies and other products to the military and
commercial aerospace industry.
EOSG manufactures precision electro-optical assemblies used
in infrared seeker heads of Stinger, Sidewinder and new
generation missiles and produces proprietary Multiple Platform
Boresight Equipment ("MPBE") used to align the weapons systems
with the airframes and pilot sighting systems on Apache and Cobra
helicopters. Originally supplying only the primary mirror for
infrared seeker heads, EOSG now supplies the primary, secondary,
tertiary and fold mirrors, as well as the mirror housing and nose
domes. EOSG is currently under contract to produce infrared
components and subassemblies on many of the next generation
infrared missile systems. The MPBE boresight system was
originally deployed on the Army's Apache attack helicopters and
has been adapted for use on Marine Corps' Cobra helicopters.
EOSG is under contract to supply the next generation laser-based
MPBE for these platforms. Due to the inherent flexibility and
economics of MPBE's multiple platform design, EOSG has submitted
proposals to adapt the system for use on fixed-wing aircraft such
as the F-15 and C-130. The Company recently acquired
substantially all of the assets of Opto Mechanik, Inc. through
its subsidiary OMI Acquisition Corp. ("OMI"). Through OMI, EOSG
now supplies the electro-optical sighting and targeting systems
used on TOW anti-tank missiles, the military's primary anti-tank
weapon, and other electro-optical military products. The Company
is also under contract with the primary contractor for work on
the anti-tank Improved TOW Acquisition System.
MTG manufactures products used by military and commercial
customers for image and data storage. The group designs military
recorder systems by adapting commercial video recording products
to operate in and withstand harsh military environments. With
MTG's recorder products, the COTS process entails the purchasing,
refitting, upgrading (hardware and software) and "ruggedization"
(repackaging, remounting and vibration/thermal stress testing to
withstand harsh military operating environments) of readily
available commercial components. These systems are used to
record cockpit video of jet fighter, helicopter and light armored
vehicle missions. MTG's commercial operations manufacture
burnish, glide and test heads which are used in the manufacture
of computer hard disks, listing among its customers many of the
major disk drive manufacturers in the United States. MTG also
manufactures specialty recorder heads and refurbishes the head
assemblies of high-end video recording products used by
broadcasters worldwide.
The Company was incorporated in Delaware in June 1968. The
Company's executive offices are located at 5 Sylvan Way,
Parsippany, New Jersey, 07054, and its telephone number is (201)
898-1500.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
the Debentures or shares of Class A Common Stock offered pursuant
to this Prospectus. The Selling Security Holders will receive
all of the net proceeds from any sale of the Debentures or shares
of Class A Common Stock offered hereby.
The net proceeds received by the Company pursuant to the
Debenture Offering (including the exercise of the over-allotment
option) were approximately $23,750,000. The Company intends to
use approximately $5.0 million of such net proceeds to redeem
$5.0 million aggregate principal amount of the Company's 1998
Debentures ($2,480,000 of which is classified as current as
of September 30, 1995), and the balance for general corporate purposes,
including acquisitions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Condition
and Liquidity -- The Debenture Offering." Although the Company
continues to seek acquisition opportunities consistent with its business
strategy and is engaged in discussions regarding potential acquisitions,
the Company does not currently have any agreement or understanding
regarding any potential acquisition.
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company at September 30, 1995 as adjusted
to give effect to the Debenture Offering (including the over-
allotment option for $5,000,000 aggregate principal amount of the
Debentures which was exercised on November 3, 1995) and the
application of the estimated net proceeds therefrom. The
information presented below should be read in conjunction with
the consolidated financial statements of the Company included
elsewhere in this Prospectus.
September 30, 1995
Actual As Adjusted
______________ ___________
Long-term debt, excluding current
installments(1):
Senior Indebtedness(2) . . . . . . . . $ 3,190,000 $ 3,190,000
8-1/2% Convertible Subordinated
Debentures due August 1, 1998 . . . . . 7,500,000 4,980,000
Senior Subordinated Convertible
Debentures due 2003 . . . . . . . . . . 20,000,000 25,000,000
______________ ___________
Total long-term debt . . . 30,690,000 33,170,000
Stockholders' equity:
Preferred Stock, $10 par value
2,000,000 shares authorized;
no shares issued . . . . . . -- --
Class A Common Stock, $.01 par value,
10,000,000 shares authorized;
3,739,963 shares issued . . . . . 37,000 37,000
Class B Common Stock, $.01 par value,
20,000,000 shares authorized;
2,216,353 shares issued . . . . . . 22,000 22,000
Additional paid-in capital . 13,579,000 13,579,000
Retained earnings . . . . . . 12,490,000 12,490,000
______________ ___________
26,128,000 26,128,000
Less Treasury Stock -at cost: 432,639
shares of Class A Common Stock and
21,619 shares of Class B Common
Stock . . . . . . . . . . . (1,617,000) (1,617,000)
Less unamortized restricted stock
compensation . . . . . . . . (259,000) (259,000)
______________ ___________
Net stockholders' equity . . 24,252,000 24,252,000
______________ ___________
Total capitalization . . . . . $ 54,942,000 $ 57,422,000
_________________
(1) See Note 6 to Consolidated
Financial Statements for further
information with respect to the
Company's debt obligations.
(2) Consisting of Industrial Revenue
Bonds due 1998 and other
obligations. See Note 6 to
Consolidated Financial
Statements.
MARKET PRICES OF CAPITAL STOCK
The Company's Class A Common Stock and Class B Common Stock
trades on the AMEX (Symbols: DRSA and DRSB, respectively). The
following table sets forth for each period indicated the high and
low closing sales prices of the Company's Class A Common Stock
and Class B Common Stock, as reported by the American Stock
Exchange Monthly Market Statistics:
Class A Common Stock* Class B Common Stock*
High Low High Low
Year Ended March 31, 1994:
First Quarter . . . . . . . . $ 4-3/8 $ 2-3/4 $ 4-1/4 $ 2-13/16
Second Quarter . . . . . . . 3-7/8 3-1/16 3-13/16 3
Third Quarter . . . . . . . . 3-11/16 2-15/16 3-1/2 2-3/4
Fourth Quarter . . . . . . . 4-1/16 3 4 3
Year Ended March 31, 1995:
First Quarter . . . . . . . 5-1/4 3-5/8 5-1/8 3-3/4
Second Quarter . . . . . . . 4-3/4 3-3/4 4-5/8 3-3/4
Third Quarter . . . . . . . 4-5/16 3-15/16 4-3/8 3-7/8
Fourth Quarter . . . . . . . 5-1/4 4 5-1/2 3-7/8
Year Ended March 31, 1996:
First Quarter . . . . . . . . 6-5/8 4-3/4 6-13/16 4-7/8
Second Quarter . . . . . . . 7-13/16 6-3/16 7-7/8 5-3/4
Third Quarter
(through November 24, 1995) 7-7/8 6-7/8 7-7/8 6-5/8
________________
* As of November 24, 1995, the Class A Common Stock was held
by 1,422 stockholders (of which 307 were registered holders
and 1,115 were beneficial holders) and the Class B Common
Stock was held by 839 stockholders (of which 209 were
registered holders and 630 were beneficial holders). See
"Risk Factors -- Lack of Public Market; Restrictions on
Resale."
DIVIDEND POLICY
The Company has not paid any cash dividends since 1976. The
Company intends to retain future earnings for use in its business
and does not expect to declare cash dividends in the foreseeable
future on the Class A Common Stock or the Class B Common Stock,
which rank pari passu as to dividends and distributions. The
Company's 1998 Debentures limit the Company's ability to pay
dividends or make other distributions on its Class A Common Stock
and Class B Common Stock. See Note 6 of Notes to Consolidated
Financial Statements for information concerning restrictions on
the declaration or payment of dividends. The Company's Restated
Certificate of Incorporation, as amended, also limits the payment
of dividends under certain circumstances. See "Description of
Capital Stock -- Dividends and Distributions." Any future
declaration of dividends will be subject to the discretion of the
Board of Directors of the Company. The timing, amount and form
of any future dividends will depend, among other things, on the
Company's results of operations, financial condition, cash
requirements, plans of expansion and other factors deemed
relevant by the Board of Directors.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
statements of operations and balance sheet data for the periods
indicated. The information for, and as of the end of, each of
the twelve months in the five year period ended March 31, 1995 is
derived from the consolidated financial statements of the Company
for such periods which have been audited by KPMG Peat Marwick
LLP. The selected consolidated statements of operations data for
the six months ended September 30, 1995 and 1994 and the selected
consolidated balance sheet data as of September 30, 1995 are
derived from the unaudited consolidated statements of the
Company, which include all adjustments which management considers
necessary for a fair presentation of the data for such periods
and at such dates, all of which were of a normal recurring
nature. The results of the six months ended September 30, 1995
are not necessarily indicative of results to be expected for the
full year. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated
financial statements of the Company and the notes thereto, and
other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended March 31, Ended September 30,
______________________________________________________________________ __________________________
1995 1994 1993 1992 1991 1995 1994
______________ _____________ _____________ _____________ _____________ ____________ _____________
SUMMARY OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 40,065,000 $ 31,662,000
Costs and Expenses 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 36,907,000 29,406,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Operating Income (Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 3,158,000 2,256,000
Interest and Related
Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (697,000) (677,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 114,000 216,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Earnings (Loss) before
Income Taxes (Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 2,575,000 1,795,000
Income Taxes (Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,004,000 717,000
______________ _____________ _____________ _____________ _____________ ____________ _____________
Net Earnings (Loss) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 1,571,000 $ 1,078,000
Net Earnings (Loss) per share
of Class A and Class B
Common Stock(1) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .28 $ .21
OTHER OPERATIONS DATA:
EBITDA(2) . . $ 7,574,000 $ 6,006,000 $ 5,513,000 $ (4,393,000) $ (973,000) $ 4,447,000 $ 3,508,000
Ratio of Earnings to Fixed
Charges(3)(4) 2.9x 2.3x 1.8x - - 3.3x 2.6x
Ratio of Earnings to Fixed
Charges, as adjusted(3)(5) 1.8x 2.0x
</TABLE>
<TABLE>
<CAPTION>
March 31, September 30, 1995
______________________________________________________________________ __________________________
1995 1994 1993 1992 1991 Actual As Adjusted(6)
______________ _____________ _____________ _____________ _____________ ____________ _____________
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital . $ 20,317,000 $ 19,803,000 $ 17,994,000 $ 17,747,000 $ 24,833,000 $37,201,000 $ 39,431,000
Net Property, Plant and
Equipment 9,849,000 8,893,000 9,768,000 11,602,000 13,904,000 13,292,000 13,292,000
Total Assets . . 64,590,000 58,836,000 51,948,000 53,904,000 58,527,000 83,840,000 83,840,000
Long-Term Debt, Excluding
Current Installments 11,732,000 14,515,000 17,290,000 19,958,000 22,240,000 30,690,000 33,170,000
Net Stockholders' Equity 22,509,000 19,759,000 18,115,000 17,047,000 22,300,000 24,252,000 24,252,000
<FN>
____________________
(1) No cash dividends have been distributed during any
of the years in the five-year period ended March
31, 1995 or the three months ended June 30, 1995.
(2) EBITDA is defined as operating income (loss) plus
depreciation and amortization. EBITDA is a widely
accepted financial indicator of a company's ability
to service and incur debt. EBITDA should not be
considered in isolation or as a substitute for net
income, cash flows or other consolidated income or
cash flow data prepared in accordance with
generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(3) Earnings used in computing the ratio of earnings to
fixed charges consist of earnings before income
taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance
costs and the portion of the Company's rent expense
that the Company believes is representative of the
interest factor.
(4) Earnings were inadequate to cover fixed charges in
fiscal 1992 and fiscal 1991. Earnings (Loss)
before Income Taxes (Benefit) in fiscal 1992 and
fiscal 1991 include fixed charges of approximately
$2.7 million and $2.9 million, respectively.
(5) Adjusted to reflect the Debenture Offering which
was consummated on September 29, 1995 (including
the over-allotment option which was exercised on
November 3, 1995) and the initial application of
the proceeds therefrom. See "Use of Proceeds."
(6) Adjusted to give effect to the Debenture Offering
which was consummated on September 29, 1995
(including the over-allotment option which was
exercised on November 3, 1995) and the application
of the net proceeds therefrom (after deducting
discounts and commissions and estimated offering
expenses payable by the Company pursuant thereto).
See "Use of Proceeds."
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial
condition and results of operations of the Company for the six
months ended September 30, 1995 and 1994, and for each of the
years in the three year period ended March 31, 1995. This
section should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and
other financial information included elsewhere in this
Prospectus.
OVERVIEW
During the last three fiscal years, the Company, in
connection with its strategic plan, acquired several businesses
with complementary military and commercial products and
technologies. The businesses of Technology Applications &
Service Company ("TAS"), CMC Technology ("CMC") and Laurel
Technologies ("Laurel"), which joined the Company in the latter
part of fiscal 1994, became an integral part of the fiscal 1995
business base and significantly contributed to the Company's
fiscal 1995 financial performance. In November 1994, the Company
acquired Ahead Technology Corporation ("Ahead"), located in Los
Gatos, California.
RECENT DEVELOPMENTS
In July 1995, the Company, through its subsidiary OMI,
acquired substantially all of the assets of Opto Mechanik, Inc.,
located in Melbourne, Florida. OMI designs and manufactures
electro-optical sighting and targeting systems used primarily in
military fire-control devices and in various weapons systems.
Shortly after the close of fiscal 1995, the Company signed a
non-binding letter of intent contemplating the merger of the
Company with NAI Technologies, Inc. ("NAI"), which the Company
terminated on July 13, 1995. Discussions between the Company and
NAI are continuing relating to the possibility of acquiring
certain businesses, however, no agreement or understanding has
been reached and no assurances can be given that any agreement or
understanding will be reached.
In August 1995, Mr. Leonard Newman was elected Chairman
Emeritus of the Company and retired as the Chairman of the Board
and Secretary of the Company. The Company is currently
negotiating an employment, non-competition and retirement
agreement between the Company and Mr. Leonard Newman. See "--
Financial Condition and Liquidity - Contingencies."
Subsequent to the close of fiscal 1995, the Company has
received various contract awards totalling approximately $58.7
million. As of October 29, 1995, backlog totalled approximately
$157.1 million, which includes approximately $15.5 million of
backlog from the OMI acquisition.
RESULTS OF OPERATIONS
The following table sets forth items in the consolidated
statements of operations as a percentage of revenues and the
percentage increase or decrease of those items as compared with
the prior period.
Percentage of Revenues Percentage Change
__________________________________ ___________________________
Six Months
Six Months Ended
Year Ended March 31, Ended September 30,
September 1995
30, vs.
_____________________ ____________ Fiscal Fiscal Six Months
1995 1994 Ended
vs. vs. September 30,
1995 1994 1993 1995 1994 1994 1993 1994
____ ____ ____ ____ ____ ______ ______ _____________
Revenues . . 100.0% 100.0% 100.0% 100.0% 100.0% 20.9% 21.0% 26.5%
Costs and
Expenses . . 92.7 94.0 95.2 92.1 92.9 19.2 19.6 25.5
----- ----- ----- ----- -----
Operating
Income . . . 7.3 6.0 4.8 7.9 7.1 47.7 49.2 40.0
Interest and
Related
Expenses . . (2.0) (2.7) (3.6) (1.7) (2.1)(12.8) (9.3) 3.0
Other Income,
Net . . . . . .8 1.4 2.6 0.2 0.7 (36.0) (31.9) (47.2)
---- --- ---- --- ---
Earnings
before Income
Taxes . . . . 6.1 4.7 3.8 6.4 5.7 57.2 50.4 43.5
Income Taxes . . 2.4 1.9 1.5 2.5 2.3 51.1 52.9 40.0
--- --- --- --- ---
Net Earnings . . 3.7% 2.8% 2.3% 3.9% 3.4% 61.2% 48.8% 45.7%
--- --- --- --- ---
COMPARISON OF THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1995 WITH
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1994
Revenues for the three-month period ended September 30, 1995
increased 45.6% to $22.8 million from $15.7 million for the same
three-month period in fiscal 1995. On a year-to-date basis,
revenues increased 26.5% to $40.1 million from $31.7 million for
the same six-month period in fiscal 1995. The revenue growth was
due primarily to increased shipments of display workstations
coupled with shipments, in the current fiscal year, of magnetic
head products by Ahead Technology, Inc., whose net assets were
acquired in November 1994, and revenues from the acquisition of
substantially all of the assets of Opto Mechanik, Inc. on July 5,
1995, which increased the Company's electro-optical sighting systems
business.
Operating income for the three-month period ended September
30, 1995 increased 56.3% to $1.8 million from $1.2 million for
the same three-month period in fiscal 1995. On a year-to-date
basis, operating income increased 40.0% to $3.2 million from $2.3
million for the same six-month period in fiscal 1995. Operating
income as a percentage of revenues was 8.1% and 7.9% for the
three-month and six-month periods ended September 30, 1995,
respectively, as compared with 7.5% and 7.1%, respectively, for
the comparable prior year periods. Higher operating income in
both periods was due primarily to the overall increase in
revenues, together with higher margins earned on the company's
commercial products, display systems product line and
manufacturing services.
Interest and related expenses was $0.4 million and $0.7
million for the three-month period ended September 30, 1995 and
six-month period ended September 30, 1995, respectively as
compared to $0.3 million and $0.7 million for the comparable
prior year periods. The increase for the second quarter was
primarily due to the increase in debt associated with the OMI
acquisition at the beginning of the second quarter of fiscal
1996, offset in part by a reduction in interest from repurchases
of the Company's 1998 Debentures.
Other income, net, was $27,000 and $0.1 million for the
three-month and six-month periods ended September 30, 1995,
respectively, representing decreases from comparable prior year
periods, primarily due to the lower average cash balances.
The Company's effective tax rate for the three-month and
six-month periods ended September 30, 1995 was 39%, as compared
to 37.0% and 40.0% for the comparable prior year periods. The
Company records income tax expense based on an estimated
effective income tax rate for the full fiscal year. The
effective income tax rate and the components of income tax
expense for the second quarter and first half of fiscal 1996 did
not significantly change from those of the fiscal year ended
March 31, 1995. The provision for income taxes includes all
estimated income taxes payable to federal and state governments
as applicable.
COMPARISON OF FISCAL 1995 WITH FISCAL 1994
Revenues for fiscal 1995 increased 21% to $69.9 million from
$57.8 million in fiscal 1994. The increase during fiscal 1995
was primarily attributable to revenues from the display,
manufacturing and video broadcast product lines of TAS, CMC and
Laurel, which were included in the Company's results for the full
year. In addition, commercial revenues increased $4.3 million to
approximately $6.4 million in fiscal 1995 primarily as a result
of the Company's November 1994 acquisition of Ahead, which
contributed approximately $2.7 million in revenues for the fiscal
1995 period. Revenues from the Company's core signal processing,
display, data storage and optical product lines experienced a
slight decrease during fiscal 1995, as development efforts on
several major programs were substantially completed, and the
receipt of certain new awards was delayed into the latter part of
the year.
Operating income for fiscal 1995 increased 48% to $5.1
million from $3.4 million in fiscal 1994. Operating income as a
percentage of revenues was 7% for fiscal 1995 as compared to 6%
in fiscal 1994. Such increases are attributable to higher fiscal
1995 revenues and the contribution of higher margin commercial
products to the Company's business base and the positive impact
of management's continuing cost reduction efforts.
Interest and related expenses for fiscal 1995 decreased 13%
to $1.4 million from $1.6 million in fiscal 1994. The decrease
was a result of the reduction in the Company's long-term debt.
The Company repurchased approximately $2.7 million of its 1998
Debentures during fiscal 1995, which were used principally to
satisfy the August 1, 1994 mandatory sinking fund requirement for
the debt.
Other income, net, for fiscal 1995 decreased 36% to $.5
million from $.8 million in fiscal 1994. This decrease was
primarily attributable to lower gains from the repurchases of
1998 Debentures of $.2 million. Substantially all 1998
Debentures repurchased during fiscal 1995 were at prices
approximating par value.
The Company's effective income tax rate in fiscal 1995 and
1994 was 39% and 40%, respectively.
COMPARISON OF FISCAL 1994 WITH FISCAL 1993
Revenues for fiscal 1994 increased 21% to $57.8 million from
$47.8 million in fiscal 1993. The revenue increase reflects the
contribution of the recently acquired product lines of TAS, CMC
and Laurel. Revenues from core signal processing, display,
recording and optical product lines shifted to those from
contracts awarded primarily within the 1994 and 1993 fiscal
years. Revenues from older contracts for such products were not
as significant as in fiscal 1993, as a result of the completion
or near-completion of these contracts during the year.
Operating income for fiscal 1994 increased 49% to $3.4
million from $2.3 million in fiscal 1993. Operating income as a
percentage of revenues was 6% in fiscal 1994 as compared to 5% in
fiscal 1993. Such increases are attributable to higher fiscal
1994 revenues, lower costs as a result of improved efficiencies
and the substantial completion during fiscal 1993 of two fixed-
price development contracts on which the Company incurred write-
offs for cost overruns.
Interest and related expenses decreased 9% to $1.6 million
in fiscal 1994 from $1.7 million in fiscal 1993. This decrease
reflects the Company's retirement of $2.5 million of principal on
its 1998 Debentures during the first half of fiscal 1994,
pursuant to the mandatory sinking fund requirement for the debt.
The Company also repurchased an additional $.1 million in
principal amount of the 1998 Debentures during the latter half of
fiscal 1994.
Other income, net, for fiscal 1994 decreased 32% to $.8
million from $1.2 million in fiscal 1993. Fiscal 1994 results
included gains on the repurchases of 1998 Debentures, described
previously, of approximately $.3 million, while fiscal 1993 gains
for similar transactions amounted to $.5 million.
The Company's effective income tax rate in both fiscal 1994
and 1993 was 40%.
FINANCIAL CONDITION AND LIQUIDITY
Cash and Cash Flow. Cash and cash equivalents at September
30, 1995 and March 31, 1995 represented approximately 25% and
17%, respectively, of total assets. During the six-month period
ended September 30, 1995, cash increased $9.8 million. This
increase was primarily the result of the private placement of
$20,000,000 in aggregate principal amount of the Debentures on
September 29, 1995. In addition, approximately $2.4 million was
generated from sales of certain fixed assets. These
contributions to cash were offset by uses of: (i) approximately
$4.1 million in the OMI acquisition; (ii) approximately $2.2
million for repurchases of outstanding 1998 Debentures in
satisfaction of the August 1, 1995 sinking fund requirement for
such debt; and (iii) approximately $2.0 million for capital
expenditures. Additionally, approximately $3.3 million was used
in support of operations, primarily to settle accounts payable
and other current obligations of the Company.
Cash and cash equivalents at March 31, 1995 of $11.2 million
was down $4.3 million from the balance at March 31, 1994. Cash
represented 17% of total assets at the end of fiscal 1995, as
compared with 26% in fiscal 1994. During fiscal 1995, cash
generated by operations amounted to $2.5 million. In comparison,
cash generated by operations during fiscal 1994 was $10.2
million. The reduction in the amount of cash generated by
operations during fiscal 1995 was primarily attributable to the
build-up in inventory which occurred during fiscal 1995 in
preparation for the fiscal 1996 production and shipment of
products under several significant development contracts. Cash
used in investing and financing activities during fiscal 1995
totalled $3.8 million and $3.0 million, respectively, primarily
attributable to purchases of capital equipment for $2.5 million,
the acquisition of Ahead for $1.5 million and the repurchase of
1998 Debentures for $2.7 million.
Capital expenditures during fiscal 1996 are expected to
approximate $4.4 million. The majority of these expenditures
will be for computer and laboratory-related equipment, as well as
for facilities improvements, which will be required to support
the Company's growth, particularly for its commercial product
lines.
As of August 1995, the Company satisfied its $2.5 million
sinking fund obligation under the 1998 Debentures. During the
first quarter of fiscal 1996, the Company obtained a $5.0 million
unsecured line of credit from NatWest Bank which may be used to
supplement its working capital needs. As of September 30, 1995,
there were no balances outstanding under this line of credit.
The net proceeds from the Debenture Offering will be used to
repurchase $5.0 million in principal amount of outstanding 1998
Debentures, for working capital requirements and for future
acquisition-related transactions. Although the Company
continues to seek acquisition opportunities consistent with its
business strategy and is engaged in discussions regarding
potential acquisitions, the Company does not currently have any
agreement or understanding regarding any potential acquisition.
The Company believes that its current working capital position is
sufficient to support operational needs as well as its near-term
business objectives.
Accounts Receivable and Inventories. Accounts receivable
increased approximately $1.5 million in the six-month period
ended September 30, 1995, primarily as a result of the OMI
acquisition, offset in part by decreases in existing account
balances. Accounts receivable were approximately $17.4 million
at March 31, 1995, an increase of $1.9 million from the balance
at March 31, 1994. This increase was primarily attributable to
significant shipments on several contracts which occurred toward
the end of the fiscal year. The Company receives progress
payments on certain contracts from the U.S. Government of between
80-100% of allowable costs incurred. The remainder, including
profits and incentive fees, is billed to its customers based upon
delivery and final acceptance of all products. In addition, the
Company may bill its customers based upon units delivered.
Generally, there are no contract provisions for retainage, and
all accounts receivable are expected to be collected within one
year.
Inventories increased by approximately $3.8 million during
the first half of fiscal 1996, also reflecting the effect of the
OMI acquisition. The increase in inventories was also due, in
part, to increased material procurement related to the production
of certain display workstation programs. The net inventory
balance at March 31, 1995 was $11.7 million, an increase of $6.7
million from the balance at March 31, 1994. As mentioned
previously, the Company experienced a build-up in inventory
during fiscal 1995 in preparation for production and shipment on
several major development contracts. In addition, the terms of
certain production contracts in process during fiscal 1995,
specifically those with foreign governments, did not provide for
progress billings. In such cases, the Company is required to
fund the cost of inventory until such time as shipments are made.
Long-Term Debt. Long-term debt outstanding increased by
approximately $19.0 million during the six-month period ended
September 30, 1995 to $30.7 million, primarily due to the
Company's private placement of $20,000,000 in aggregate principal
amount of the Debentures pursuant to the Debenture Offering.
Long-term debt outstanding decreased by approximately $2.8
million during fiscal 1995. The reduction in outstanding debt
during fiscal 1995 was primarily attributable to the $2.5 million
mandatory sinking fund obligation on the 1998 Debentures, as well
as the mandatory redemption of $.2 million in principal amount on
the Company's industrial revenue bonds (the "Revenue Bonds") on
January 1, 1995. The Company is subject to annual redemptions on
the Revenue Bonds through 1998. At March 31, 1995, the Company
had approximately $1.9 million in principal amount of Revenue
Bonds outstanding, subject to annual redemptions through 1998.
The principal amount of the Revenue Bonds to be redeemed varies
each year in accordance with the redemption schedule provided in
the indenture. Under the terms of the Revenue Bonds, the Company
is a guarantor under a letter of credit arrangement and has
agreed to certain financial covenants (see Note 6 of Notes to
Consolidated Financial Statements). The Company must realize a
certain level of profits during each quarter of fiscal 1996 to be
in compliance with these covenants.
Stockholders' Equity. Net stockholders' equity increased by
$1.7 million during the six-month period ended September 30, 1995
to $24.3 million and increased by $2.8 million during fiscal 1995
to $22.5 million, primarily as a result of net earnings of $1.6
million and $2.6 million generated for the respective periods.
In July 1994, pursuant to a stock purchase agreement between
the Company and David E. Gross, its former President and Chief
Technical Officer, the Company purchased 659,220 shares of its
Class A Common Stock and 45,179 shares of its Class B Common
Stock owned by Mr. Gross, at a price of $4.125 and $4.00 per
share, respectively, totalling approximately $2.9 million in cash
(the "Buy-back"). On October 18, 1994, the Company filed a
registration statement on form S-2 and on November 10, 1994, the
Company filed Amendment No. 1 to such registration statement with
the SEC for the purpose of selling shares of its common stock
purchased in the Buy-back. The Company sold 650,000 shares of
its Class A Common Stock and 45,000 shares of its Class B Common
Stock, at prices of $4.125 and $4.00 per share, respectively,
totalling approximately $2.9 million pursuant to the offering.
Backlog. At September 30, 1995, the Company's backlog of
orders was approximately $160 million as compared to $126 million
at March 31, 1995. The increase in backlog for the first half of
the year was due to the net effect of bookings, partially offset
by revenues, and the addition of approximately $15.5 million of
backlog from the OMI acquisition. New contract awards of
approximately $58.7 million were booked during the six-month
period ended September 30, 1995. As of October 29, 1995, backlog
totalled approximately $157.1 million, which includes
approximately $15.5 million of backlog from the OMI acquisition.
The Company closed fiscal 1995 with a funded backlog of
$126.0 million representing an $8.5 million decrease from backlog
at March 31, 1994. Included in the fiscal 1995 year-end backlog
is approximately $2.2 million of commercial orders. New business
awards during fiscal 1995 totalled approximately $61.4 million
and included approximately $5.8 million of new commercial orders.
Significant awards received during the year included $5.9 million
in contracts from the Naval Air Systems Command to produce
additional quantities of A/U36M-1(V) Weapons Boresight Equipment
for the Marine Corps' AH-1W Cobra helicopters, approximately $9.4
million from the Government Systems Group of Unisys Corporation
to provide portions of the AN/UYQ-70 Advanced Display System and
a $4.9 million contract with the U.S. Navy to provide Readiness
Trainer Systems for the Mobile In-shore Undersea Warfare System
Upgrade program. Contract awards for the Company's 8mm video
recorder products totalled approximately $5.4 million and
included a $3.1 million award from the Naval Air Systems Command
to equip the U.S. Navy's F/A-18 Hornet carrier-based aircraft
with WRR-818 8mm video recorders. The Company also received
funding under a $12.5 million not-to-exceed contract from
Lockheed Aeronautical Systems Company to provide engineering
services and modified AN/USH-42 Mission Recording Systems for
deployment on the U.S. Navy's S-3B Viking carrier-based jet
aircraft, as well as additional funding under a multi-year
contract with the U.S. Navy, initially received in fiscal 1994,
to provide combat-system display consoles for land-based
applications.
Approximately 84%, 94% and 83% of revenues in fiscal 1995,
1994 and 1993, respectively, were derived directly or indirectly
from contracts or subcontracts with the U.S. Government,
principally the U.S. Navy. Included in revenues for fiscal 1995,
1994 and 1993 were $18.8 million, $27.5 million and $19.2
million, respectively, of customer-sponsored research and
development, which were the result of contract agreements
directly or indirectly with the U.S. Government.
The Debenture Offering. On September 29, 1995 (the
"Debenture Closing Date"), the Company issued $20,000,000 in
aggregate principal amount of the Debentures pursuant to the
Debenture Offering. Net proceeds from the private placement of
these Debentures were approximately $19,000,000. On November 3,
1995, the Company issued an additional $5,000,000 in aggregate
principal amount of the Debentures, upon exercise of the over-
allotment option pursuant to the Purchase Agreement between the
Company and the Initial Purchaser, dated, September 22, 1995.
Net proceeds from the exercise of the over-allotment option
were approximately $4,750,000. Pursuant to the related
Registration Rights Agreement dated September 22, 1995
between the Company and the Initial Purchaser, acting on behalf
of holders of the Debentures (the "Registration Rights Agreement"),
the Company has agreed to file, within ninety (90) days after
the Debenture Closing Date, a shelf registration statement
relating to the Debentures and the shares of Class A Common Stock
which are issuable from time to time upon conversion of the Debentures,
and to cause the shelf registration statement to become effective
within one hundred fifty (150) days after the Debenture Closing
Date. In addition, the Company has agreed to use its reasonable
best efforts to keep the shelf registration statement effective
until at least the third anniversary of the issuance of the
Debentures. The Company has filed a registration statement on
Form S-2 of which this Prospectus is a part in compliance with
its obligation under the Registration Rights Agreement to file a
shelf registration statement. In connection with these
transactions, the Company expects to incur approximately $500,000
of professional fees and other costs. These costs, together with
the Initial Purchaser's commissions in connection with the Debenture
Offering, will be amortized ratably through the maturity date of the
Debentures. See "Description of the Debentures."
Letter of Credit. The Company's Revenue Bonds are supported
by an irrevocable, direct-pay letter of credit in an amount equal
to the principal balance plus interest thereon for 45 days. At
September 30, 1995, the contingent liability of the Company as
guarantor under the letter of credit was approximately
$1,930,000. The Company has collateralized the letter of credit
with accounts receivable and has also agreed to certain financial
covenants, including the maintenance of: (i) a certain minimum
ratio of consolidated tangible net worth to total debt (the "Debt
Ratio"), (ii) a certain minimum quarterly ratio of earnings
before interest and taxes to interest (the "Interest Ratio"), and
(iii) a certain minimum balance of billed and unbilled accounts
receivable ("Eligible Receivables"). At September 30, 1995, the
covenants required: (i) a Debt Ratio of 0.6:1, (ii) an Interest
Ratio of 1.5:1 and (iii) Eligible Receivables of $2,500,000. As
a result of the issuance of $20,000,000 aggregate principal
amount of the Debentures on September 29, 1995, the Debt Ratio at
September 30, 1995 was 0.4:1. The Company has obtained a waiver,
renewable annually, from the bank of the required debt ratio and
is in compliance with all covenants under the letter of credit.
Contingencies. The books and records of the Company are
subject to audit and post-award review by the Defense Contract
Audit Agency. The Company is not a party to any legal
proceedings with the U.S. Government.
Certain Agreements. Effective July 20, 1994, the Company
entered into an Employment, Non-Competition and Termination
Agreement (the "Gross Agreement") and a Stock Purchase Agreement
(the "Gross Stock Purchase Agreement") with David E. Gross, its
former President and Chief Technical Officer. Under the terms of
the Gross Agreement, Mr. Gross will receive a total of $600,000
over a five-year period as compensation for his services pursuant
to a five-year consulting arrangement with the Company and a
total of $750,000 over a five-year period as consideration for a
five-year non-compete arrangement. The payments will be charged
to expense over the term of the Gross Agreement as services are
performed and obligations are fulfilled by Mr. Gross. Mr. Gross
will also receive at the conclusion of such initial five-year
period, an aggregate of approximately $1.3 million payable over a
nine-year period as deferred compensation. The net present value
of the payments to be made to Mr. Gross pursuant to the deferred
compensation portion of the Gross Agreement approximated the
amount of the Company's previous deferred compensation
arrangement with Mr. Gross. In addition to the Buy-back, the
Gross Stock Purchase Agreement also provides that (i) the Company
has a right of first refusal with respect to the sale by Mr.
Gross of any of the remaining shares of common stock of the
Company held by Mr. Gross in excess of 20,000 shares, (ii) any
shares of common stock of the Company held by Mr. Gross must be
voted pro rata in accordance with the vote of the Company's other
stockholders and (iii) in the event of a change in control of the
Company within three years from the date of the Gross Stock
Purchase Agreement, Mr. Gross will receive a percentage of the
difference between the price per share paid to Mr. Gross pursuant
to the Buy-back and the price per share received by the
stockholders of the Company pursuant to the change of control
transaction, less an interest factor, as defined in the Gross
Stock Purchase Agreement, on the aggregate amount paid to Mr.
Gross pursuant to the Buy-back.
The Company is currently negotiating an employment, non-
competition and retirement agreement (the "Newman Agreement")
between the Company and Leonard Newman, its former Chairman of
the Board and Secretary of the Company. Pursuant to the Newman
Agreement, it is expected that Mr. Newman will receive certain
compensation from the Company over a five-year period for
consulting services and a non-compete arrangement. In addition,
Mr. Newman will receive certain retirement benefits payable over
a ten-year period at the conclusion of such initial five-year
period. Results of operations for fiscal 1995 reflect a charge
of $1.5 million representing the estimated net present value of
the Company's obligation under the Newman Agreement. The
corresponding amount was included in Other Liabilities in the
Consolidated Balance Sheet at March 31, 1995 as an addition to
the accrual which had been established to cover the Company's
liability to Mr. Newman under a previous deferred compensation
arrangement.
Inflation. The Company has experienced the effects of
inflation through increased costs of labor, services and raw
materials. Although a majority of the Company's revenues are
derived from long-term contracts, the selling prices of such
contracts generally reflect estimated costs to be incurred in the
applicable future periods.
ACCOUNTING STANDARDS
Income Taxes. In February 1992, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
Effective April 1, 1993, the Company adopted SFAS 109.
Until March 31, 1993, the Company used the asset and liability
method of accounting for income taxes, as set forth in Statement
of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" ("SFAS 96"). Under SFAS 96, deferred income taxes are
recognized by applying statutory tax rates to the difference
between the financial statement carrying amounts and tax bases of
assets and liabilities. The statutory tax rates applied are
those applicable to the years in which the differences are
expected to reverse. The cumulative effect of adopting SFAS 109
was not material to the Company's consolidated results of
operations or financial position.
Postretirement Benefits Other Than Pensions. In December
1990, the FASB issued Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"). The Company adopted SFAS 106 during
the first quarter of fiscal 1994, and its adoption did not have a
material impact on the Company's consolidated results of
operations or financial position.
Postemployment Benefits. In November 1992, the FASB issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). The
Company adopted SFAS 112 during the first quarter of fiscal 1995,
and its adoption did not have a material impact on the Company's
consolidated results of operations or financial position.
ACQUISITIONS AND RELATED ACTIVITIES
On October 1, 1993, the Company acquired, through TAS
Acquisition Corp., a wholly-owned subsidiary of the Company, a
95.7% equity interest in TAS, a Maryland corporation, pursuant to
a stock purchase agreement (the "TAS Agreement") dated as of
August 6, 1993. TAS, headquartered in Gaithersburg, Maryland,
was a privately-held company incorporated in early 1991. Under
the terms of the TAS Agreement, the Company paid $15.10 in cash
for a total of 97,317 issued and outstanding shares of common
stock, par value $.01 per share, of TAS. The price paid by the
Company for the shares of TAS common stock was obtained from the
Company's working capital. On September 30, 1993, the Company,
in anticipation of the acquisition, advanced $1.8 million to TAS
pursuant to a demand promissory note. Such advance was converted
to an intercompany liability on the date of the acquisition and
was eliminated in consolidation. On November 1, 1993, Articles
of Merger were filed in order to merge TAS into TAS Acquisition
Corp. The name TAS Acquisition Corp. was changed to Technology
Applications & Service Company.
The acquisition has been accounted for using the purchase
method of accounting. The excess of cost over the estimated fair
value of net assets acquired was approximately $.4 million and
will be amortized on a straight-line basis over 30 years, or
$14,000 annually.
On December 13, 1993, the Company, through its wholly-owned
subsidiary, DRSSMC, entered into a partnership with Laurel
Technologies, Inc. of Johnstown, Pennsylvania. Pursuant to a
Joint Venture Agreement dated November 3, 1993 and a Partnership
Agreement dated December 13, 1993, between DRSSMC and Laurel
Technologies, Inc., Laurel was formed for the purposes of
electronic cable and harness manufacturing, military-quality
circuit card assembly and other related activities. The
Company's contribution to Laurel consisted of cash, notes and
equipment valued at approximately $.6 million, representing an
80% controlling interest in Laurel. As a result, the financial
position and results of operations of Laurel since December 13,
1993 have been consolidated with those of the Company's. The
related minority interest in Laurel has been included in "Other
Liabilities" and "Other Income, Net," respectively, in the
Company's consolidated financial statements for the period ended
March 31, 1995 and 1994.
Also during December 1993, the Company acquired certain
assets of CMC, located in Santa Clara, California, for
approximately $.4 million. CMC primarily refurbishes magnetic
video recording rotary-head scanner assemblies for post-
production facilities and television broadcast stations
worldwide. This acquisition provides the Company with a key
customer base in the commercial video recording systems industry.
On November 17, 1994, the Company acquired, through a
wholly-owned subsidiary of Precision Echo ("Precision
Acquisition"), the net assets of Ahead, pursuant to an asset
purchase agreement (the "Ahead Asset Purchase Agreement"), dated
October 28, 1994. Under the terms of the Ahead Asset Purchase
Agreement, Precision Acquisition paid, on the date of
acquisition, approximately $1.1 million for the net assets of
Ahead. In addition, Precision Acquisition entered into a
Covenant and Agreement Not to Compete (the "Covenant"), dated
October 28, 1994, with the chairman of the board of Ahead. Under
the terms of the Covenant Agreement, the total cash consideration
to be paid by Precision Acquisition consisted of approximately
$.4 million payable at the acquisition date, and an additional
$.5 million, payable in equal monthly installments over a period
of five years from the acquisition date.
The acquisition has been accounted for using the purchase
method of accounting and, therefore, Ahead's financial statements
are included in the consolidated financial statements of the
Company from the date of acquisition. The excess of cost over
the estimated fair value of net assets acquired was approximately
$.9 million and will be amortized on a straight-line basis over 5
years, or approximately $.2 million annually. The acquisition
had no significant effect on the Company's consolidated financial
position or results of operations.
After the close of fiscal 1995, the Company, through its
subsidiary OMI, acquired in July 1995 substantially all of the
assets of Opto Mechanik, Inc., located in Melbourne, Florida.
OMI designs and manufactures electro-optical sighting and
targeting systems used primarily in military fire-control devices
and in various weapons systems.
BUSINESS
GENERAL
The Company designs, manufactures and markets high-
technology computer workstations for the U.S. Department of
Defense, electro-optical targeting systems for military customers
and image and data storage products for both military and
commercial customers. In response to a 1992 mandate by the Joint
Chiefs of Staff, the Company focuses on "commercial-off-the-
shelf" ("COTS") product designs, whereby commercial electronic
components are adapted, upgraded and "ruggedized" for application
in harsh military environments. The Company believes that
military expenditures on electronic systems and equipment will
grow in coming years as the nature of modern warfare dictates
increasing reliance on real-time, accurate battlefield
information and the electronic content and sophistication of
defense systems increases.
Using COTS designs, the Company develops and delivers its
products with significantly less development time and expense
compared to traditional military product cycles, generally
resulting in shorter lead times, lower costs and the employment
of the latest information and computing technologies. The COTS
process entails the purchasing, refitting, upgrading (of both
hardware and software) and "ruggedization" (repackaging,
remounting and stress testing to withstand harsh military
environments) of readily available commercial components. The
design and manufacture of COTS-based products is a complex
process requiring specific engineering capabilities, extensive
knowledge of military platforms to which the equipment will be
applied and in-depth understanding of military operating
environments and requirements.
STRATEGY
During its last three fiscal years, the Company has
restructured its management team and implemented strategies to
exploit the changing nature of military procurement programs
brought on by the end of the cold war, military budget
constraints and the COTS mandate. The Company's strategies
include:
* expanding and diversifying the Company's
technology and product base into complementary
military and commercial markets primarily through
acquisitions and the forging of strategic
relationships;
* increasing revenue opportunities through the
design and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased
manufacturing efficiencies.
To effect these strategies, the Company has (i) acquired
several businesses with complementary military and commercial
products and technologies over the last three years; (ii) forged
strategic relationships with other defense suppliers such as
Loral Corporation and Westinghouse Electric Corporation, among
others; (iii) emphasized the development of COTS-based products
as well as products and systems that are easily adapted to
similar weapons platforms for use by all branches of the
military; and (iv) implemented cost reduction programs to reduce
its fixed-cost base, allow for growth and maintain the
flexibility of its operations.
The implementation of these strategies has resulted in
increasing revenues and profits over the last three fiscal years.
Although the Company experienced operating losses in fiscal 1990
through 1992, primarily due to cost overruns on a single fixed-
price development contract, a shift over the last several years
in the nature of military development contracting from fixed-
price to cost-type contracts has reduced the Company's exposure
in this area. For the fiscal year ended March 31, 1995, the
Company had revenues of $69.9 million, net income of $2.6 million
and earnings per share of $.50, representing increases of 20.9%,
61.2% and 66.7%, respectively, compared with the year ended March
31, 1994. For the six months ended September 30, 1995, the
Company had revenues of $40.1 million, net income of $1.6 million
and fully diluted earnings per share of $.28, representing
increases of 26.5%, 45.7% and 33.3%, respectively, compared with
the same six-month period ended September 30, 1994.
Acquisitions. In October 1993 the Company acquired TAS, a
designer and supplier of advanced command and control software
and hardware. TAS' business, which focuses primarily on radar
displays, augments the Company's core expertise in sonar signal
processing, allowing the Company to offer complete command and
control system solutions to its naval customers. In December
1993, the Company purchased its 80% interest in Laurel, then
primarily an assembler of wire harness products for aerospace
customers. The addition of Laurel has provided the Company with
the opportunity to consolidate manufacturing operations at ESG
and enables the Company to solicit and bid effectively for long-
term system development and manufacturing contracts.
The Company acquired CMC in December 1993 and Ahead in
November 1994. These acquisitions provide the Company with an
established computer and recorder products commercial base,
provide advanced manufacturing capabilities in the area of
magnetic recorder heads and allow the Company to apply its
expertise in high technology recorder products to select
commercial markets. In July 1995, the Company acquired
substantially all of the assets that now constitute OMI. This
acquisition enables EOSG to expand its electro-optical targeting
products and manufacturing activities in a lower cost
manufacturing facility, adds backlog in complementary product
areas and allows for expansion of the MPBE program.
Strategic Relationships. The Company has established
relationships with other defense suppliers such as Loral
Corporation and Westinghouse Electric Corporation, among others.
The Company acts as a subcontractor to these major contractors
and may also engage in other development work with such
contractors. This enables the Company to diversify its program
base and increase its opportunities to participate in larger
military procurement programs.
Adaptable Product Designs. The Company's recent focus has
been on the design and development of products that can be used
by all branches of the military. This enables the Company to
increase revenues, reduce product costs and decrease reliance on
U.S. Navy procurement programs. The Company's systems,
originally designed under a U.S. Navy development contract, are
open architecture information processing workstations that can be
applied for use in other branches of the military. Similarly,
the Company's boresight products, originally designed for use
with the U.S. Army's Apache attack helicopter, were specifically
designed to be adaptable to other air, sea or land-based weapons
platforms. The boresight system has been successfully applied to
the U.S. Marine Corps' Cobra helicopter and proposals have been
submitted for its use on F-15 and C-130 fixed-wing platforms.
Cost Reduction Programs. During the last three fiscal
years, the Company has streamlined personnel levels, decreased
rent expenses through facility consolidation and acquired low-
cost manufacturing operations. The Company is also utilizing more
efficient manufacturing methods on several projects that are set
to enter full-scale production in fiscal 1996.
COMMERCIAL-OFF-THE-SHELF (COTS) PRODUCT DESIGNS
The concept of designing and manufacturing military products
and systems through the integration and adaptation of existing
commercial and military products was developed in response to
both decreasing military budgets and the increasing pace of
technology. Management believes that the adaptation of
available commercial components and existing military systems to
new military applications offers two primary advantages over
traditional military systems development and procurement cycles:
(i) it has the potential to save significant amounts of time and
expenditures in the area of research and development and (ii) as
commercial product development and production cycles become
shorter than their military equivalents, the adaptation of
commercial technology to battlefield systems has the potential to
shorten military product cycles. As a result of some of these
advantages, the use of COTS computer hardware and software that
can be integrated in common (open architecture) applications and
systems was mandated by the Joint Chiefs of Staff in 1992.
COTS entails the purchasing, refitting, upgrading and
"ruggedization" (repackaging, remounting and stress- testing to
withstand harsh military operating environments) of available
commercial components. Application of the COTS concept to
electronic systems includes open architecture designs and the
customization of software for increased flexibility, performance
and compatibility with existing and future systems. The Company
strives to apply a COTS design to most new product designs at
ESG, EOSG and MTG. For example, the combination of COTS
components integrated in an open architecture design allows ESG
to provide products compatible with existing systems and which
provide improved performance and the ability to upgrade systems
at significant cost savings versus the previous generation
military systems they are intended to replace.
MARKET OVERVIEW
According to a recent Electronics Industry Association
survey (reportedly based on extensive audits, surveys and
interviews of Department of Defense and Congressional records and
personnel), U.S. military expenditures for electronics and
related equipment were $37 billion in 1994 and are projected to
grow slowly over the next decade. The Company believes that the
market for military electronics and related equipment will grow
slowly in coming years due to two primary factors:
First, the nature of modern warfare dictates increasing
reliance on timely and accurate battlefield information to ensure
that increasingly costly assets are efficiently deployed and to
minimize destruction of nonmilitary targets. In general,
military engagements have evolved from large-scale undertakings,
where numerical superiority was the key to dominance, to
"surgical strikes" where the ability to observe and strike
accurately and at will from afar has become a major means of both
deterrence and loss minimization. Advanced technology has been a
major factor enabling the increasing precision strike capability
of the U.S. military and has increased the "per shot" cost of
arms. These factors combine to produce a military, economic and
political environment requiring increased weapons efficiency and
accuracy. In addition, real time data is needed for in-theatre
evaluation, damage assessment and training, as well as to reduce
and minimize incidents of U.S. casualties due to friendly fire.
Second, it is often more cost-effective to refit and upgrade
existing weapons platforms than to replace them. With the
development and unit costs of new platforms increasing rapidly
amid a political and economic environment demanding decreasing
overall military expenditures, Congress and the military have
delayed or canceled the implementation of many proposed weapons
systems, opting instead to improve the performance, and extend
the life, of existing weapons through improved battlefield
intelligence and equipment enhancements. This increasing focus
on cost efficiencies has manifested itself in the military's COTS
program.
INDUSTRY CONSOLIDATION
As the size of the overall defense industry has decreased in
recent years, there has been an increase in the number of
consolidations and mergers of defense suppliers and this trend is
expected to continue. As the industry consolidates, the large
(first-tier) defense contractors are narrowing their supplier
base and awarding increasing portions of projects to strategic second-
and third-tier suppliers, and in the process becoming oriented
more toward system integration and assembly.
As an example of the changing nature of supplier
relationships, Photronics Corp. has been awarded increasing
content in the infrared detector assemblies of several missile
systems by its prime contractors. In 1988, Photronics Corp.
supplied only the primary mirror for these systems. Photronics
Corp. now supplies the primary, secondary, tertiary and fold
mirrors, as well as the housing and nose domes for the missiles,
and is working directly with these prime contractors on the
electro-optical assemblies for the next generation missiles.
COMPANY ORGANIZATION AND PRODUCTS
The Company is organized into three operating groups:
Electronic Systems Group ("ESG," 54% of fiscal 1995 revenues),
Electro-Optical Systems Group ("EOSG," 18% of fiscal 1995
revenues) and Media Technology Group ("MTG," 28% of fiscal 1995
revenues).
ELECTRONIC SYSTEMS GROUP ("ESG")
ESG consists of DRS Military Systems ("Military Systems"),
located in Oakland, New Jersey, TAS, located in Gaithersburg,
Maryland, and Laurel, located in Johnstown, Pennsylvania. Also,
under the direction of TAS is Technical Services Division
("TSD"), located in Norfolk, Virginia and San Diego, California.
Military Systems designs, manufactures and markets signal
processors and display workstations which are installed on naval
ships for antisubmarine warfare (ASW) purposes and in land-based
surveillance systems used for underwater surveillance of harbors
and coastal locations. These workstations receive signals from
a variety of sonar-type sensors, processing the information and
arranging it in a display format enabling operators to quickly
interpret the data and inform command personnel of potential
threats. Major product lines and contracts include:
* AN/UYQ-65: The AN/UYQ-65 is the first COTS-based
tactical workstation to be qualified by the U.S. Navy
and was designed to comply with the stringent
requirements of the Aegis (DDG-51) shipbuilding
program. Replacing the sensor displays in the SQQ-89
ASW Combat Suite, it employs dual processors enabling
simultaneous I/O and graphics processing. This new
approach allows for required high bandwidth processing
while maintaining response times for operator/machine
interfaces. The system architecture can be adapted to
meet various interface, cooling, memory, storage and
processing requirements. See "Risk Factors -- Limited
Term of Contracts."
* AN/SQR-17A(V)3: These Mobile In-Shore Undersea Warfare
(MIUW) systems are deployed in land-based vans,
utilizing sonobuoys and anchored passive detectors for
harbor defense, coastal defense and amphibious
operations surveillance, as well as to enhance drug
interdiction efforts. This system is currently being
procured for utilization in 22 field installations.
Military Systems is under contract to provide various
upgrades to these field installations.
* AN/SQQ-TIA: These are portable training systems used
onboard MIUW vans to simulate actual sonar signal
processing sets currently used by the U.S. Navy and are
employed primarily for Navy Reserve training.
TAS produces tactical (e.g., combat/attack) information
systems and training systems. Major product lines and contracts
include:
* AN/UYQ-70: The AN/UYQ-70 is an advanced, open
architecture display system designed for widespread
application through software modification, and is to be
deployed on Aegis and other surface ships, submarines
and airborne platforms. This system was developed for
the U.S. Navy under subcontract with the Government
Systems Group of Loral (Unisys) Corporation. The
AN/UYQ-70 is a self-contained, microprocessor-based
unit complete with mainframe interface software
offering advanced computing and graphic capabilities.
These units replace previous generation units that are
dependent upon a shipboard mainframe computer at
approximately 25% of the cost of the older units. This
project is currently in the pre-production phase.
Based upon the size of the naval surface fleet and the
average number of workstations to be deployed on each
ship, the Company believes that the potential market
for this workstation product may be in excess of 5,000
units over the next decade.
* Military Display Emulators: These are workstations
that are functionally identical to existing U.S. Navy
Mil-spec shipboard display consoles, but are built with
low cost COTS components suitable for landbased
laboratory environments. These Military Display
Emulators are used in U.S. Navy development, test and
training sites as plug compatible replacements for the
more expensive shipboard qualified units. The Company
is currently delivering these Military Display
Emulators for use in the Aegis and other U.S. Navy
programs.
Laurel, which is 80% owned by DRS through a partnership with
Laurel Technologies, Inc., and was purchased in December 1993,
functions as a low-cost manufacturing facility and focuses on two
areas. First, Laurel provides manufacturing and product
integration services for Military Systems and TAS. ESG's
workstation and simulator systems, among other products, are
manufactured in this facility. Second, Laurel manufactures
complex cable and wire harness assemblies for large industrial
customers that are involved in the military and commercial
aerospace industry. These products are then installed by the
customers in a wide variety of rotary blade and fixed-wing aerial
platforms.
TSD performs field service and depot level repairs for ESG
products, as well as other manufacturers' systems. Principal
locations are in close proximity to U.S. Naval yards in Norfolk,
Virginia and San Diego, California. Services including equipment
and field change installation, configuration audit, repair,
testing and maintenance, are performed for the U.S. Navy and, to
a lesser extent, commercial customers. TSD has also performed
work for foreign navies including those of Australia, the
Republic of China, Egypt, Turkey and Greece.
MEDIA TECHNOLOGY GROUP ("MTG")
MTG consists of Precision Echo, Inc. ("PE") located in Santa
Clara, California, Ahead located in Los Gatos, California and CMC
located in Santa Clara, California. PE manufactures a variety of
digital and analog recording systems utilized for military
applications including reconnaissance, ASW and other information
warfare data storage requirements, and is a predominant U.S.
manufacturer of 8 millimeter military recorders supplied to the
U.S. armed forces. PE's products include:
* AN/USH-42: This system was originally developed for
deployment in the U.S. Navy's A-6E attack aircraft. PE
is currently under contract to modify the USH-42 for
use on the Navy's S-3B ASW aircraft to record radar,
infrared, bus, navigation and voice data.
* WRR-818: This ruggedized video recorder, uses certain
components from commercial video recording equipment,
has been selected for use in U.S. F/A-18 aircraft and
several foreign military aircraft. It has also been
selected by the U.S. Army for use in its Kiowa warrior
reconnaissance helicopters. A similar recorder, the
WRR-812, has been adapted for use in the Canadian
Army's light armored reconnaissance vehicles.
* AN/AQH-9 and AN/AQH-12: These products are high-
quality helicopter mission recording systems utilized
to record sonar and mine hunting information and other
intelligence data.
Ahead manufactures burnish, glide and test heads used in the
production of computer disk drives. These consumable products
are used by many U.S. disk drive manufacturers to hone the
surface and ensure the quality of magnetic disks used in computer
hard drives. Customers include Seagate, Conner, Quantum, Komag,
Store Media, Akashic and Western Digital.
CMC manufactures and refurbishes commercial video recording
products for broadcasters operating world-wide. CMC can
refurbish pre-1993 head assemblies located on these machines at a
significant cost savings compared to replacement. CMC is
developing, in conjunction with Ahead, the ability to refurbish
post-1993 recorders used by its customer base. Ahead also has
the capability to manufacture recording heads for CMC. In order
to foster operational synergies and to allow space for growth,
Ahead and CMC will be moving into a new joint facility in late
calendar 1995.
ELECTRO-OPTICAL SYSTEMS GROUP ("EOSG")
EOSG consists of Photronics Corp. ("Photronics Corp.")
located in Hauppauge, New York and OMI located in Melbourne,
Florida.
Photronics Corp. produces boresighting equipment (used to
align and harmonize rotary-wing aircrafts', and armored vehicles'
navigation, targeting, and weapon systems, as well as pilots'
helmet sighting system) and electro-optical components used in
Sidewinder, Stinger and new generation air-to-air and surface-to-
air missiles. Photronics Corp. has specialized coating and
manufacturing processes for primary mirrors used in missiles,
giving the company a competitive advantage. Photronics Corp.'s
primary lines include:
* Multiple Platform Boresight Equipment (MPBE): These
products can be used on both rotary and fixed-wing
aircraft, as well as armored vehicles. MPBE is
currently used on the Army's Apache helicopters and
Apache Longbow helicopters and the Marine Corps' Cobra
helicopters. Proposals have been submitted to employ
the system on the C-130 transport and the F-15 fighter.
This technology is proprietary to the Company.
* Missile Components: The components produced by
Photronics Corp. originally consisted of primary
mirrors used in the nose-mounted infrared seeker of
Sidewinder and Stinger missiles. Photronics Corp.'s
development efforts have resulted in its ability to
provide increased content to include the secondary,
tertiary and fold mirrors, housing and nose dome.
Photronics Corp. is currently under contract to produce
infrared components and subassemblies on many of the
next generation infrared missile systems.
Photronics Corp. has produced all major electro-optical
components such as MPBE and missile products in Hauppauge since
1986. In July 1995, DRS acquired substantially all of the assets
of Opto Mechanik, Inc., located in Melbourne, Florida through
OMI. In order to reduce its production costs, Photronics Corp.
plans to consolidate a significant portion of its manufacturing
operations to a new facility in Melbourne, Florida. In addition,
the move will create space for the expansion of Photronics
Corp.'s MPBE programs in Hauppauge. Primary product programs at
OMI include:
* Gunners Auxiliary Sight: This is an electro-optical
device used as a primary or backup sight on M1 Abrams
battle tanks and contains a very sophisticated electro-
optical train and a laser protective filter. OMI has
produced over 2,000 of these instruments and continues
to operate as a repair and retrofit facility for the
M1A2 upgrade program, which will continue through 1997,
with options through 1999.
* TOW Optical Sight: OMI is currently the only U.S.
qualified producer of this device. This complex
electro-optical system is the main component of the
U.S.'s premier anti-tank weapon system.
* TOW Traversing Unit: This unit provides target
tracking accuracy for the TOW anti-tank weapon, acting
as the mount for the TOW Optical Sight and the missile
launch tube. OMI is currently the only qualified
manufacturer of this tightly toleranced assembly, and
is currently working on modification and retrofit
programs. OMI has also been contracted to modify a
version for use by an overseas customer.
* Day/Night Tank Sighting System: This system was
developed in concert with a major primary contractor.
OMI is a major subcontractor, currently supplying three
of the major assemblies.
* Eyesafe Laser Rangefinder: OMI competed against the
U.S. Army's historical primary laser supplier for this
contract and was awarded an initial contract for
preproduction units.
* Improved TOW Acquisition System: Working with the same
primary contractor as referred to above, this antitank
system was developed for the U.S. Army's humvee
vehicle.
CUSTOMERS
A significant portion of the Company's products are sold to
agencies of the U.S. Government, primarily the Department of
Defense, to foreign government agencies or to prime contractors
or subcontractors thereof. Approximately 84%, 94% and 83% of
total consolidated revenues for fiscal 1995, 1994 and 1993,
respectively, were derived directly or indirectly from defense
contracts for end use by the U.S. Government and its agencies.
See "Export Sales" below for information concerning sales to
foreign governments.
BACKLOG
The following table sets forth the Company's backlog by
major product group (including enhancements, modifications and
related logistics support) at the dates indicated:
March 31, March 31, March 31,
1995 1994 1993
____________ ____________ ____________
Government Products:
U.S. Government $115,200,000 $123,700,000 $123,900,000
Foreign Government 8,600,000 5,800,000 1,000,000
____________ ____________ ____________
123,800,000 129,500,000 124,900,000
Commercial Products 2,200,000 5,100,000 1,200,000
____________ ____________ ____________
$126,000,000 $134,600,000 $126,100,000
Approximately 54% of the backlog at March 31, 1995 is
expected to result in revenues during the fiscal year ending
March 31, 1996.
At September 30, 1995, the Company's backlog of orders was
approximately $160 million compared to $126 million at March 31,
1995. The increase in backlog for the first half of the year was
due to the net effect of bookings, partially offset by revenues,
and the addition of approximately $15.5 million of backlog from
the OMI acquisition. New contract awards of approximately $58.7
million were booked during the six-month period ended September
30, 1995. As of October 29, 1995, backlog totalled approximately
$157.1 million, which includes approximately $15.5 million of
backlog from the OMI acquisition.
"Backlog" refers to the aggregate revenues remaining to be
earned at the specified date under contracts held by the Company,
including, for U.S. Government contracts, the extent of the
funded amounts thereunder which have been appropriated by
Congress and allotted to the contract by the procuring Government
agency. Fluctuations in backlog amounts relate principally to
the timing and amount of Government contract awards.
RESEARCH AND DEVELOPMENT
The military electronics industry is subject to rapid
technological changes and the Company's future success will
depend in large part upon its ability to improve existing product
lines and to develop new products and technologies in the same or
related fields. Thus, the Company's technological expertise has
been an important factor in its growth. A portion of its
research and development activities has taken place in connection
with customer-sponsored research and development contracts. All
such customer-sponsored activities are the result of contracts
directly or indirectly with the U.S. Government. The Company
also invests in Company-sponsored research and development. Such
expenditures were $800,000, $500,000 and $500,000 for fiscal
1995, 1994 and 1993, respectively. Revenues recorded by the
Company for customer-sponsored research and development were
$18,800,000, $27,500,000 and $19,200,000 for fiscal 1995, 1994
and 1993, respectively.
CONTRACTS
The Company's contracts are normally for production, service
or development. Production and service contracts are typically
of the fixed-price variety with development contracts currently
of the cost-type variety. Because of their inherent
uncertainties and consequent cost overruns, development contracts
historically have been less profitable than production contracts.
Fixed-price contracts may provide for a firm-fixed price or
they may be fixed-price-incentive contracts. Under the firm-
fixed-price contracts, the Company agrees to perform for an
agreed-upon price and, accordingly, derives benefits from cost
savings, but bears the entire risk of cost overruns. Under the
fixed-price-incentive contracts, if actual costs incurred in the
performance of the contracts are less than estimated costs for
the contracts, the savings are apportioned between the customer
and the Company. However, if actual costs under such a contract
exceed estimated costs, excess costs are apportioned between the
customer and the Company up to a ceiling. The Company bears all
costs that exceed the ceiling.
Cost-type contracts typically provide for reimbursement of
allowable costs incurred plus a fee (profit). Unlike fixed-price
contracts in which the Company is committed to deliver without
regard to performance cost, cost-type contracts normally obligate
the Company to use its best efforts to accomplish the scope of
work within a specified time and a stated contract dollar
limitation. In addition, U.S. Government procurement regulations
mandate lower profits for cost-type contracts because of the
Company's reduced risk. Under cost-plus-incentive-fee contracts,
the incentive may be based on cost or performance. When the
incentive is based on cost, the contract specifies that the
Company is reimbursed for allowable incurred costs plus a fee
adjusted by a formula based on the ratio of total allowable costs
to target cost. Target cost, target fee, minimum and maximum fee
and adjustment formula are agreed upon when the contract is
negotiated. In the case of performance-based incentives, the
Company is reimbursed for allowable incurred costs plus an
incentive, contingent upon meeting or surpassing stated
performance targets. The contract provides for increases in the
fee to the extent that such targets are surpassed and for
decreases to the extent that such targets are not met. In some
instances, incentive contracts also may include a combination of
both cost and performance incentives. Under cost-plus-fixed-fee
contracts, the Company is reimbursed for costs and receives a
fixed fee, which is negotiated and specified in the contract.
Such fees have statutory limits.
The percentages of revenues during fiscal 1995, 1994 and
1993 attributable to the Company's contracts by contract type
were as follows:
Year Ended March 31,
1995 1994 1993
Firm-fixed-price 74% 65% 88%
Fixed-price-incentive - 1% -
Cost-plus-incentive-fee 6% 17% 10%
Cost-plus-fixed-fee 20% 17% 2%
The increased percentage of cost-type contracts between
fiscal 1993 and fiscal 1995 reflects the U.S. Government's
increased use of cost-type development contracts, and the
continued predominance of fixed-price contracts reflects the fact
that production contracts comprise a significant portion of the
Company's U.S. Government contract portfolio.
The Company negotiates for and, generally, receives progress
payments from its customers of between 80-100% of allowable costs
incurred on the previously described contracts. Included in its
reported revenues are certain amounts which the Company has not
billed to customers. These amounts, approximately $7.9 million,
$5.9 million and $8.1 million as of March 31, 1995, 1994 and
1993, respectively, consist of costs and related profits, if any,
in excess of progress payments for contracts on which sales are
recognized on a percentage-of-completion basis.
Under generally accepted accounting principles, all U.S.
Government contract costs, including applicable general and
administrative expenses, are charged to work-in-progress
inventory and are written off to costs and expenses as revenues
are recognized. The Federal Acquisition Regulations ("FAR"),
incorporated by reference in U.S. Government contracts, provide
that Company-sponsored research and development costs are
allowable general and administrative expenses. To the extent
that general and administrative expenses are included in
inventory, research and development costs also are included.
Unallowable costs, pursuant to the FAR, have been excluded from
costs accumulated on U.S. Government contracts. Work-in-process
inventory included general and administrative costs (which
include Company-sponsored research and development costs) of $6.6
million and $3.8 million at March 31, 1995 and 1994,
respectively.
All domestic defense contracts and subcontracts to which the
Company is a party are subject to audit, various profit and cost
controls, and standard provisions for termination at the
convenience of the customer. Multi-year U.S. Government
contracts and related orders are subject to cancellation if funds
for contract performance for any subsequent year become
unavailable. In addition, if certain technical or other program
requirements are not met in the developmental phases of the
contract, then the follow-on production phase may not be
realized. Upon termination other than for a contractor's
default, the contractor normally is entitled to reimbursement for
allowable costs, but not necessarily all costs, and to an
allowance for the proportionate share of fees or earnings for the
work completed. Foreign defense contracts generally contain
comparable provisions relating to termination at the convenience
of the foreign government.
MARKETING
The Company's marketing activities are conducted by its
staff of marketing personnel and engineers. The Company's
domestic marketing approach begins with the development of
information concerning the present and future requirements of its
current and potential customers for defense electronics, as well
as those in the security and commercial communities serviced by
the Company's products. Such information is gathered in the
course of contract performance, research into the enhancement of
existing systems and inquiries into advances being made in
hardware and software development, and is then evaluated and
exchanged among marketing, research and engineering groups within
the Company to devise proposals responsive to the needs of
customers. The Company markets its products abroad through
independent marketing representatives.
COMPETITION
The military electronics defense industry is characterized
by rapid technological change. The Company's products are sold
in markets containing a number of competitors which are
substantially larger than the Company, devote substantially
greater resources to research and development and generally have
greater financial resources. Certain of such competitors are
also suppliers to the Company. The extent of competition for any
single project generally varies according to the complexity of
the product and the dollar volume of the anticipated award. The
Company believes that it competes on the basis of the performance
of its products, its reputation for prompt and responsive
contract performance, and its accumulated technical knowledge and
expertise. The Company's future success will depend in large
part upon its ability to improve existing product lines and to
develop new products and technologies in the same or related
fields.
In the military sector, the Company competes with many
first- and second-tier defense contractors on the basis of
product performance, cost, overall value, delivery and
reputation.
PATENTS
The Company has patents on many of its recording products
and certain commercial products. The Company does not believe
patent protection to be significant to its current operations;
however, future programs may generate the need for patent
protection.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing process for its products,
excluding optical products, consists primarily of the assembly of
purchased components and testing of the product at various stages
in the assembly process. Purchased components include integrated
circuits, circuit boards, sheet metal fabricated into cabinets,
resistors, capacitors, semiconductors and insulated wire and
cables. In addition, many of the Company's products use machined
castings and housings, motors and recording and reproducing
heads. Many of the purchased components have been fabricated to
Company designs and specifications. The manufacturing process
for the Company's optics products includes the grinding,
polishing and coating of various optical materials and machining
of metal components.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers
are the Company's sole source of certain components. If a
supplier should cease to deliver such components, other sources
probably would be available; however, added cost and
manufacturing delays might result. The Company has not
experienced significant production delays attributable to supply
shortages, but occasionally experiences procurement problems with
respect to certain components, such as semiconductors and
connectors. In addition, with respect to the Company's optical
products, certain exotic materials, such as germanium, zinc
sulfide and cobalt, may not always be readily available.
EXPORT SALES
The Company currently sells several of its products and
services in the international marketplace to countries such as
Canada, Germany, Australia and the Republic of China. Foreign
sales accounted for approximately 7%, 3% and 17% of the Company's
revenues in fiscal 1995, 1994 and 1993, respectively. Foreign
sales are derived under export licenses granted on a case-by-case
basis by the United States Department of State. The Company's
foreign contracts are generally payable in United States'
dollars.
EMPLOYEES
At March 31, 1995, the Company employed 565 employees. None
of the Company's employees are represented by a labor union, and
the Company has experienced no work stoppages.
There is a continuing demand for qualified technical
personnel, and the Company believes that its future growth and
success will depend upon its ability to attract, train and retain
such personnel.
PROPERTIES
The Company leases approximately 6,000 square feet of office
space for its corporate headquarters in an office building at 5
Sylvan Way, Parsippany, New Jersey under a lease that expires in
fiscal 2001. The Company leases approximately 25,000 square feet
of space for administrative and engineering facilities at 138
Bauer Drive, Oakland, New Jersey. The Company leases the Oakland
building from LDR Realty Co., a partnership wholly-owned by
Leonard Newman and David E. Gross, under a lease which expires in
fiscal 1999. The Company believes that this lease was
consummated on terms no less favorable than those that could have
been obtained by the Company from an unrelated third party in a
transaction negotiated on an arms-length basis.
Precision Echo's engineering and principal operations are
located in a 55,000 square foot building at 3105 Patrick Henry
Drive, Santa Clara, California, under a lease which expires in
fiscal 2001. The operations of CMC and Ahead are conducted from
leased facilities in Santa Clara, California and Los Gatos,
California, respectively. These leased facilities, containing
71,000 square feet and 12,000 square feet, respectively, are
covered by leases, which, with respect to the CMC facility, is on
a month-to-month basis, and for the Ahead facility expires in
fiscal 1998. The operations of CMC and Ahead are currently in
the process of moving out of the facilities in Santa Clara and
Los Gatos and into a new facility in San Jose, California,
comprising 32,000 square feet pursuant to a five year lease
expiring in fiscal 2001.
Photronics Corp.'s principal and manufacturing facilities
are located in a 45,000 square foot building at 270 Motor
Parkway, Hauppauge, New York. The building, which is owned by
the Company, was built in 1983. See Note 10 to Consolidated
Financial Statements.
TAS leases 40,000 square feet in a building at 200
Professional Drive, Gaithersburg, Maryland that houses its
executive offices and principal engineering and manufacturing
facilities under a lease which expires in fiscal 2000. It also
conducts field service operations from locations in Virginia
Beach and Chesapeake, Virginia and National City, California.
These leased facilities, comprising 15,000 square feet, 20,000
square feet and 6,000 square feet, respectively, are covered by
leases, which, with respect to the Virginia locations, expire in
fiscal 1997, and for the California location, expires in fiscal
1999.
Laurel's manufacturing facilities and administrative offices
are located in a 29,000 square-foot building at 423 Walters
Avenue in Johnstown, Pennsylvania. The lease for this facility
expires in fiscal 1999. The Company also leases approximately
2,000 square feet of office space in Arlington, Virginia under a
lease which expires in fiscal 1998.
OMI leases 53,910 square feet in a building in Woodlake
Commerce Park, Palm Bay, Florida, for its operations and
administration offices. The related leases expire in fiscal
2006.
Total rent expense aggregated $2.5 million, $1.7 million and
$1.5 million in fiscal 1995, 1994 and 1993, respectively.
ENVIRONMENTAL PROTECTION
The Company believes that its manufacturing operations and
properties are in material compliance with existing federal,
state and local provisions enacted or adopted to regulate the
discharge of materials into the environment, or otherwise protect
the environment. Such compliance has been achieved without
material effect on the Company's earnings or competitive
position.
LEGAL PROCEEDINGS
The Company is a party to various legal actions and claims
arising in the ordinary course of its business. In the Company's
opinion, the Company has adequate legal defenses for each of the
actions and claims and believes that their ultimate disposition
will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the
Company, their positions and offices with the Company, and their
ages are set forth below:
NAME POSITIONS WITH THE COMPANY AGE
Mark S. Newman . . Chairman of the Board, President, 46
Chief Executive Officer and
Director
Nancy R. Pitek . . Controller, Treasurer and 39
Secretary
Paul G. Casner, Jr. Vice President; President of DRS 57
Electronic Systems Group;
President of TAS
Stuart F. Platt . . Vice President and Director; 62
President of Precision Echo
Richard Ross . . . Vice President; President of 40
Photronics Corp.
Leonard Newman . . Director and Chairman Emeritus 71
Jack Rachleff . . . Director 82
Theodore Cohn . . . Director 71
Mark N. Kaplan . . Director 65
Donald C. Fraser . Director 54
Mark S. Newman has been employed by the Company since 1973,
was named Vice President, Finance, Chief Financial Officer and
Treasurer in 1980 and Executive Vice President in 1987. Mr.
Newman became a Director of the Company in 1988. In May 1994,
Mr. Newman became the President and Chief Executive Officer of
the Company and in August 1995 became Chairman of the Board.
Mark Newman is the son of Leonard Newman.
Nancy R. Pitek joined the Company in 1984 as Manager of
Accounting. She became Assistant Controller in 1985 and Director
of Internal Audit in 1988. Ms. Pitek became Director of
Corporate Finance in 1990 and has been the Controller since 1993.
In May 1994, she was also appointed to the position of Treasurer
and in August 1995 became Secretary.
Paul G. Casner, Jr. joined the Company in 1993 as President
of TAS. In 1994 he also became President of DRS Electronic
Systems Group and a Vice President of the Company. Mr. Casner
has over 30 years of experience in the defense electronics
industry and has held positions in engineering, marketing and
general management. He was the president of TAS prior to its
acquisition by the Company.
Stuart F. Platt has been a Director of the Company since
1991 and became the President of Precision Echo in July 1992. He
was named Vice President of the Company in May 1994. Rear
Admiral Platt is a co-founder and director of FPBSM Industries,
Inc., a holding company and management consulting firm for
defense, aerospace and other technology-based companies, and the
Chairman of Stuart Platt & Partners, a management consulting firm
handling principally defense-related issues. He also serves as
director for Harding Associates, Inc. None of these companies is
a parent, subsidiary or affiliate of the Company. Rear Admiral
Platt held various positions as a military officer in the
Department of the Navy, retiring as Competition Advocate General
of the Navy in 1986.
Richard Ross was employed by the Company as Assistant Vice
President and Director, Sales in 1986 and Assistant Vice
President, Corporate Development in 1987. In 1988, he became
Vice President of the Company, and in 1990, he became President
of Photronics Corp.
Leonard Newman has been a Director of the Company since 1968
and was Chairman of the Board and Secretary of the Company from
1971 until August 1995. In August 1995, Mr. Newman was appointed
Chairman Emeritus. From 1971 until May 1994, Mr. Newman also
served as the Company's Chief Executive Officer. Leonard Newman
is the father of Mark S. Newman.
Jack Rachleff has been a Director of the Company since 1968.
Mr. Rachleff has been employed since 1952 by Fablok Mills, Inc.,
a textile manufacturer, and has been its President since February
1982.
Theodore Cohn has been a Director of the Company since 1980.
He has been an independent management consultant since 1974. Mr.
Cohn also serves as a director of Dynatech Corporation.
Mark N. Kaplan has been a Director of the Company since
1986. Mr. Kaplan has been a member of the law firm of Skadden,
Arps, Slate, Meagher & Flom since 1979. Mr. Kaplan also serves
as director of American Biltrite Inc., Grey Advertising Inc.,
Harvey Electronics Inc., REFAC Technology Inc., Congoleum
Corporation, MovieFone, Inc. and Volt Information Sciences, Inc.
Donald C. Fraser became a Director of the Company in 1993.
He currently serves as director of the Boston University Center
for Photonics Research and as professor of engineering and
physics at the university. From 1991 to 1993, Dr. Fraser was the
Principal Deputy Under Secretary of Defense, Acquisition, with
primary responsibility for managing the Department of Defense
acquisition process, including setting policy and executing
programs. He also served as Deputy Director of Operational Test
and Evaluation for Command, Control, Communication and
Intelligence, from 1990 to 1991, a position which included top
level management and oversight of the operational test and
evaluation of all major Department of Defense communication,
command and control, intelligence, electronic warfare, space and
information management system programs. From 1981 to 1988, Dr.
Fraser was employed as the Vice President, Technical Operations
at Charles Stark Draper Laboratory and, from 1988 to 1990, as its
Executive Vice President.
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under an indenture (the
"Indenture") dated as of September 22, 1995, between the Company
and The Trust Company of New Jersey, as trustee (the "Trustee"),
a copy of which is available upon request from the Company. The
statements under this caption address the material terms of the
Debentures but are summaries and do not purport to be complete.
The summaries make use of terms defined in the Indenture and are
qualified in their entirety by reference to the Indenture,
including the definitions therein of certain terms. Whenever
reference is made to defined terms of the Indenture and not
otherwise defined herein, such defined terms are incorporated
herein by reference.
GENERAL
The Debentures are general unsecured senior subordinated
obligations of the Company, are limited to $25,000,000 aggregate
principal amount and will mature on October 1, 2003. As of
November 30, 1995, $25 million aggregate principal amount of the
Debentures were outstanding. The Debentures bear interest at the
rate per annum shown on the cover page hereof from the date of
original issue, or from the most recent Interest Payment Date (as
defined below) to which interest has been paid or duly provided
for, and accrued but unpaid interest will be payable semi-
annually on April 1 and October 1 of each year commencing April
1, 1996 (each, an "Interest Payment Date"). Interest will be
paid to Debentureholders of record ("Holders") at the close of
business on the March 15 or September 15, respectively,
immediately preceding the relevant Interest Payment Date (each, a
"Regular Record Date"). Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
Principal of and premium, if any, and interest on the
Debentures will be payable, the transfer of the Debentures will
be registrable and the Debentures will be exchangeable at the
office or agency of the Company maintained for that purpose in
Jersey City, New Jersey (which initially will be the corporate
trust office of the Trustee), except that, at the option of the
Company, payment of interest may be made by check mailed to the
address of the Holder entitled thereto as it appears in the
Debenture Register on the related record date.
The Debentures were issued in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple
thereof. No service charge will be made for any transfer or
exchange of Debentures, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
All monies paid by the Company to the Trustee or any Paying
Agent for the payment of principal of and premium, if any, and
interest on any Debenture which remain unclaimed for two years
after such principal, premium or interest became due and payable
may be repaid to the Company. Thereafter the Holder of such
Debenture may, as an unsecured general creditor, look only to the
Company for payment thereof.
Initially, the Trustee will act as paying agent and
registrar of the Debentures. The Company may change any paying
agent and registrar without notice.
CONVERSION RIGHTS
Holders are entitled, at any time and from time to time
prior to maturity (subject to earlier redemption or repurchase,
as described below), to convert their Debentures (or any portion
thereof that is an integral multiple of $1,000), at 100% of the
principal amount thereof, into Class A Common Stock of the
Company at the conversion price set forth on the cover page
hereof, subject to adjustment under certain circumstances as
described below. After a call for redemption of Debentures,
through optional redemption or otherwise, the Debentures or
portion thereof called for redemption will be convertible if duly
surrendered on or before, but not after, the business day
preceding the date fixed for redemption in respect thereof.
The conversion price is subject to adjustment upon certain
events, including: (i) the issuance of Common Stock (including a
distribution of Common Stock held in the Company's treasury) as a
dividend or distribution on any class of Capital Stock of the
Company or any Subsidiary which is not wholly owned by the
Company; (ii) a subdivision, combination or reclassification of
outstanding shares of Common Stock; (iii) the issuance or
distribution of Capital Stock of the Company or of rights or
warrants to acquire Capital Stock of the Company at less than the
Current Market Price (as defined below) on the date of issuance
or distribution (provided that the issuance of Capital Stock upon
the exercise of warrants or options will not cause an adjustment
in the conversion price if no such adjustment would have been
required at the time such warrant or option was issued); and (iv)
the distribution to the holders of any class of Capital Stock of
the Company generally and to holders of Capital Stock of any
Subsidiary which is not wholly owned by the Company of evidences
of indebtedness or assets (including cash and securities, but
excluding dividends or distributions payable in shares of Common
Stock and warrants and options for which adjustment is made as
described above and further excluding cash dividends paid out of
cumulative retained earnings of the Company arising after the
date of the Indenture).
Notwithstanding the foregoing, (a) if the rights or warrants
described in clause (iii) of the preceding paragraph are
exercisable only upon the occurrence of certain triggering
events, then the conversion price will not be adjusted until such
triggering events occur and (b) if rights or warrants expire
unexercised, the conversion price shall be readjusted to take
into account only the actual number of such rights or warrants
which were exercised. In addition, the provisions of the
preceding paragraph will not apply to the issuance of Common
Stock upon the exercise of the Company's outstanding stock
options under the 1981 Incentive Stock Option Plan, 1981 Non-
Qualified Stock Option Plan and 1991 Stock Option Plan, unless
the exercise price thereof is changed after the date of the
Indenture (other than solely by operation of the anti-dilution
provisions thereof), or the issuance of Common Stock upon the
conversion of currently outstanding 1998 Debentures, unless the
conversion price thereof is changed after the date of the
Indenture (other than solely by operation of the anti-dilution
provisions thereof).
No adjustment will be made to the conversion price until
cumulative adjustments to the conversion price amount to at least
1% of the conversion price, as last adjusted. Except as stated
above, the conversion price will not be adjusted for the issuance
of Common Stock, or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase
any of the foregoing, or the payment of dividends on the Common
Stock.
Fractional shares of Class A Common Stock will not be issued
upon conversion. A person otherwise entitled to a fractional
share of Class A Common Stock upon conversion shall receive cash
equal to the equivalent fraction of the Current Market Price of a
share of Class A Common Stock on the business day prior to
conversion. The Company from time to time may, to the extent
permitted by law, reduce the conversion price by any amount for
any period of at least 20 days, in which case the Company shall
give at least 15 days' notice of such reduction to each Holder,
if the Board of Directors of the Company has made a determination
that such reduction would be in the best interests of the
Company, which determination shall be conclusive. The Company is
entitled to make such reductions in the conversion price as it
may in its discretion determine to be advisable in order that any
stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock shall not be taxable
to its stockholders. If at any time the Company makes a
distribution of property to its stockholders which would be
taxable to such stockholders as a dividend for federal income tax
purposes (e.g., distribution of evidence of indebtedness or
assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the anti-
dilution provisions of the Indenture, the conversion price of the
Debentures is reduced or the conversion price of the Debentures
is reduced other than in connection with certain anti-dilution
adjustments, such a reduction may be considered as resulting in
the distribution of a dividend to Holders for federal income tax
purposes.
A Holder who surrenders a Debenture (or portion thereof) for
conversion between the close of business on a Regular Record Date
and the next Interest Payment Date will receive interest on such
Interest Payment Date with respect to such Debenture (or portion
thereof) so converted through such Interest Payment Date.
Subject to such payments in the event of conversion after the
close of business on a Regular Record Date, no payment or
adjustment shall be made upon any conversion on account of any
interest accrued but unpaid on the Debentures surrendered for
conversion.
Subject to any applicable right of the Holders to cause the
Company to purchase Debentures upon a Change of Control (as
described below), in case of any consolidation or merger to which
the Company is a party, other than a transaction in which the
Company is the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation or
other entity, there will be no adjustment of the conversion
price, but each Holder will have the right thereafter to convert
such Holder's Debentures into the kind and amount of securities,
cash or other property which the Holder would have owned or have
been entitled to receive immediately after such consolidation,
merger, statutory exchange, sale or conveyance had such Debenture
been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance.
In the case of a cash merger of the Company with another
corporation or other entity or any other cash transaction of the
type mentioned above, the effect of these provisions would be
that the conversion features of the Debentures would thereafter
be limited to converting the Debentures at the conversion price
then in effect into the same amount of cash that such Holder
would have received had such Holder converted the Debentures into
Class A Common Stock immediately prior to the effective date of
such cash merger or transaction. Depending upon the terms of
such cash merger or transaction, the aggregate amount of cash so
received on conversion could be more or less than the principal
amount of the Debentures.
The Company has covenanted under the Indenture to reserve
and keep available at all times out of its authorized but
unissued Class A Common Stock, for the purpose of effecting
conversions of Debentures, the full number of shares of Class A
Common Stock deliverable upon the conversion of all outstanding
Debentures.
REDEMPTION
Optional Redemption by the Company. The Debentures are not
redeemable at the option of the Company prior to October 1, 1998.
Thereafter, the Debentures will be redeemable at any time prior
to maturity, at the option of the Company, in whole or from time
to time in part, upon not less than 30 days' nor more than 60
days' prior notice of the redemption date, mailed by first class
mail to each Holder's last address as it appears in the Debenture
Register, at the Redemption Prices established for the
Debentures, together with accrued but unpaid interest, if any, to
the date fixed for redemption. The Redemption Prices for the
Debentures (expressed as a percentage of the principal amount)
shall be as follows:
AFTER OCTOBER 1, PERCENTAGE
1998 105 %
1999 103.75
2000 102.50
2001 101.25
Selection of Debentures Redeemed. If less than all the
Debentures are to be redeemed, selection of the Debentures for
redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if
any, on which the Debentures are listed, or, if the Debentures
are not listed, on a pro rata basis by lot or by such method that
complies with applicable legal requirements and that the Trustee
considers fair and appropriate. The Trustee may select for
redemption portions of the principal of Debentures that have a
denomination larger than $1,000. Debentures and portions thereof
will be redeemed in the amount of $1,000 or integral amounts of
$1,000. The Trustee will make the selection from Debentures
outstanding and not previously called for redemption.
CHANGE OF CONTROL
If a Change of Control occurs, the Company shall offer to
repurchase each Holder's Debentures pursuant to an offer as
described below (the "Change of Control Offer") at a purchase
price equal to 100% of the principal amount of such Holder's
Debentures, plus accrued but unpaid interest, if any, to the date
of purchase. The Change of Control purchase feature of the
Debentures may in certain circumstances make more difficult or
discourage a takeover of the Company.
Under the Indenture, a "Change of Control" means the
occurrence of any of the following events: (i) any person (as the
term "person" is used in Section 13(d) or Section 14(d) of the
Exchange Act) is or becomes the direct or indirect beneficial
owner of shares of the Company's Capital Stock representing
greater than 50% of the total voting power of all shares of
Capital Stock of the Company entitled to vote in the election of
directors under ordinary circumstances; (ii) the Company sells,
transfers or otherwise disposes of all or substantially all of
the assets of the Company; or (iii) during any period of two
consecutive years (or, in the case this event occurs within the
first two years after the date of issue of the Debentures, such
shorter period as shall have commenced on the date of original
issue), Continuing Directors cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
Within 30 days after any Change of Control, unless the
Company has previously mailed a notice of optional redemption by
the Company of all of the Debentures, the Company shall mail a
notice of the Change of Control Offer to each Holder by first
class mail at such Holder's last address as it appears on the
Debenture Register stating: (i) that a Change of Control has
occurred and that the Company is offering to repurchase all of
such Holder's Debentures; (ii) the circumstances and relevant
facts regarding such Change of Control (including, but not
limited to, information with respect to pro forma income, cash
flow and capitalization of the Company after giving effect to
such Change of Control); (iii) the repurchase price; (iv) the
expiration date of the Change of Control Offer, which shall be no
earlier than 30 days nor later than 60 days from the date such
notice is mailed; (v) the date such purchase shall be effected,
which shall be no later than 30 days after expiration date of the
Change of Control Offer; (vi) that any Debentures not accepted
for payment pursuant to the Change of Control Offer shall
continue to accrue interest; (vii) that, unless the Company
defaults in the payment of the Change of Control Payment, all
Debentures accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control
Payment Date; (viii) the name and address of the paying agent;
(ix) that Debentures must be surrendered to the paying agent to
collect the repurchase price; (x) any other information required
by applicable law to be included therein; and (xi) the procedures
determined by the Company, consistent with the Indenture, that a
Holder must follow in order to have such Debentures repurchased.
In the event that the Company is required to make a Change
of Control Offer, the Company will comply with any applicable
securities laws and regulations, including, to the extent
applicable, Section 14(e), Rule 14e-1 and any other tender offer
rules under the Exchange Act which may then be applicable in
connection with any offer by the Company to purchase Debentures
at the option of the Holders thereof.
The Company, could, in the future, enter into certain
transactions, including certain recapitalizations of the Company,
that would not constitute a Change in Control under the
Debentures, but that would increase the amount of Senior
Indebtedness (or any other indebtedness) outstanding at such
time. The Company's ability to create any additional Senior
Indebtedness or additional Subordinated Indebtedness is limited
as described in the Debentures and the Indenture although, under
certain circumstances, the incurrence of significant amounts of
additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the
Debentures. If a Change in Control were to occur, there can be
no assurance that the Company would have sufficient funds at the
time of such event to pay the Change in Control purchase price
for all Debentures tendered by the Holders. A default by the
Company on its obligation to pay the Change in Control purchase
price could, pursuant to cross-default provisions, result in
acceleration of the payment of other indebtedness of the Company
outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a Holder of
the foregoing option, depending on the financial circumstances of
the Company at the time any such purchase may occur, because such
purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of
default under such indebtedness and thereby restrict the
Company's ability to purchase the Debentures. See "--Ranking."
MAINTENANCE OF CONSOLIDATED NET WORTH
The Company is required to maintain a Consolidated Net Worth
of at least $18 million. The Indenture provides that if the
Company's Consolidated Net Worth is less than $18 million at the
end of any fiscal quarter, the Company is required to furnish to
the Trustee an Officer's Certificate within 45 days after the end
of such fiscal quarter (90 days after the end of any fiscal year)
notifying the Trustee that the Company's Consolidated Net Worth
has declined below $18 million. If, at any time or from time to
time, the Company's Consolidated Net Worth at the end of each of
any such two consecutive fiscal quarters (the last day of the
second fiscal quarter being referred to as a "Deficiency Date")
is less than $18 million, then the Company shall, in each such
event, no later than 50 days after each Deficiency Date (100 days
if a Deficiency Date is also the end of the Company's fiscal
year), mail to the Trustee and each Holder at such Holder's last
address as it appears on the Debenture Register a notice (the
"Deficiency Notice") of the occurrence of such deficiency, which
shall include an offer by the Company (the"Deficiency Offer") to
repurchase Debentures as described below. The Deficiency Notice
shall state: (i) that a deficiency has occurred; (ii) that the
Company is offering to repurchase 10% of the aggregate principal
amount of Debentures originally issued (or such lesser amount as
may be outstanding at the time of the Deficiency Notice) (the
"Deficiency Repurchase Amount"); (iii) that the repurchase price
shall be 100% of the principal amount of the Debentures
repurchased plus accrued but unpaid interest, if any, to the date
of purchase; (iv) the expiration date of the Deficiency Offer,
which shall be no earlier than 30 days nor later than 45 days
after the date such notice is mailed; (v) the date such purchase
shall be effected, which shall be no later than 20 days after
expiration date of the Deficiency Offer; (vi) that Debentures not
accepted for payment pursuant to the Deficiency Offer shall
continue to accrue interest; (vii) that, unless the Company
defaults in payment of the Deficiency Repurchase Amount, all
Debentures accepted for payment pursuant to the Deficiency Offer
shall cease to accrue interest after the Deficiency Payment Date;
(viii) that if any Debenture is repurchased in part, a new
Debenture or Debentures in principal amount equal to the
unrepurchased portion will be issued; (ix) the name and address
of the paying agent; (x) that Debentures to be repurchased must
be surrendered to the paying agent to collect the repurchase
price; (xi) any other information required by applicable law to
be included therein; and (xii) the procedures determined by the
Company, consistent with the Indenture, that a Holder must follow
in order to have such Debentures repurchased.
The Company shall purchase the Deficiency Repurchase Amount
of Debentures or, if less than the Deficiency Repurchase Amount
has been delivered for repurchase, all Debentures delivered for
repurchase in response to the Deficiency Offer. If the aggregate
principal amount of Debentures delivered for repurchase exceeds
the Deficiency Repurchase Amount, the Company will purchase the
Debentures delivered to it pro rata (in $1,000 increments only)
among the Debentures delivered based on principal amount. The
Company will comply with all applicable securities laws and
regulations in connection with each Deficiency Offer. In no
event shall the failure to meet the minimum Consolidated Net
Worth requirement set forth above at the end of any fiscal
quarter be counted toward the making of more than one Deficiency
Offer.
The Company may credit against the principal amount of
Debentures to be repurchased in any Deficiency Offer 100% of the
principal amount (excluding premium) of Debentures acquired by
the Company subsequent to the Deficiency Date through purchase
(otherwise than pursuant to this provision or a Change of Control
Offer), optional redemption, conversion or exchange and
surrendered for cancellation.
If a Consolidated Net Worth deficiency were to occur, there
can be no assurance that the Company would have sufficient funds
at the time of such event to purchase the Deficiency Repurchase
Amount of Debentures. A default by the Company to so purchase
the Deficiency Repurchase Amount of Debentures could, pursuant to
cross-default provisions, result in acceleration of the payment
of other indebtedness of the Company outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a Holder of
the foregoing option, depending on the financial circumstances of
the Company at the time any such purchase may occur, because such
purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of
default under such indebtedness and thereby restrict the
Company's ability to purchase the Debentures. See "--Ranking."
RANKING
The payment of principal of and premium, if any, and
interest on the Debentures will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness (as defined below).
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment
for the benefit of creditors or marshalling of assets, whether
voluntary, involuntary or in receivership, bankruptcy, insolvency
or similar proceedings, the holders of all Senior Indebtedness
will be first entitled to receive payment in full of all amounts
due or to become due thereon before any payment is made on
account of principal of and premium, if any, and interest on the
Debentures or on account of any other monetary claims under or in
respect of the Debentures, and before any distribution is made to
acquire any of the Debentures for any cash, property or
securities. No payments on account of principal of and premium,
if any, and interest on the Debentures shall be made if at the
time thereof: (i) there is a default in the payment of all or
any portion of the obligations under any Senior Indebtedness or
(ii) there shall exist a default in any covenant with respect to
the Senior Indebtedness (other than as specified in clause (i) of
this sentence), and, in such event, such default shall not have
been cured or waived or shall not have ceased to exist, the
Trustee and the Company shall have received written notice from
any holder of such Senior Indebtedness stating that no payment
shall be made with respect to the Debentures and such default
would permit the maturity of such Senior Indebtedness to be
accelerated, provided that no such default will prevent any
payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been
accelerated.
The Holders will be subrogated to the rights of the holders
of the Senior Indebtedness to the extent of payments made on
Senior Indebtedness upon any distribution of assets in any such
proceedings out of the distributive share of the Debentures.
"Senior Indebtedness" is defined to mean the principal of
and premium, if any, and interest on (a) the Debt of the Company
or any of its Subsidiaries which is outstanding on the date of
the Indenture and has been provided by a bank that is not an
Affiliate of the Company or by any State or local government or
agency thereof, (b) any Debt incurred after the date of the
Indenture by the Company or any of its Subsidiaries which
expressly states that it is senior in right of payment to the
Debentures and is provided by a bank that is not an Affiliate of
the Company, (c) any Debt, whether outstanding on the date of the
Indenture or thereafter incurred, which evidences the Company's
obligation to refund any progress payments or deposits to the
United States or any foreign government or any instrumentality
thereof or any prime contractor for any such government or
instrumentality and (d) amendments, renewals, extensions,
modifications and refundings of any such Debt, whether any such
Debt described in (a), (b) or (c) is outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless
in any case, the instrument creating or evidencing any such Debt
pursuant to which the same is outstanding provides that such Debt
is not superior in right of payment to the Debentures. The
Company's ability to incur Senior Indebtedness after the date of
the Indenture is limited. See "-- Certain Covenants of the
Company - Limitation of Debt and Senior Indebtedness." Only
indebtedness of the Company that is Senior Indebtedness will rank
senior to the Debentures in accordance with the provisions of the
Indenture. The Company has agreed that it will not issue or
incur any Debt (other than Senior Indebtedness or Capitalized
Lease Obligations) unless such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) will be
subordinate in right of payment to the Debentures at least to the
same extent that the Debentures are subordinate to Senior
Indebtedness. The Company has also agreed that it will not
permit any of its Subsidiaries to issue or incur any Debt (other
than Senior Indebtedness or Capitalized Lease Obligations) unless
such Debt (other than Senior Indebtedness or Capitalized Lease
Obligations) shall provide that such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) will be
subordinate in right of payment to distributions and dividends
from such Subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures at least
to the same extent the Debentures are subordinate to Senior
Indebtedness. The Debentures are senior in right of payment to
the Company's 1998 Debentures.
The Debentures are unsecured obligations of the Company,
and, accordingly, will rank pari passu with all trade debt and
obligations of the Company and its Subsidiaries that arise by
operation of law or are imposed by any judicial or governmental
authority, except that any such trade debt or other obligation
may be senior in right of payment to the Debentures to the extent
the same is entitled to any security interest arising by
operation of law.
The Debentures are obligations exclusively of the Company,
and the Debentures, as a practical matter, will be effectively
subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of
the Subsidiaries. The right of the Company, and, therefore, the
right of creditors of the Company (including Holders) to receive
assets of any such Subsidiary upon the liquidation or
reorganization of such Subsidiary or otherwise, as a practical
matter, will be effectively subordinated to the claims of such
Subsidiary's creditors, except to the extent the Company is
itself recognized as a creditor of such Subsidiary or such other
creditors have agreed to subordinate their claims to the payment
of the Debentures, in which case the claims of the Company would
still be subordinate to any secured claim on the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that
held by the Company.
At September 30, 1995, Senior Indebtedness (excluding
current installments) was approximately $3.2 million and the
indebtedness (excluding liability for income taxes) of the
Company's subsidiaries was approximately $16.4 million. The
Company expects that it will from time to time incur additional
indebtedness constituting Senior Indebtedness.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the covenants
summarized below, which are applicable (unless waived or amended)
so long as any of the Debentures are outstanding.
Limitation on Debt and Senior Indebtedness. The Company
will not, and will not permit any of its Subsidiaries to, create,
incur, assume or directly or indirectly guarantee or in any other
manner become directly or indirectly liable for ("incur") any
Debt (including Acquired Debt) or Senior Indebtedness other than
Permitted Debt (as defined); provided, however, that the Company
and, subject to the other limitations set forth herein, its
Subsidiaries may incur Debt or Senior Indebtedness if the Debt to
Operating Cash Flow Ratio of the Company and its Subsidiaries at
the time of incurrence of such Debt, after giving pro forma
effect thereto, is 6.5:1 or less; provided that any such Debt
incurred by the Company that is not Senior Indebtedness shall
have a Weighted Average Life to Maturity longer than the Weighted
Average Life to Maturity of the Debentures. Notwithstanding the
foregoing, at any time the Debt to Operating Cash Flow Ratio of
the Company exceeds 6.5:1, the Company will be permitted to incur
additional Senior Indebtedness pursuant to lines of credit for
working capital of up to $5 million.
For purposes of the foregoing limitations "Permitted Debt"
means (i) Debt evidenced by the Debentures in an aggregate
principal amount not to exceed $25.0 million, (ii) Debt owed by
the Company to any wholly owned Subsidiary of the Company, (iii)
Debt owed by any wholly owned Subsidiary of the Company to the
Company or any other wholly owned Subsidiary of the Company, (iv)
Debt owed to Leonard Newman pursuant to the Newman Agreement, (v)
Capitalized Lease Obligations not in excess of an aggregate of $2
million at any one time outstanding, plus any Capitalized Lease
Obligations from an acquisition outstanding on the date of such
acquisition, (vi) performance bonds or letters of credit incurred
in the ordinary course of business or in connection with
government contracts, (vii) deferred income taxes as defined in
accordance with GAAP, (viii) Debt constituting inter-company
payables or receivables between or among the Company and its
Subsidiaries incurred in the ordinary course of business or (ix)
Refinancing Debt.
A calculation of the Debt to Operating Cash Flow Ratio as
required by this covenant shall be made, in each case, for the
period of four full consecutive fiscal quarters next preceding
the date on which Debt is proposed to be incurred ("Reference
Period"). In addition, for purposes of the pro forma
calculations required to be made above, (i) (x) the amount of
Debt to be incurred (plus all other Debt previously incurred
during such Reference Period), and the amount (valued at its
liquidation value and including any accrued but unpaid dividends)
of Disqualified Stock to be issued (plus all other Disqualified
Stock previously issued during such Reference Period) will be
presumed to have been incurred or issued on the first day of such
Reference Period and (y) the amount of any Debt redeemed,
refinanced or repurchased with the proceeds of the Debt referred
to in clause (x) will be presumed to have been redeemed,
refinanced or repurchased on the first day of such Reference
Period, (ii) if any Asset Disposition occurred during such
Reference Period, the calculations included in the computation of
the Debt to Operating Cash Flow Ratio shall be adjusted to give
effect to such Asset Disposition on a pro forma basis as if such
Asset Disposition had occurred on the first day of such Reference
Period, (iii) if an acquisition of a business or entity occurred
during such Reference Period, the calculations included in the
computation of the Debt to Operating Cash Flow Ratio will be
adjusted to give effect to such acquisition on a pro forma basis
as if such acquisition had occurred on the first day of such
Reference Period and (iv) if such new Debt is being incurred in
connection with an acquisition, no pro forma effect will be given
to negative operating cash flow or losses attributable to the
assets or business so acquired.
Limitation on Additional Debt After Default. The Company
will not, and will not permit any of its Subsidiaries to, incur
any additional Debt (other than Permitted Debt) or Senior
Indebtedness following the occurrence of an Event of Default (as
defined below) unless such Event of Default (and all other Events
of Default then pending) is cured or waived.
Limitation on Preferred Stock. The Company will not, and
will not permit any of its Subsidiaries to, issue any shares of
Disqualified Stock.
Limitation on Dividend Restrictions Affecting Subsidiaries.
The Company may not, and may not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the
ability of any Subsidiary of the Company to (a) pay to the
Company dividends or make to the Company any other distribution
on its Capital Stock, (b) pay any Debt owed to the Company or any
of its Subsidiaries, (c) make loans or advances to the Company or
any of the Company's Subsidiaries or (d) transfer any of its
property or assets to the Company or any of its Subsidiaries,
other than such encumbrances or restrictions existing or created
under or by reason of (i) applicable law, (ii) the Indenture,
(iii) covenants or restrictions contained in any instrument
governing Debt of the Company or any of its Subsidiaries existing
on the date of the Indenture, (iv) customary provisions
restricting subletting, assignment and transfer of any lease
governing a leasehold interest of the Company or any of its
Subsidiaries or in any license or other agreement entered into in
the ordinary course of business, (v) any agreement governing Debt
of a person acquired by the Company or any of its Subsidiaries in
existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrances or restrictions are
not applicable to any person, or the property or assets of any
person, other than the person, or the property or assets of the
person so acquired, (vi) any restriction with respect to a
Subsidiary imposed pursuant to an agreement entered into in
accordance with the terms of the Indenture for the sale or
disposition of Capital Stock or property or assets of such
Subsidiary, pending the closing of such sale or disposition,
(vii) with respect to any Subsidiary, the terms of any contract
with the United States or any foreign government or any
instrumentality thereof or any prime contractor for any such
contract pertaining to retention of funds by such Subsidiary
equivalent to any progress payments or deposits made pursuant to
such contract or (viii) any Refinancing Debt; provided, however,
that the encumbrances or restrictions contained in the agreements
governing any such Refinancing Debt shall be no more restrictive
than the encumbrances or restrictions set forth in the agreements
governing the Debt being refinanced as in effect on the date of
the Indenture.
Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries, directly or indirectly, to
create, incur, assume or permit to exist any Lien (other than
Permitted Liens) upon or with respect to any of the Property of
the Company or any such Subsidiary, whether owned on the date of
the Indenture or thereafter acquired, or on any income or profits
therefrom, to secure any Debt which is pari passu with or
subordinate in right of payment to the Debentures.
Limitation on Restricted Payments and Investments. The
Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) declare or pay any distribution or
dividend on or in respect of any class of its Capital Stock
(except dividends or distributions payable by wholly owned
Subsidiaries of the Company and dividends or distributions
payable in Qualified Stock of the Company or in options, warrants
or other rights to purchase Qualified Stock of the Company); (ii)
purchase, repurchase, prepay, redeem, defease or otherwise
acquire or retire for value (other than in Qualified Stock of the
Company or in options, warrants or other rights to purchase
Qualified Stock of the Company) any Capital Stock in the Company
or any of its Subsidiaries (other than a wholly owned Subsidiary
of the Company); (iii) make or permit any Subsidiary to make an
Investment (other than Permitted Investments) in any of its or
their Affiliates or any Related Person, or any payment on a
guaranty of any obligation of any of its or their Affiliates or
any Related Person (other than (a) of any wholly owned Subsidiary
or (b) of any other Subsidiary in an amount equal to the amount
of the obligation with respect to which such guaranty relates
multiplied by the fraction whose numerator is the ownership
percentage of such Subsidiary by the Company and its wholly owned
Subsidiaries and whose denominator is 100%); or (iv) repay,
prepay, redeem, defease, retire or refinance, prior to scheduled
maturity or scheduled sinking fund payment, any other Debt which
is pari passu with, or subordinate to, the Debentures (other than
(x) by the payment of Qualified Stock of the Company or of
options, warrants or other rights to purchase Qualified Stock of
the Company or (y) up to $10.0 million aggregate principal amount
of the 1998 Debentures) except, in the case of this clause (iv),
if the proceeds used for such repayment, prepayment, redemption,
defeasance, retirement or refinancing are generated from the
issuance of Refinancing Debt (any such declaration, payment,
distribution, purchase, repurchase, prepayment, redemption,
defeasance or other acquisition or retirement or Investment
referred to in clauses (i) through (iv) above being hereinafter
referred to as a "Restricted Payment"); unless at the time of and
after giving effect to a proposed Restricted Payment (the value
of any such payment, if other than cash, as determined by the
Board of Directors, including the affirmative vote of the
Independent Directors, whose determination shall be conclusive
and evidenced by a board resolution) (a) no Event of Default (and
no event that, after notice or lapse of time, or both, would
become an Event of Default) shall have occurred and be continuing
and, (b) the Company could incur an additional $1.00 of Debt
pursuant to the first sentence under "Limitation on Debt and
Senior Indebtedness" above.
Limitation on Stock Splits, Consolidations and
Reclassifications. The Company will not effect a stock split,
consolidation or reclassification of any class of its Capital
Stock unless (a) an equivalent stock split, consolidation or
reclassification is simultaneously made with respect to each
other class of Capital Stock of the Company and all securities
exchangeable or exercisable for or convertible into any Capital
Stock of the Company, and (b) after such stock split,
consolidation or reclassification all of the relative voting,
dividend and other rights and preferences of each class of
Capital Stock of the Company are identical to those in effect
immediately preceding such stock split, consolidation or
reclassification. Notwithstanding the foregoing, the Company may
combine its Class A Common Stock and Class B Common Stock into a
single class of Common Stock, such that the holder of each share
of Class A Common Stock or Class B Common Stock outstanding
immediately prior to such combination shall, from and after such
combination, be entitled to the same voting, dividend,
liquidation and other rights and preferences with respect to such
share as every other holder of Class A Common Stock or Class B
Common Stock.
Limitation on Sales of Assets and Subsidiary Stock. The
Company will not, and will not permit any of its Subsidiaries to,
make any Asset Disposition having a fair market value or
resulting in gross proceeds to the Company or any such Subsidiary
in excess of $1.0 million in any single transaction or series of
related transactions or $5.0 million in the aggregate over the
life of the Debentures, unless the Company or any such Subsidiary
receives consideration at the time of such Asset Disposition at
least equal to the fair market value (as determined by the Board
of Directors of the Company and evidenced by a board resolution)
of the interests and assets subject to such Asset Disposition.
Transactions with Related Persons. The Company will not,
and will not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with (a) any
beneficial owner of 20% or more of the outstanding voting
securities of the Company (as determined in accordance with
Section 13(d) of the Exchange Act) at the time of such
transaction, (b) any officer, director or employee of the
Company, of any of its Subsidiaries or of any such beneficial
owner of 20% or more of the outstanding voting securities of the
Company as described in clause (a) above or (c) any Related
Person unless such transaction or series of transactions (i)
involves an amount of $250,000 or less or (ii)(A) is on terms
that are no less favorable to the Company or any such Subsidiary,
as the case may be, than would be available in a comparable
transaction with an unrelated third party and (B)(x) if such
transaction or series of related transactions involve aggregate
payments in excess of $400,000, the Company delivers an officers'
certificate to the Trustee certifying that such transaction
complies with clause (ii)(A) above and such transaction or series
of transactions is approved by a majority of the Board of
Directors of the Company including the approval of each of the
Independent Directors or (y) if such transaction or series of
related transactions involve aggregate payments in excess of $1.5
million, the Company obtains an opinion as to the fairness to the
Company or such Subsidiary from a financial point of view issued
by an investment banking firm, appraisal firm or accounting firm,
in each case of national standing. Notwithstanding the
foregoing, this provision will not apply to (i) any transaction
entered into between the Company and Subsidiaries of the Company
(but excluding transactions with any Subsidiary of which more
than 20% of the outstanding voting securities (as determined in
accordance with Section 13(d) under the Exchange Act) are
beneficially owned by Persons who are (a) officers, directors or
employees of the Company, of any of its Subsidiaries or of any
beneficial owner of 20% or more of the outstanding voting
securities of the Company (as determined in accordance with
Section 13(d) under the Exchange Act) at the time of such
transaction, (b) a beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) or (c)
Related Persons), (ii) the payment of compensation and provision
of benefits to officers and employees of the Company and loans
and advances to such officers and employees in the ordinary
course of business, or any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise
(including the grant of stock options or similar rights to
officers, employees and directors of the Company or any
Subsidiary) pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans or other
benefit plans approved by the Independent Directors, (iii) the
Newman Agreement and the Gross Agreement and (iv) transactions
with any Person who is a director of the Company or of any of its
Subsidiaries and, who is not (a) the beneficial owner of 20% or
more of the outstanding voting securities of the Company (as
determined in accordance with Section 13(d) under the Exchange
Act) or (b) an officer or employee of the Company, of any of its
Subsidiaries or of any such beneficial owner of 20% or more of
the outstanding voting securities of the Company at the time of
such transaction.
Limitation of Payments to Affiliates after Default. The
Company shall not enter into any transaction with any Person who
is an officer or director of the Company, or of any of its
Subsidiaries, or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified below)
unless it is provided that the Company's monetary obligations
with respect thereto are subordinate in right of payment to the
Debentures at least to the same extent as the Debentures are
subordinate to Senior Indebtedness. The Company shall not permit
any of its Subsidiaries to enter into any transaction with any
Person who is an officer or director of the Company, or of any of
its Subsidiaries or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified below)
unless it is provided that such Subsidiary's monetary obligations
with respect thereto are subordinate in right of payment to
distributions and dividends from such Subsidiary to the Company
in an amount sufficient to satisfy the Company's obligations
under the Debentures at least to the same extent that the
Debentures are subordinate to Senior Indebtedness.
Notwithstanding the foregoing, such limitation shall not apply to
(i) the regular compensation payable to any person who is an
employee of the Company, (ii) payments made pursuant to any
pension or other plan made available to employees (including
officers) of the Company and either existing on the date of the
Indenture or thereafter approved by the Independent Directors,
(iii) payments pursuant to the Newman Agreement or the Gross
Agreement or (iv) any payment made to a director of the Company
or of any of its Subsidiaries who is not (a) the beneficial owner
of 20% or more of the outstanding voting securities of the
Company (as determined in accordance with section 13(d) under the
Exchange Act) or (b) an officer or employee of the Company, of
any of its Subsidiaries or of any such beneficial owner of 20% or
more of the outstanding voting securities of the Company at the
time of such transaction.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of
the Debentures, may consolidate with or merge into any other
entity or convey, transfer, sell or lease its assets
substantially as an entirety to any person or entity, provided
that: (i) either (a) the Company is the continuing corporation or
(b) the corporation or other entity formed by such consolidation
or into which the Company is merged or the person or entity to
which such assets are conveyed, transferred, sold or leased is
organized under the laws of the United States or any state
thereof or the District of Columbia and expressly assumes all
obligations of the Company under the Debentures and the
Indenture, (ii) immediately after and giving effect to such
merger, consolidation, conveyance, transfer, sale or lease no
Event of Default, and no event which, after notice or lapse of
time, would become an Event of Default, under the Indenture shall
have occurred and be continuing, (iii) upon consummation of such
consolidation, merger, conveyance, transfer, sale or lease, the
Debentures and the Indenture will be a valid and enforceable
obligation of the Company or such successor and (iv) the Company
has delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer, sale or lease complies with the provisions
of the Indenture.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
(a) failure to pay principal of or premium, if any, on any
Debenture when due and payable at maturity, upon redemption, upon
a Change of Control Offer, Deficiency Offer or otherwise, whether
or not such payment is prohibited by the subordination provisions
of the Indenture; (b) failure to pay any interest on any
Debenture when due and payable, which failure continues for 30
days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform
the other covenants of the Company in the Indenture, which
failure continues for 60 days after written notice as provided in
the Indenture; (d) a default occurs (after giving effect to any
applicable grace periods or any extension of any maturity date)
in the payment when due of principal of and or acceleration of,
any indebtedness for money borrowed by the Company or any of its
Subsidiaries in excess of $1.0 million, individually or in the
aggregate, if such indebtedness is not discharged, or such
acceleration is not annulled, within 10 days after written notice
as provided in the Indenture; and (e) certain events of
bankruptcy, insolvency or reorganization of the Company or any
Subsidiary. Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall
occur and be continuing, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount
of the outstanding Debentures will have the right to direct the
time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power
conferred on the Trustee.
If an Event of Default shall occur and be continuing, either
the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Debentures may accelerate the
maturity of all Debentures; provided, however, that after such
acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal
amount of the then outstanding Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal,
have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "Modification and
Waivers."
No Holder of any Debenture will have any right to institute
any proceeding with respect to the Indenture or for the
appointment of a receiver or trustee or for any other remedy
thereunder unless (i) such Holder shall have previously given to
the Trustee written notice of a continuing Event of Default, (ii)
the Holders of at least 25% in aggregate principal amount of the
then outstanding Debentures shall have made written request, and
offered indemnity satisfactory to the Trustee to institute such
proceeding as trustee, (iii) the Trustee shall have failed to
institute such proceeding within 60 days after the receipt of
such notice and (iv) no direction inconsistent with such request
shall have been given to the Trustee during such 60-day period by
the Holders of a majority in aggregate principal amount of the
then outstanding Debentures.
The Company will be required to furnish annually to the
Trustee a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any
default in such performance.
MODIFICATIONS AND WAIVERS
Modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of
not less than a majority in aggregate principal amount of the
then outstanding Debentures held by persons other than Affiliates
of the Company; provided, however, that no such modification or
amendment may, without the consent of the Holder of each
outstanding Debenture affected thereby, (i) change the stated
maturity of, or any installment of interest on, any Debenture,
(ii) reduce the principal amount of any Debenture or reduce the
rate or extend the time of payment of interest on any Debenture,
(iii) increase the conversion price (other than in connection
with a reverse stock split as provided in the Indenture), (iv)
change the place or currency of payment of principal of, or
premium or repurchase price, if any, or interest on, any
Debenture, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debenture,
(vi) adversely affect the right to exchange or convert
Debentures, (vii) reduce the percentage of the aggregate
principal amount of outstanding Debentures, the consent of the
Holders of which is necessary to modify or amend the Indenture,
(viii) reduce the percentage of the aggregate principal amount of
outstanding Debentures, the consent of the Holders of which is
necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (ix) modify the
provisions of the Indenture with respect to the subordination of
the Debentures in a manner adverse to the Holders, (x) modify the
provisions of the Indenture with respect to the right to require
the Company to repurchase Debentures in a manner adverse to the
Holders or (xi) modify the provisions of the Indenture with
respect to the vote necessary to amend this provision.
The Holders of a majority in aggregate principal amount of
the outstanding Debentures held by persons other than Affiliates
of the Company may, on behalf of all Holders, waive any past
default under the Indenture or Event of Default, except a default
in the payment of principal, premium, if any, or interest on any
of the Debentures or in respect of a provision which under the
Indenture cannot be modified without the consent of the Holder of
each outstanding Debenture.
DISCHARGE OF INDENTURE
The Indenture provides that the Company may defease and be
discharged from its obligations in respect of the Debentures
while the Debentures remain outstanding (except for certain
obligations to convert the Debentures into Common Stock, register
the transfer, substitution or exchange of Debentures, to replace
stolen, lost or mutilated Debentures and to maintain an office or
agency and the rights, obligations and immunities of the
Trustee), if all outstanding Debentures will become due and
payable at their scheduled maturity within one year and the
Company has irrevocably deposited, or caused to be deposited,
with the Trustee (or another trustee satisfying the requirements
of the Indenture), in trust for such purpose, (a) money in an
amount, (b) U.S. Government Obligations (as defined below) which
through the payment of principal, premium, if any, and interest
in accordance with their terms will provide money in an amount,
or (c) a combination thereof, sufficient in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay the principal of, premium, if any, and interest
on the outstanding Debentures at maturity or upon redemption,
together with all other amounts payable by the Company under the
Indenture. Such defeasance will become effective 91 days after
such deposit only if, among other things, (x) no Default or Event
of Default with respect to the Debentures has occurred and is
continuing on the date of such deposit or occurs as a result of
such deposit or at any time during the period ending on the 91st
day after the date of such deposit, (y) such defeasance does not
result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which the Company is
a party or by which it is bound, and (z) the Company has
delivered to the Trustee (A) either a private Internal Revenue
Service ruling or an opinion of counsel that Holders will not
recognize income, gain or loss for federal income tax purposes as
a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same
manner, and at the same times, as would have been the case if
such deposit, defeasance and discharge had not occurred, (B) an
opinion of counsel to the effect that the deposit shall not
result in the Company, the Trustee or the trust being deemed to
be an "investment company" under the Investment Company Act of
1940, as amended, and (C) an officers' certificate and an opinion
of counsel, each stating that all conditions precedent relating
to a defeasance have been complied with. Notwithstanding the
foregoing, the Company's obligations to pay principal, premium,
if any, and interest on the Debentures shall continue until the
Internal Revenue Service ruling or opinion of counsel referred to
in clause (z) (B) above is provided.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act it will continue to furnish the
information required thereby to the Commission. The Indenture
provides that even if the Company is entitled under the Exchange
Act not to furnish such information to the Commission or to the
Holders, it will nonetheless continue to furnish information
under Section 13 of the Exchange Act to the Commission and the
Trustee as if it were subject to such periodic reporting
requirements.
GOVERNING LAW
The Indenture and the Debentures are governed by, and
construed in accordance with, the laws of the State of New York,
without giving effect to such State's conflicts of law
principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its Subsidiaries may maintain deposit
accounts and conduct other banking transactions with the Trustee
or its affiliates in the ordinary course of business, and the
Trustee and its affiliates may from time to time in the future
provide the Company and its Subsidiaries with banking and
financial services in the ordinary course of their businesses.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used
in the Indenture. Reference is made to the Indenture for the
full definition of all such terms and for the definitions of
other defined terms used in the Prospectus and not defined below.
"Acquired Debt" of any specified person means Debt of any
other person existing at the time such other person merged with
or into or became a Subsidiary of such specified person,
including Debt incurred in connection with, or in contemplation
of, such other person becoming a Subsidiary of such specified
person.
"Affiliate" of any specified Person means (i) any other
Person who, directly or indirectly, is in control of, is
controlled by or is under common control with such specified
Person or (ii) any Person who is a director or officer (a) of
such specified Person, (b) of any Subsidiary of such specified
Person or (c) of any Person described in clause (i) above. For
purpose of this definition, control of a person means the power,
directly or indirectly, to direct or cause the direction of the
management and policies of such person whether by contract or
otherwise; and the terms "controlling" or "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or
dispositions) of Capital Stock of a Subsidiary, property or other
asset (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries other
than (i) any disposition by any Subsidiary of the Company to the
Company or by the Company or any Subsidiary of the Company to a
wholly owned Subsidiary of the Company, (ii) a disposition of
property or assets in the ordinary course of business and (iii)
any issuance or sale by the Company of its Capital Stock,
including any disposition by means of a merger, consolidation or
similar transaction.
"Capital Stock" of any person means any and all shares,
interests, rights to purchase, warrants, options, participations
or other equivalents of or interests in the common or preferred
equity (however designated) of such person, including, without
limitation, partnership interests.
"Capitalized Lease Obligation" means, with respect to any
person for any period, an obligation of such person to pay rent
or other amounts under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP; and the
amount of such obligation shall be the capitalized amount shown
on the balance sheet of such person as determined in accordance
with GAAP.
"Common Stock" as applied to the Capital Stock of any
corporation, means the common equity (however designated) of such
Person.
"Consolidated Net Income" means, for any fiscal period, the
Net Income or loss of the Company and its Subsidiaries as the
same would appear on a consolidated statement of earnings of the
Company for such fiscal period prepared in accordance with GAAP,
provided that (i) any extraordinary gain (but not loss) and any
gain (but not loss) on sales of assets outside the ordinary
course of business, in each case together with any related
provisions for taxes, realized during such period shall be
excluded, (ii) the results of operations of any person acquired
in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iii) Net Income
attributable to any person other than a Subsidiary that is at
least 50% owned by the Company shall be included only to the
extent of the amount of cash dividends or distributions actually
paid to the Company or a Subsidiary of the Company during such
period, (iv) any extraordinary charge resulting from the
repurchase of the Debentures shall be excluded and (v) the
cumulative effect of a change in accounting principles based upon
the implementation of a change required by the Financial
Accounting Standards Board shall be excluded.
"Consolidated Net Worth" means, for any fiscal period, the
net stockholders' equity of the Company and its Subsidiaries as
the same would appear on the consolidated balance sheet of the
Company as at the end of such fiscal period prepared in
accordance with GAAP.
"Continuing Directors" means any member of the Board of
Directors of the Company who (i) is a member of that Board of
Directors on the date of the Indenture or (ii) was nominated for
election or elected to the Board of Directors with the
affirmative vote of a majority of the Continuing Directors who
were members of the Board at the time of such nomination or
election.
"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in
case no such sale takes place on such date, the average of the
closing bid and asked prices, regular way, in either case as
reported for consolidated transactions on the New York Stock
Exchange or, if the security is not listed or admitted to trading
on the New York Stock Exchange, as reported for consolidated
transactions with respect to securities listed on the principal
national securities exchange on which such security is listed or
admitted to trading or, if the security is not listed or admitted
to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if the
security is not quoted by any such organization, the average of
the closing bid and asked prices furnished by a New York Stock
Exchange member firm selected by the Company. "Current Market
Price" means, when used with respect to any Property other than a
security as of any date, the market value of such Property on
such date as determined by the Board of Directors of the Company
in good faith, which shall be entitled to rely for such purposes
on the advice of any firm of investment bankers or appraisers
having familiarity with such Property.
"Debt" of any person as of any date means and includes,
without duplication, (i) the principal of and premium, if any, in
respect of indebtedness of such person, contingent or otherwise,
for borrowed money, including, without limitation, all interest,
fees and expenses owed with respect thereto (whether or not the
recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments, or representing the
deferred and unpaid balance of the purchase price of any property
or interest therein or services, if and to the extent such
indebtedness would appear as a liability (other than a liability
for accounts payable and accrued expenses incurred in the
ordinary course of business) upon a balance sheet of such person
prepared on a consolidated basis in accordance with GAAP, (ii)
all obligations issued or contracted for as payment in
consideration of the purchase by such person of the Capital Stock
or substantially all of the assets of another person or as a
result of a merger or a consolidation (other than any earn-outs
or installment payments), (iii) all Capitalized Lease Obligations
of such person, (iv) all obligations of such person in respect of
letters of credit or similar instruments or reimbursement of
letters of credit or similar instruments (whether or not such
items would appear on the balance sheet of such person), (v) all
net obligations of such person in respect of interest rate
protection and foreign currency hedging arrangements, (vi) all
guarantees by such person of items that would constitute Debt
under this definition (whether or not such items would appear on
such balance sheet), and (vii) the amount of all obligations of
such person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock, but only to the extent such
obligations arise on or prior to January 1, 2004; provided,
however, that Debt issued at a discount from par shall be treated
as if issued at par. The amount of Debt of any person at any
date shall be the outstanding balance on such date of all
unconditional obligations as described above and the maximum
determinable liability, upon the occurrence of the liability
giving rise to the obligation, of any contingent obligations
referred to in clauses (i), (iv), (vi) and (vii) above at such
date.
"Debt to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (i) (a) the aggregate principal
amount of all outstanding Debt of the Company and its
Subsidiaries as of such date on a consolidated basis plus (b) the
aggregate par or stated value of all outstanding Preferred Stock
of the Company and its Subsidiaries as reflected on the Company's
most recent consolidated balance sheet prepared in accordance
with GAAP (excluding any such Preferred Stock held by the Company
or a wholly owned Subsidiary of the Company) or, if greater with
respect to any class of Capital Stock which is Disqualified
Stock, the aggregate redemption amount thereof as reflected on
the Company's most recent consolidated balance sheet (excluding
any such Disqualified Stock held by the Company or a wholly owned
Subsidiary of the Company) to (ii) Operating Cash Flow of the
Company and its Subsidiaries on a consolidated basis for the four
most recent full fiscal quarters ending immediately prior to such
date, determined on a pro forma basis as set forth in the
covenant "Limitation on Debt and Senior Indebtedness."
"Disqualified Stock" means any Capital Stock which, by its
terms or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof or mandatorily (except to the extent that such
exchange or conversion right cannot be exercised or such
mandatory conversion cannot occur prior to January 1, 2004), is,
or upon the happening of an event or the passage of time would
be, (a) required to be redeemed or repurchased by the Company or
any of its Subsidiaries, including at the option of the holder,
in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due
prior to January 1, 2004 or (b) exchangeable or convertible into
debt securities of the Company or any of its Subsidiaries at the
option of the holder thereof or mandatorily, except to the extent
that such exchange or conversion right cannot be exercised or
such mandatory conversion cannot occur on or prior to January 1,
2004.
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any
interpretations or regulations that have been proposed but that
have not become effective.
"Independent Directors" means directors that (i) are not 20%
or greater stockholders of the Company or the designee of any
such stockholder, (ii) are not officers or employees of the
Company, any of its Subsidiaries or of a stockholder referred to
above in clause (i), (iii) are not Related Persons and (iv) do
not have relationships that, in the opinion of the Board of
Directors, would interfere with their exercise of independent
judgment in carrying out the responsibilities of the directors.
"Investment" means any loan or advance to any person, any
acquisition of any interest in any other person (including (i)
with respect to a corporation, any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate
stock, including any Preferred Stock and any securities
convertible or exchangeable for any of the foregoing, bonds,
notes, debentures, loans or other securities or Debt of such
other person and (ii) with respect to a partnership or similar
person, any and all units, interests, rights to purchase,
warrants, options, participations or other equivalents of or
other partnership interests in (however designated) such person
and any securities convertible or exchangeable for any of the
foregoing), any capital contribution to any other person, or any
other investment in any other person, other than (a) advances to
officers and employees in the ordinary course of business, (b)
creation of receivables in the ordinary course of business and
(c) negotiable instruments endorsed for collection in the
ordinary course of business.
"Lien" means any mortgage, lien, pledge, charge, security
interest or other encumbrance of any nature whatsoever (including
any conditional sale or other title retention agreement, any
lease in the nature thereof and any agreement to give any
security interest).
"Net Income" of any person means the net income (or loss) of
such person, determined in accordance with GAAP, excluding,
however, from the determination of Net Income any extraordinary
gain (but not loss) and any gain (but not loss) realized upon the
sale or other disposition (including, without limitation,
dispositions pursuant to sale-leaseback transactions) of any real
property or equipment of such person, which is not sold or
otherwise disposed of in the ordinary course of business, or of
any Capital Stock of a Subsidiary of such person.
"Operating Cash Flow" means, with respect to the Company and
its Subsidiaries for any period, the Consolidated Net Income of
the Company and its Subsidiaries for such period, plus (i)
extraordinary net losses and net losses on sales of assets other
than in the ordinary course of business during such period, to
the extent such losses were deducted in computing Consolidated
Net Income, plus (ii) provision for taxes based on income or
profits, to the extent such provision for taxes was included in
computing such Consolidated Net Income, and any provision for
taxes utilized in computing the net losses under clause (i)
hereof, plus (iii) to the extent deducted in calculating
Consolidated Net Income, Total Interest Expense of the Company
and its Subsidiaries for such period, plus (iv) depreciation,
amortization and all other non-cash charges, to the extent such
depreciation, amortization and other non-cash charges (excluding
any such non-cash charges to the extent that they require an
accrual of or reserve for cash charges for any future periods)
were deducted in calculating such Consolidated Net Income
(including amortization of goodwill and other intangibles).
"Permitted Investments" means (i) Investments in the Company
or in a Subsidiary of the Company; (ii) Investments by the
Company or any Subsidiary of the Company in a person, if as a
result of such Investment (a) such person becomes or is a wholly
owned Subsidiary of the Company or the Subsidiary making such
Investment or (b) such person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company, the
Subsidiary making such Investment or a wholly owned Subsidiary of
either the Company or such Subsidiary making such Investment
(provided that any subsequent issuance or transfer of any
interests or other transaction which results in any such wholly
owned Subsidiary ceasing to be a wholly owned Subsidiary of the
Company, the Subsidiary making such Investment or another wholly
owned Subsidiary of either the Company or such Subsidiary making
such Investment, or any subsequent transfer of such Permitted
Investment (other than to the Company, the Subsidiary making such
Investment or another wholly owned Subsidiary of either the
Company or such Subsidiary making such Investment) shall be
deemed for the purposes hereof to constitute the making of a new
Investment by the maker thereof and therefore subject to a new
determination of whether such Investment qualifies as a Permitted
Investment); (iii) U.S. Government Obligations maturing within
one year of the date of acquisition thereof; (iv) certificates of
deposit maturing within one year of the date of acquisition
thereof issued by a bank or trust company that is organized under
the laws of the United States or any state thereof having
capital, surplus and undivided profits aggregating in excess of
$100,000,000; (v) repurchase agreements with respect to U.S.
Government Obligations; and (vi) Investments in commercial paper
rated at least A1 or the equivalent thereof by Standard & Poor's
Corporation or P1 or the equivalent thereof by Moody's Investor
Services, Inc. and maturing not more than 90 days from the date
of the acquisition thereof.
"Permitted Liens" means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet
delinquent or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other Liens imposed by law and arising in the
ordinary course of business and with respect to amounts that, to
the extent applicable, either (a) are not yet delinquent by more
than 30 days or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security; (iv) judgment or other similar
Liens arising in connection with court proceedings, provided that
(a) the execution or enforcement of each such Lien is effectively
stayed within 30 days after entry of such judgment (or such
judgment has been discharged within such 30 day period), the
claims secured thereby are being contested in good faith by
appropriate proceedings timely commenced and diligently
prosecuted and the aggregate amount of the claims secured thereby
does not exceed $1,000,000 at any time or (b) the payment of
which is covered in full by insurance and the insurance company
has not denied or contested coverage thereof; (v) Liens existing
on property or assets of any entity at the time it becomes a
Subsidiary or existing on property or assets at the time of the
acquisition thereof by the Company or any of its Subsidiaries,
which Liens were not created or assumed in contemplation of, or
in connection with, such entity becoming a Subsidiary or such
acquisition, as the case may be, and which attach only to such
property or assets, provided that the Debt secured by such Liens
is not thereafter increased; (vi) Liens incurred in connection
with Capitalized Lease Obligations otherwise permitted under the
Indenture; (vii) Liens securing Refinancing Debt, provided that
such Liens only extend to the property or assets securing the
Debt being refinanced, such Refinanced Debt was previously
secured by similar Liens on such property or assets and the Debt
or other obligations secured by such Liens is not increased;
(viii) Liens securing the advance of progress payments or
deposits made by the United States or any foreign government or
any instrumentality thereof or any prime contractor for any such
government or instrumentality and received by the Company in the
ordinary course of its business; (ix) the Lien created by the
Master Security Agreement between General Electric Capital
Corporation and OMI Acquisition Corporation dated as of August
28, 1995; and (x) any other Liens existing on the date of the
Indenture.
"Preferred Stock" means, with respect to any person, Capital
Stock of such person of any class or classes (however designated)
which is preferred as to the payments of dividends or
distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
person, over any other class of the Capital Stock of such person.
"Property" of any person means all types of real, personal,
tangible, intangible or mixed property owned by such person
whether or not included on the most recent consolidated balance
sheet of such person in accordance with GAAP.
"Qualified Stock" means Capital Stock of the Company that is
not Disqualified Stock.
"Refinancing Debt" means Debt that refunds, refinances or
extends any Debentures, or other Debt existing on the date of the
Indenture or thereafter incurred by the Company or its
Subsidiaries pursuant to the terms of the Indenture, but only to
the extent that (i) the Refinancing Debt is subordinated to the
Debentures to the same extent as the Debt being refunded,
refinanced or extended, if at all, (ii) the Refinancing Debt is
scheduled to mature either (a) no earlier than the Debt being
refunded, refinanced or extended, or (b) after the maturity date
of the Debentures, (iii) the portion, if any, of the Refinancing
Debt that is scheduled to mature on or prior to the maturity date
of the Debentures has a Weighted Average Life to Maturity at the
time such Refinancing Debt is incurred that is equal to or
greater than the Weighted Average Life to Maturity of the portion
of the Debt being refunded, refinanced or extended that is
scheduled to mature on or prior to the maturity date of the
Debentures, (iv) such Refinancing Debt is in an aggregate
principal amount that is equal to or less than the aggregate
principal amount then outstanding under the Debt being refunded,
refinanced or extended, plus customary fees and expenses
associated with refinancing and (v) such Refinancing Debt is
incurred by the same person that initially incurred the Debt
being refunded, refinanced or extended, except that (a) the
Company may incur Refinancing Debt to refund, refinance or extend
Debt of any Subsidiary of the Company, and (b) any Subsidiary of
the Company may incur Refinancing Debt to refund, refinance or
extend Debt of any other wholly owned Subsidiary of the Company.
"Related Person" means an individual related to an officer,
director or employee of the Company or any of its Affiliates
which relation is by blood, marriage or adoption and not more
remote than first cousin.
"Subsidiary" of any person means a corporation or other
entity a majority of whose Capital Stock with voting power, under
ordinary circumstances, entitling holders of such Capital Stock
to elect the board of directors or other governing body, is at
the time, directly or indirectly, owned by such person and/or a
Subsidiary or Subsidiaries of such person.
"Total Interest Expense" means, for any period, the interest
expense of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP,
whether paid or accrued (including amortization of original issue
discount, non-cash interest payments and the interest component
of capital leases, but excluding amortization of debt and
Preferred Stock issuance costs).
"U.S. Government Obligations" means non-callable (i) direct
obligations (or certificates representing an ownership interest
in such obligations) of the United States for which its full
faith and credit are pledged and (ii) obligations of a person
controlled or supervised by, and acting as an agency or
instrumentality of, the United States, the payment of which is
unconditionally guaranteed as a full faith and credit obligation
of the United States.
"Weighted Average Life to Maturity" means, when applied to
any Debt or Preferred Stock or portions thereof (if applicable)
at any date, the number of years obtained by dividing (i) the
then outstanding principal amount or liquidation amount of such
Debt or Preferred Stock or portions thereof (if applicable) into
(ii) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Debentures were initially
issued in the form of registered debentures in global form
without coupons (each, a "Global Debenture"). The Global
Debentures were deposited on the date of the closing of the sale
of the Debentures (the "Closing Date") with, or on behalf of, the
Depository Trust Company (the "Depository") and registered in the
name of Cede & Co., as nominee of the Depository. Interests in
the Global Debentures were available for purchase pursuant to the
Debenture Offering only by "qualified institutional buyers," as
defined in Rule 144A under the Securities Act ("QIBs"). The
Debentures to be resold as set forth herein will be initially
issued in global form (the "New Global Debentures").
Debentures that were (i) originally issued to or transferred
to institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor"), who are not QIBs or to any
other persons who are not QIBs or (ii) issued as described below
under "-- Certificated Debentures," were issued in registered
form without coupons (the "Certificated Debentures").
The Depository has advised the Company that it is (i) a
limited purpose trust company organized under the laws of the
State of New York, (ii) a member of the Federal Reserve System,
(iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The
Depository was created to hold securities for its participants
(collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants
through electronic book-entry changes to the accounts of its
Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants
include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established
by the Depository (i) upon deposit of the Global Debentures or
New Global Debentures, the Depository will credit the accounts of
Participants with an interest in the Global Debenture or New
Global Debentures, as applicable, and (ii) ownership of the
Debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the
Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in
definitive form of securities that they own and that security
interest in negotiable instruments can only be perfected by
delivery of certificates representing the instruments.
Consequently, the ability to transfer Debentures or to pledge the
Debentures as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered
owner of the Global Debentures or the New Global Debentures, as
the case may be, the Depository or such nominee, as the case may
be, will be considered the sole owner or Holder of the Debentures
represented by the Global Debentures or the New Global
Debentures, as the case may be, for all purposes under the
Indenture. Except as provided below, owners of beneficial
interests in the Global Debentures or the New Global Debentures,
as the case may be, will not be entitled to have Debentures
represented by such Global Debentures or New Global Debentures,
registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Debentures, and will
not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to giving of
any directions, instruction or approval to the Trustee
thereunder. As a result, the ability of a person having a
beneficial interest in Debentures represented by a Global
Debenture or a New Global Debenture, as the case may be, to
pledge such interest to persons or entities that do not
participate in the Depository's system or to otherwise take
action with respect to such interest, may be affected by the lack
of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a
Global Debenture or a New Global Debenture, as the case may be,
must rely on the procedures of the Depository and, if such holder
is not a Participant or an Indirect Participant, on the
procedures of the Participant through which such holder owns its
interest, to exercise any rights of a Holder under the Indenture
or such Global Debenture or New Global Debenture. The Company
understands that under existing industry practice, in the event
the Company requests any action of Holders that is an owner of a
beneficial interest in a Global Debenture or a New Global
Debenture, as the case may be, desires to take any action that
the Depository, as the Holder of such Global Debenture or New
Global Debenture, is entitled to take, the Depository would
authorize the Participants to take such action and the
Participant would authorize holders owning through such
Participants to take such action or would otherwise act upon the
instruction of such holders. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Debentures by
the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Debentures.
Payments with respect to the principal of, premium, if any,
and interest on any Debentures represented by a Global Debenture
or a New Global Debenture, as the case may be, registered in the
name of the Depository or its nominee on the applicable record
date will be payable by the Trustee to or at the direction of the
Depository or its nominee in its capacity as the registered
Holder of the Global Debenture or a New Global Debenture, as the
case may be, representing such Debentures under the Indenture.
Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Debentures, including the
Global Debentures or the New Global Debentures, as the case may
be, are registered as the owners thereof for the purpose of
receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Debentures (including
principal, premium, if any, and interest), or to immediately
credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Debentures
or the New Global Debentures, as the case may be, as shown on the
records of the Depository. Payments by the Participants and the
Indirect Participants to the beneficial owners of Debentures will
be governed by standing instructions and customary practice and
will be the responsibility of the Participants or the Indirect
Participants.
CERTIFICATED DEBENTURES
If (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository
and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of Debentures in
definitive form under the Indenture, then, upon surrender by the
Depository of its Global Debentures or the New Global Debentures,
as the case may be, Certificated Debentures will be issued to
each person that the Depository identifies as the beneficial
owner of the Debentures represented by the Global Debentures or
the New Global Debentures, as the case may be. In addition,
subject to certain conditions, any person having a beneficial
interest in a Global Debenture or a New Global Debenture, as the
case may be, may, upon request to the Trustee, exchange such
beneficial interest for Certificated Debentures. Upon any such
issuance, the Trustee is required to register such Certificated
Debentures in the name of such person or persons (or the nominee
of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any
delay by the Depository or any Participant or Indirect
Participant in identifying the beneficial owners of the related
Debentures and each such person may conclusively rely on, and
shall be protected in relying on, instructions from the
Depository for all purposes (including with respect to the
registration and delivery, and the respective principal amounts,
of the Debentures to be issued).
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the
Registration Rights Agreement dated as of September 22, 1995.
Pursuant to the Registration Rights Agreement, the Company has
agreed to file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act
(the "Shelf Registration Statement") to cover public resales of
the Debentures by Holders and of the Class A Common Stock
issuable upon conversion of the Debentures by holders thereof, in
each case who satisfy certain conditions relating to the
providing of information in connection with the Shelf
Registration Statement. The Company has agreed to use its
reasonable best efforts to (a) cause the Shelf Registration
Statement to be filed with the Commission within 90 days after
September 29, 1995 (the "Closing Date"); (b) cause the Shelf
Registration Statement to be declared effective by the Commission
within 150 days after the Closing Date; and (c) keep the Shelf
Registration Statement effective until at least the third
anniversary of the Closing Date or such shorter period that will
terminate when all the shares of the Class A Common Stock and the
Debentures covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement. The Company
has filed a Registration Statement on Form S-2 of which this
Prospectus is a part in compliance with its obligation under the
Registration Rights Agreement to file a Shelf Registration
Statement. Notwithstanding the foregoing, the Company will be
permitted to suspend the use of the Shelf Registration Statement
during certain periods under certain conditions.
The Registration Rights Agreement provides that, if (i) the
Shelf Registration Statement is not filed with the Commission or
is not declared effective by the Commission within the time
periods set forth above or (ii) at any time during which the
Shelf Registration Statement is required to kept effective, it
shall cease to be effective (other than as a result of the
effectiveness of a successor registration statement) and such
effectiveness is not restored within 45 days thereafter (each
such event referred to in clause (i) or (ii), a "Registration
Default"), the Company will pay liquidated damages (the
"Liquidated Damages") to each Holder of Debentures or holder of
Class A Common Stock which are "restricted" securities under the
Securities Act intended to be eligible for resale under the Shelf
Registration Statement and who has complied with its obligations
under the Registration Rights Agreement. During the first 90-day
period immediately following the occurrence of a Registration
Default, such Liquidated Damages shall be in an amount equal to
$.05 per week per $1,000 principal amount of Debentures and $.01
per week per share (subject to adjustment in the event of stock
splits or consolidations, stock dividends and the like) of Class
A Common Stock constituting restricted securities held by such
person. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount and $.01 per
week per share (subject to adjustment as set forth above) of
Class A Common Stock constituting restricted securities for each
subsequent 90-day period until the applicable Registration
Default is cured, up to a maximum amount of liquidated damages of
$.20 per week per $1,000 principal amount of Debentures and $.04
per week per share (subject to adjustment as set forth above) of
Class A Common Stock constituting restricted securities. All
accrued Liquidated Damages shall be paid by wire transfer of
immediately available funds or by federal funds check by the
Company on each Damages Payment Date (as defined in the
Registration Rights Agreement). Following the cure of all
Registration Defaults, the payment of Liquidated Damages will
cease.
In addition, for so long as the Debentures are outstanding
and during any period in which the Company is not subject to the
Exchange Act, the Company will provide to holders of Debentures
and to prospective purchasers of the Debentures the information
required by Rule 144A(d)(4) under the Securities Act. The
Company will provide a copy of the Registration Rights Agreement
to prospective investors upon request.
DESCRIPTION OF 1998 DEBENTURES
The following summary describes certain provisions of the
indenture governing the 1998 Debentures (the "1998 Indenture")
and the 1998 Debentures. The following summary does not purport
to be complete and is subject to and is qualified in its entirety
by reference to the 1998 Indenture and the form of the 1998
Debentures.
The Company's 1998 Debentures were issued on August 1, 1983
in an aggregate principal amount of $25,000,000. The 1998
Debentures are unsecured obligations of the Company which are
subordinated in right of payment to all existing and future
Senior Indebtedness (as defined below) of the Company. The 1998
Indenture does not contain any restrictions upon the incurrence
of Senior Indebtedness or any other indebtedness by the Company
or by any of its subsidiaries.
The 1998 Debentures bear interest at a rate of 8 1/2% per
annum payable semiannually on February 1 and August 1 of each
year and mature on August 1, 1998. Mandatory sinking fund
payments sufficient to retire $2.5 million principal amount of
the 1998 Debentures annually, which commenced on August 1, 1990,
are calculated to retire 80% of the issue prior to maturity. See
"Capitalization."
The 1998 Debentures are redeemable on not less than 30 days'
notice at the option of the Company, in whole or in part, at a
redemption price of 100% of the principal amount, plus accrued
interest to the date of redemption. The 1998 Debentures are
convertible at any time prior to maturity, unless previously
redeemed, into shares of Class B Common Stock of the Company at a
conversion price of $15.00 per share, subject to adjustment under
certain conditions.
The 1998 Indenture contains certain limitations on the
Company's right to distribute dividends or purchase, redeem or
otherwise acquire or retire any of its capital stock and to merge
or consolidate unless it meets the criteria set forth therein.
Senior Indebtedness is defined in the 1998 Indenture to
include the principal of (and premium, if any) and interest on
(a) all indebtedness of the Company, whether outstanding on the
date of the 1998 Indenture or thereafter created, incurred,
assumed or guaranteed, for borrowed money (other than the 1998
Debentures), whether short-term or long-term and whether secured
or unsecured (including all indebtedness evidenced by notes,
bonds, debentures or other securities sold by the Company for
money), (b) indebtedness incurred by the Company in the
acquisition (whether by way of purchase, merger, consolidation or
otherwise and whether by the Company or another person) of any
business, real property or other assets (except assets acquired
in the ordinary course of the conduct of the acquirer's usual
business), (c) guarantees by the Company of indebtedness for
borrowed money, whether short-term or long-term and whether
secured or unsecured, of any corporation in which the Company
owns, directly or indirectly, 50% or more of the stock having
general voting power and (d) renewals, extensions, refundings,
deferrals, restructurings, amendments and modifications of any
such indebtedness, obligation or guarantee, unless in each case
by the terms of the instrument creating or evidencing such
indebtedness, obligation or guarantee or such renewal, extension,
refunding, deferral, restructuring, amendment or modification it
is provided that such indebtedness, obligation or guarantee is
not superior in right of payment of the 1998 Debentures.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently
consists of 2,000,000 shares of Preferred Stock, 10,000,000
shares of Class A Common Stock and 20,000,000 shares of Class B
Common Stock. As of November 24, 1995, there were 3,307,324
shares of Class A Common Stock and 2,194,734 shares of Class B
Common Stock issued and outstanding (exclusive of 432,639 shares
of Class A Common Stock and 21,619 shares of Class B Common Stock
held in treasury). No shares of Preferred Stock have been
issued. All outstanding shares of Class A Common Stock and Class
B Common Stock are fully paid and nonassessable. The Class A
Common Stock together with the Class B Common Stock is referred
to herein as the "Common Stock". The Company is considering
setting forth a proposal to its stockholders to amend the
Company's Certificate of Incorporation to convert the Class A
Common Stock and Class B Common Stock into a single class of
common stock, as well as to include certain other charter
amendments.
PREFERRED STOCK
The terms of the Preferred Stock have not been determined
and are not designated in the Restated Certificate of
Incorporation of the Company, as amended. Instead, the Board of
Directors is authorized to issue the Preferred Stock in series,
each of which may vary as to the designation and number of shares
in such series, the voting power of the holders thereof, and the
dividend rate, the redemption terms and prices, the voluntary and
involuntary liquidation preferences, the conversion rights and
the sinking fund requirements, if any, of such series. The Board
of Directors, however, may not create any series of Preferred
Stock with more than one vote per share or with voting rights
which would limit, reduce or otherwise abridge the right of the
holders of Class B Common Stock to elect a number of Class B
Directors equal to one-fourth of the number of directors
constituting the whole Board of Directors. The foregoing
restriction may be changed only by the affirmative vote of
holders of 60% of the outstanding shares of Class A Common Stock
and Class B Common Stock, voting as separate classes.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. The Board of Directors of the Company is
divided into two classes of directors, Class A Directors and
Class B Directors. So long as the number of shares of Class B
Common Stock outstanding is not less than 10% of the total number
of outstanding shares of Class A Common Stock and Class B Common
Stock, the holders of Class B Common Stock, voting as a class,
will be entitled to one vote for each such share held to elect a
number of Class B Directors equal to one-fourth of the number of
directors constituting the whole Board of Directors (rounded up
to the nearest whole number). The holders of Class A Common
Stock, voting as a class, are entitled to one vote for each such
share held to elect the remaining directors, who will be
designated Class A Directors. Neither the Class A Common Stock
nor the Class B Common Stock has cumulative voting rights, and
thus holders of 50% or more of the outstanding shares of each
class are able to elect all of the directors to be elected by
that class. On all matters other than the election or removal of
directors, and matters as to which class voting is required by
Delaware law, holders of Class A Common Stock are entitled to one
vote per share and holders of Class B Common Stock are entitled
to one-tenth vote per share, voting together as a single class.
However, if the number of shares of Class B Common Stock
outstanding should be less than 10% of the total number of shares
of Class A Common Stock and Class B Common Stock outstanding at
some future record date for a meeting of stockholders of the
Company at which directors are to be elected, then the holders of
Class B Common Stock would not be entitled to elect any Class B
Directors and the holders of Class A Common Stock and Class B
Common Stock would vote together as a single class on all matters
coming before such meeting, including the election of the Class A
Directors to be elected at such meeting, with the holders of
Class A Common Stock entitled to one vote per share and the
holders of Class B Common Stock entitled to one-tenth vote per
share. Alternatively, if at any record date for such a meeting
the number of outstanding shares of Class A Common Stock should
be less than 875,000, then the holders of Class B Common Stock
would continue to elect a number of Class B Directors equal to
one-fourth of the total number of directors constituting the
whole Board and, in addition, would vote together with the
holders of Class A Common Stock to elect the Class A Directors to
be elected at such meeting, with the holders of Class A Common
Stock entitled to cast one vote per share and the holders of
Class B Common Stock entitled to cast one-tenth vote per share.
The Class A Directors are divided into three subclasses,
with each subclass consisting of as nearly an equal number of
directors as possible. The members of one such subclass are
elected each year to hold office for a three-year term and until
their successors have been elected and qualified. The term of
office of each Class B Director is one year. The classification
and subclassification of the Board of Directors may be changed
only by the affirmative vote of holders of 60% of the outstanding
shares of both the Class A Common Stock and the Class B Common
Stock, voting as separate classes. Stockholders of a particular
class may effect the removal of a director of that class during
his term by a like vote, but only for cause.
Dividends and Distributions. Holders of Class A Common
Stock and Class B Common Stock each are entitled to dividends
only if, as and when declared payable by the Board of Directors
out of funds legally available for such payment. For so long as
any shares of the Class B Common Stock are outstanding, the Board
of Directors may not (i) declare any dividends in cash or
property with respect to the Class A Common Stock unless an equal
dividend per share, payable in the same consideration, shall have
been declared with respect to the outstanding Class B Common
Stock and set aside for payment, or (ii) declare any dividend
payable in securities of the Company with respect to the Class A
Common Stock, or distribute any rights or warrants to purchase
securities of the Company with respect to the Class A Common
Stock, unless at the same time it declares an equivalent dividend
or makes an equivalent distribution with respect to the Class B
Common Stock so as to maintain, as nearly as may be practicable,
the relative voting and other rights of the holders of each class
immediately before such action. In addition, the Company may not
combine, subdivide or reclassify the Class A Common Stock or
Class B Common Stock unless at the same time it takes such action
as may be necessary with respect to the other class so as to
maintain, as nearly as may be practicable, the relative voting
and other rights of the holders of each class immediately before
such action. The foregoing provisions may be changed only by the
affirmative vote of holders of 60% of the outstanding shares of
both the Class A Common Stock and Class B Common Stock, voting as
separate classes. The Board of Directors is permitted to declare
a dividend in cash, property or securities with respect to the
Class B Common Stock without declaring a dividend with respect to
the Class A Common Stock, although at this time it does not
foresee any circumstances under which it would consider taking
such action.
Conversion Rights. Holders of Class A Common Stock have the
right at any time, and from time to time, to convert each share
of Class A Common Stock into one share of Class B Common Stock.
Holders of Class B Common Stock do not have the right to convert
their shares into Class A Common Stock nor do they have any other
conversion rights.
In General. Holders of Class A Common Stock and Class B
Common Stock have no redemption or preemptive rights and are not
liable for further calls or assessments. Upon liquidation of the
Company, neither the holders of Class A Common Stock nor the
holders of Class B Common Stock will have any preferences over
each other. Holders of both classes of stock will be entitled,
after satisfaction of the Company's liabilities and payment of
the liquidation preferences, if any, of any outstanding shares of
Preferred Stock, to share the remaining assets of the Company, if
any, equally in proportion to the number of shares of each class
held.
Transfer Agent and Registrar. The Trust Company of New
Jersey, 35 Journal Square, Jersey City, New Jersey, 07306, is the
transfer agent and the registrar of both the Class A Common Stock
and the Class B Common Stock.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this
offering. The Selling Security Holders may sell all or a portion
of the Debentures and shares of Class A Common Stock offered
hereby from time to time on terms to be determined at the times
of such sales. The Debentures and shares of Class A Common Stock
may be sold from time to time to purchasers directly by any of
the Selling Security Holders. Alternatively, any of the Selling
Security Holders may from time to time offer the Debentures or
shares of Class A Common Stock through underwriters, including
the Initial Purchaser, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions
or concessions from the Selling Security Holders and the
purchasers of the Debentures or shares of Class A Common Stock
for whom they may act as agent. To the extent required, the
aggregate principal amount of Debentures and number of shares of
Class A Common Stock to be sold, the names of the Selling
Security Holders, the purchase price, the name of any such agent,
dealer or underwriter and any applicable commissions with respect
to a particular offer will be set forth in an accompanying
Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus
is a part. There is no assurance that the Selling Security
Holders will sell any or all of the Debentures or shares of Class
A Common Stock offered hereby. The Selling Security Holders and
any broker-dealers, agents or underwriters that participate with
the Selling Security Holders in the distribution of the
Debentures or shares of Class A Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act, in which
event any discounts, commissions or concessions received by such
broker-dealers, agents or underwriter and any profit on the
resale of the Debentures or shares of Class A Common Stock
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Debentures and the shares of Class A Common Stock issued
upon conversion of the Debentures may be sold from time to time
in one or more transactions at fixed offering prices, which may
be changed, or at varying prices determined at the time of sale
or at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders
and underwriters or dealers who may receive fees or commissions
in connection therewith.
To comply with the securities laws of certain states, if
applicable , the Debentures and shares of Class A Common Stock
will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition in certain states the
Debentures and shares of Class A Common Stock may not be offered
or sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Debentures were originally sold to the Initial Purchaser
on September 29, 1995 in a private placement (including the over-
allotment option for $5,000,000 aggregate principal amount of the
Debentures which was exercised on November 3, 1995) at a purchase
price of 95% of their principal amount. The Company agreed to
indemnify the Initial Purchaser against certain liabilities in
connection with the offer and sale of the Debentures, including
liabilities under the Securities Act, and to contribute to
payments that the Initial Purchaser may be required to make in
respect thereof.
The Company will pay substantially all expenses incident to
the offering and sale of the Debentures and Class A Common Stock
to the public other than underwriting discounts and selling
commissions and fees. The Company and the Selling Security
Holders have agreed to indemnify each other against certain
liabilities arising under the Securities Act. In addition, any
underwriter utilized by the Selling Security Holders may be
indemnified against certain liabilities, including liabilities
under the Securities Act. See "Selling Security Holders."
Prior to this offering there has not been any public market
for the Debentures and there can be no assurance regarding the
future development of a market for the Debentures. The Company
intends to list the Debentures on the AMEX. The Debentures are
eligible for trading in the PORTAL Market; however, no assurance
can be given as to the liquidity of, or trading market for, the
Debentures. The Company has been advised by the Initial
Purchaser that it intends to make a market in the Debentures.
However, it is not obligated to do so and any market-making
activities with respect to the Debentures may be discontinued at
any time without notice. See "Description of the Debentures --
Registration Rights; Liquidated Damages." Accordingly, no
assurance can be given as to the liquidity of or the trading
market for the Debentures. See "Risk Factors -- Lack of Public
Market for the Debentures; Restrictions on Resale."
SELLING SECURITY HOLDERS
The following table sets forth information concerning the
principal amount of Debentures beneficially owned by each Selling
Security Holder which may be offered from time to time pursuant
to this Prospectus. Other than as a result of the ownership or
placement of Debentures or Class A Common Stock, none of the
Selling Security Holders has had any material relationship with
the Company within the past three years, except as noted herein.
The table has been prepared based upon information furnished to the
Company by or on behalf of the Selling Security Holders.
Principal Principal
Amount of Amount of
Debentures Debentures Percent of
Beneficially Being Outstanding
Name Owned Registered Debentures
_________________________________ ____________ ______________ ____________
BT Holdings . . . . . . . . . . . $1,950,000 $1,950,000 7.8%
Castle Convertible Fund Inc. . . 500,000 500,000 2.0
Catholic Mutual Relief Society of
America . . . . . . . . . . . . 250,000 250,000 1.0
Cincinnati Financial Corp. . . . 2,000,000 2,000,000 8.0
CNA Income Shares, Inc. . . . . . 1,000,000 1,000,000 4.0
First Pacific Advisers, Inc.(1) . 4,500,000 4,500,000 18.0
Forest Fulcrum Ltd. . . . . . . . 520,000 520,000 2.1
Forest Fulcrum Fund . . . . . . . 980,000 980,000 3.9
Franklin Investors Securities
Trust Convertible Securities
Fund . . . . . . . . . . . . . . 500,000 500,000 2.0
ICI American Holdings . . . . . . 250,000 250,000 1.0
IDS Bond Fund, Inc.(2) . . . . . 3,000,000 3,000,000 12.0
Laterman Strategies 90's L.P. . . 300,000 300,000 1.2
Laterman & Co. . . . . . . . . . 200,000 200,000 *
Merrill Lynch Convertible
Securities Holdings, Inc. . . . 1,000,000 1,000,000 4.0
Nalco Chemical Retirement . . . . 100,000 100,000 *
Nesbitt Burns . . . . . . . . . . 400,000 400,000 1.6
Offshore Strategies Ltd. . . . . 500,000 500,000 2.0
Oregon Equity Fund . . . . . . . 1,000,000 1,000,000 4.0
The Putnam Advisory Company, Inc.
on behalf of Boston College
Endowment . . . . . . . . . . . 200,000 200,000 *
The Putnam Advisory Company, Inc.
on behalf of New Hampshire
Retirement System . . . . . . . 525,000 525,000 2.1
The Putnam Advisory Company, Inc.
on behalf of The Museum of
Fine Art, Boston . . . . . . . 90,000 90,000 *
Putnam Convertible Income-Growth
Trust . . . . . . . . . . . . 1,850,000 1,850,000 7.4
Putnam Convertible Opportunities
and Income Trust . . . . . . . 485,000 485,000 1.9
Putnam High Income Convertible
and Bond Fund . . . . . . . . . 600,000 600,000 2.4
State of Delaware . . . . . . . . 400,000 400,000 1.6
United National Insurance Company 150,000 150,000 *
Winchester Convertible Plus
Limited . . . . . . . . . . . . . 1,000,000 1,000,000 4.0
Zazove Convertible Fund, L.P. . . 500,000 500,000 2.0
Zeneca Holdings . . . . . . . . . 250,000 250,000 1.0
____________ ______________ ____________
Total . . . . . . . . . . . . $25,000,000 $25,000,000 100%
_________________________________________
* Less than 1%.
1 First Pacific Advisers, Inc. may be deemed to be the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act)
of more than ten percent of each of the Class A Common Stock
and Class B Common Stock of the Company. Such information has
been derived from statements on Schedule 13D and 13G filed with
the SEC by First Pacific Advisers, Inc.
2 IDS Bond Fund, Inc. is an investment company registered under
the Investment Company Act of 1940, as amended, and is a fund
in the IDS Mutual Fund Group ("IDS Funds"). American Express
Financial Corporation (formerly known as IDS Financial
Corporation) ("AEFC"), an investment adviser registered under
the Investment Advisers Act of 1940, as amended, provides
investment advisory services to each of the IDS Funds and to
certain other registered investment companies. AEFC is a wholly
owned subsidiary of American Express Company. The information
set forth in the table with respect to IDS Bond Fund, Inc. and
the information set forth in this footnote was provided by AEFC.
__________________________________________________________________
Because the Selling Security Holders may sell all or some of
the Debentures which they hold and shares of Class A Common Stock
issued upon conversion thereof pursuant to the offering
contemplated by this Prospectus, no estimate can be given as to
the aggregate amount of Debentures or shares of Class A Common
Stock that are to be offered hereby or that will be owned by the
Selling Security Holders upon completion of this offering to
which this Prospectus relates. Accordingly, the aggregate
principal amount of Debentures offered hereby may increase or
decrease. As of the date of this Prospectus, the aggregate
principal amount of Debentures outstanding is $25,000,000. See
"Plan of Distribution."
LEGAL MATTERS
Certain legal matters in connection with this offering will
be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022. Mark N.
Kaplan, a director and owner of 1,000 shares of the Class A
Common Stock of the Company, is a partner in the firm of Skadden,
Arps, Slate, Meagher & Flom.
EXPERTS
The consolidated financial statements and consolidated
financial statement schedule of the Company as of March 31, 1995
and 1994, and for each of the years in the three-year period
ended March 31, 1995, included elsewhere herein and/or
incorporated by reference in the Registration Statement, as
applicable, have been included elsewhere herein and incorporated
by reference in the Registration Statement, as applicable, in
reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and
incorporated by reference in the Registration Statement, as
applicable, and upon the authority of said firm as experts in
accounting and auditing.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Diagnostic/Retrieval
Systems, Inc. and Subsidiaries
Page
Independent Auditors' Report . . . . . . . . F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1995
and 1994 and September 30, 1995 (unaudited) . . . F-3
Consolidated Statements of Earnings for the fiscal
years ended March 31, 1995, 1994 and 1993
and for the six months ended
September 30, 1995 and 1994 (unaudited) . . F-4
Consolidated Statements of Stockholders'
Equity for the fiscal years ended March 31,
1995, 1994 and 1993 and for the six months
ended September 30, 1995 (unaudited) . . . . . . . F-5
Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1995, 1994 and 1993 and for
the six months ended September 30, 1995 and
1994 (unaudited) . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . F-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
Diagnostic/Retrieval Systems, Inc.:
We have audited the accompanying consolidated
balance sheets of Diagnostic/Retrieval Systems, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1995.
These consolidated financial statements are the responsi-
bility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit in-
cludes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting princi-
ples 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 consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of Diagnos-
tic/Retrieval Systems, Inc. and subsidiaries as of March
31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-
year period ended March 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 18, 1995
CONSOLIDATED BALANCE SHEETS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
September
March 31, 30, 1995
1995 1994 (unaudited)
Assets
Current Assets:
Cash and Cash Equivalents . . . . . . $11,197,000 $15,465,000 $20,997,000
Accounts Receivable (Notes 2 and 6) . . 17,432,000 15,538,000 18,923,000
Inventories, Net of Progress Payments
(Note 3) . . . . . . . . . . . . . . . 11,724,000 5,042,000 15,494,000
Other Current Assets . . . . . . . . . .2,445,000 2,563,000 2,536,000
Total Current Assets . . . . . . . . . 42,798,000 38,608,000 57,950,000
Property, Plant and Equipment, at Cost
(Notes 4 and 6) . . . . . . . . . . . . 33,661,000 32,182,000 37,953,000
Less Accumulated Depreciation and
Amortization . . . . . . . . 23,812,000 23,289,000 24,661,000
Net Property, Plant and Equipment . . . 9,849,000 8,893,000 13,292,000
Intangible Assets, Less Accumulated Amor-
tization of $3,457,000, $3,008,000 and
$3,740,000 at March 31, 1995 and 1994
and September 30, 1995, respectively. . 8,920,000 8,414,000 8,637,000
Other Assets . . . . . . . . . . . . . .3,023,000 2,921,000 3,961,000
Total Assets . . . . . . . . . . . . $64,590,000 $58,836,000 $83,840,000
Liabilities and Stockholders' Equity
Current Liabilities:
Current Installments of Long-Term Debt
(Note 6) . . . . . . . . . . . . . $ 2,492,000 $ 2,664,000 $ 3,254,000
Accounts Payable and Accrued Expenses
(Note 5) . . . . . . . . . . . . . . . 19,989,000 16,141,000 17,495,000
Total Current Liabilities . . . . . . . 22,481,000 18,805,000 20,749,000
Long-Term Debt, Excluding Current In-
stallments (Note 6) . . . . . . . . . . 11,732,000 14,515,000 30,690,000
Deferred Income Taxes (Note 8) . . . . .4,605,000 4,624,000 4,605,000
Other Liabilities (Notes 10 and 11) . . .3,263,000 1,133,000 3,544,000
Total Liabilities . . . . . . . . . . . 42,081,000 39,077,000 59,588,000
Stockholders' Equity (Notes 6 and 9):
Class A Common Stock, $.01 par Value per
Share. Authorized 10,000,000 Shares;
Issued 3,699,963 Shares, 3,674,963 Shares
and 3,739,963 Shares at March 31, 1995
and 1994 and September 30, 1995, Respec-
tively . . . . . . . . . . . . . . . 37,000 37,000 37,000
Class B Common Stock, $.01 par Value per
Share. Authorized 20,000,000 Shares;
Issued 2,163,253, 2,105,528 and 2,216,353
Shares at March 31, 1995 and 1994, and
September 30, 1995, Respectively . . . . 22,000 21,000 22,000
Additional Paid-in Capital . . . . . . 13,435,000 12,970,000 13,579,000
Retained Earnings . . . . . . . . . . 10,919,000 8,315,000 12,490,000
24,413,000 21,343,000 26,128,000
Treasury Stock, at Cost: 432,639 Shares
of Class A Common Stock and 21,619 Shares
of Class B Common Stock at March 31, 1995
and September 30, 1995 and 423,419 Shares
of Class A Common Stock and 21,440 Shares
of Class B Common Stock at March 31, 1994
(Note 10) . . . . . . . . . . . . . (1,617,000) (1,579,000) (1,617,000)
Unamortized Restricted Stock Compensation (287,000) (5,000) (259,000)
Net Stockholders' Equity . . . . . . . 22,509,000 19,759,000 24,252,000
Commitments and Contingencies (Note 10)
Total Liabilities and Stockholders'
Equity . . . . . .. . . . . . . . . . $64,590,000 $58,836,000 $83,840,000
__________________
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
1995 1994 1993 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues . . . . $69,930,000 $57,820,000 $47,772,000 $40,065,000 $31,662,000
Costs and Expenses
(Note 3) . . . . 64,836,000 54,372,000 45,461,000 36,907,000 29,406,000
Operating Income . . 5,094,000 3,448,000 2,311,000 3,158,000 2,256,000
Interest and Related
Expenses . . . . . (1,372,000) (1,574,000) (1,735,000) (697,000) (677,000)
Other Income, Net
(Notes 7 and 11) 534,000 834,000 1,224,000 114,000 216,000
Earnings before Income
Taxes . . . . . . 4,256,000 2,708,000 1,800,000 2,575,000 1,795,000
Income Taxes
(Note 8). . . . . 1,652,000 1,093,000 715,000 1,004,000 717,000
Net Earnings . . .$ 2,604,000 $ 1,615,000 $ 1,085,000 $ 1,571,000 $ 1,078,000
Earnings per Share of Class
A and Class B Common Stock:
Primary . . . . $ .50 $ .30 $ .20 $ .28 $ .21
Fully diluted. . $ .50 $ .30 $ .20 $ .28 $ .21
Weighted Average Number of
Shares of Class A and Class
B Common Stock Outstanding:
Primary . . . . 5,231,000 5,334,000 5,324,000 5,632,000 5,094,000
Fully diluted . . 5,231,000 5,334,000 5,324,000 5,672,000 5,094,000
_________________
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Common Stock
Years Ended March
31, 1995, 1994
and 1993, and
Six Months End-
ed Septeber 30, 1995 Unamortized
(unaudited) Class A Class B Additional Restricted Net
Paid In Retained Treasury Stock Stockholders'
------------------- Shares Amount Shares Amount Capital Earnings Stock Compensation Equuity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March
31, 1992 . . . . 3,674,963 $37,000 2,089,528 $21,000 $12,984,000 $5,615,000 $(1,579,000) $(31,000) $17,047,000
Net Earnings . . -- -- -- -- -- 1,085,000 -- -- 1,085,000
Stock Options
Exercised . . . . -- -- 5,000 -- -- -- -- -- --
Compensation Re-
lating to Stock
Options, Net . . -- -- -- -- (39,000) -- -- 22,000 (17,000)
Balances at March
31, 1993 . . . . 3,674,963 37,000 2,094,528 21,000 12,945,000 6,700,000 (1,579,000) (9,000) 18,115,000
Net Earnings . . -- -- -- -- -- 1,615,000 -- -- 1,615,000
Stock Options
Exercised . . . . -- -- 11,000 -- 2,000 -- -- -- 2,000
Compensation Re-
lating to Stock
Options, Net . . -- -- -- -- 23,000 -- -- 4,000 27,000
Balances at March
31, 1994 . . . . 3,674,963 37,000 2,105,528 21,000 12,970,000 8,315,000 (1,579,000) (5,000) 19,759,000
Net Earnings . . -- -- -- -- -- 2,604,000 -- -- 2,604,000
Stock Options
Exercised . . . . 25,000 -- 57,725 1,000 188,000 -- -- -- 189,000
Compensation Re-
lating to Stock
Options, Net . . -- -- -- -- 388,000 -- -- (282,000) 106,000
Purchase of Trea-
sury Stock . . . -- -- -- -- -- -- (2,900,000) -- (2,900,000)
Sale of Treasury -- -- -- -- (111,000) -- 2,862,000 -- 2,751,000
Stock . . . . . .
Balances at March
31, 1995 . . . . 3,699,963 37,000 2,163,253 22,000 13,435,000 10,919,000 (1,617,000) (287,000) 22,509,000
Net Earnings (un-
audited) . . . . -- -- -- -- -- 1,571,000 -- -- 1,571,000
Stock Options
Exercised (unau-
dited) . . . . . 40,000 -- 53,100 -- 220,000 -- -- -- 220,000
Expenses relating
to the Sale of
Treasury Stock
(unaudited) . . . -- -- -- -- (76,000) -- -- -- (76,000)
Compensation Re-
lating to Stock
Options Net (un-
audited) . . . . -- -- -- -- -- -- -- 28,000 28,000
Balances at Sep-
tember 30, 1995
(unaudited) . . . 3,739,963 $ 37,000 2,216,353 $22,000 $13,579,000 $12,490,000 $(1,617,000) $(259,000) $24,252,000
____________________
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Six Months Ended
Years Ended March 31, September 30,
1995 1994 1993 1995 1994
(unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Earnings . . . . . . $ 2,604,000 $ 1,615,000 $ 1,085,000 $ 1,571,000 $ 1,078,000
Adjustments to Reconcile Net
Earnings to Cash Flows from
Operating Activities:
Depreciation and
Amortization . . . 2,480,000 2,558,000 3,202,000 1,289,000 1,252,000
Deferred Income Taxes . . . 26,000 (15,000) (31,000) -- --
Other, Net . . . . . . . . (77,000) (233,000) (446,000) 171,000 37,000
Changes in Assets and Liabil-
ities, Net of Effects from
Business Combinations:
(Increase) Decrease in
Accounts Receivable . . (1,415,000) 1,443,000 (880,000) (1,184,000) 3,516,000
(Increase) Decrease in
Inventories . . . . . . (6,408,000) 2,069,000 2,186,000 (992,000) (2,414,000)
(Increase) Decrease in Other
Current Assets . . . . (7,000) (133,000) 1,400,000 (17,000) (95,000)
Increase (Decrease) in Ac-
counts Payable and
Accrued Expenses . . . . . 3,640,000 2,928,000 (400,000) (4,356,000) (3,462,000)
Other, Net . . . . . . . 1,643,000 (62,000) (357,000) 268,000 168,000
Net Cash Provided by (Used
in) Operating
Activities: . . . . . 2,486,000 10,170,000 5,759,000 (3,250,000) 80,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital Expenditures . . . (2,543,000) (988,000) (922,000) (1,959,000) (823,000)
Sales of Fixed Assets . . . -- -- -- 2,380,000 --
Payments Pursuant to Business
Combinations, Net of Cash
Acquired . . . . . . . . . (1,514,000) (696,000) -- (4,095,000) --
Cash Advanced to Company Ac-
quired for Repayment of Debt
Prior to Acquisition . . . . -- (1,800,000) -- -- --
Other, Net . . . . . . . . . 263,000 11,000 2,000 -- (6,000)
Net Cash Used in Investing
Activities . . . . . . . . (3,794,000) (3,473,000) (920,000) (3,674,000) (829,000)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on Long-Term Debt . (275,000) (168,000) (262,000) (114,000) (37,000)
Repurchases of Convertible
Subordinated
Debentures . . . . . . . (2,667,000) (2,354,000) (1,880,000) (2,225,000) (2,527,000)
Net Proceeds From Issuance of
Senior Subordinated Convert-
ible Debentures . . . . . . . -- -- -- 18,900,000 --
Other Borrowings . . . . . . 20,000 325,000 -- 123,000 65,000
Purchase of Treasury Stock . (2,900,000) -- -- -- (2,900,000)
Sale of Treasury Stock. . . 2,862,000 -- -- -- --
Other, Net . . . . . . . . . -- -- -- 40,000 --
Net Cash Used in Financing
Activities . . . . (2,960,000) (2,197,000) (2,142,000) 16,724,000 (5,399,000)
Net Increase (Decrease) in
Cash and Cash Equivalents . (4,268,000) 4,500,000 2,697,000 9,800,000 (6,148,000)
Cash and Cash Equivalents,
Beginning of Period . . . . 15,465,000 10,965,000 8,268,000 11,197,000 15,465,000
Cash and Cash Equivalents,
End of Period . . . . . . $11,197,000 $15,465,000 $10,965,000 $20,997,000 $9,317,000
____________________
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The Consolidated Financial Statements include
the accounts of Diagnostic/Retrieval Systems, Inc., its
subsidiaries, all of which are wholly owned, and a joint
venture consisting of an 80% controlling partnership
interest (the "Company"). All significant intercompany
transactions and balances have been eliminated in consol-
idation.
The Consolidated Financial Statements include
information as of September 30, 1995 and for the six
months ended September 30, 1995 and 1994, which is unau-
dited. In the opinion of Management, the accompanying
unaudited consolidated financial statements of the Compa-
ny contain all adjustments (consisting of only normal and
recurring adjustments) necessary for the fair presenta-
tion of the Company's consolidated financial position as
of September 30, 1995, the statements of earnings for the
six months ended September 30, 1995 and 1994, cash flows
for the six months ended September 30, 1995 and 1994 and
the statement of stockholders' equity for six months
ended September 30, 1995. The results of operations for
the six months ended September 30, 1995 are not necessar-
ily indicative of the results to be expected for the full
year.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid invest-
ments purchased with a maturity of three months or less
to be cash equivalents.
C. REVENUE RECOGNITION
Revenues related to long-term, firm fixed-price
contracts, which principally provide for the manufacture
and delivery of finished units, are recognized as ship-
ments are made. The estimated profits applicable to such
shipments are recorded pro rata based upon estimated
total profit at completion of the contracts.
Revenues on contracts with significant engi-
neering as well as production requirements are recorded
using the percentage-of-completion method measured by the
costs incurred on each contract to estimated total con-
tract costs at completion (cost-to-cost) with consider-
ation given for risk of performance and estimated profit.
Revenues related to incentive-type contracts
also are determined on a percentage-of-completion basis
measured by the cost-to-cost method. Revenues from cost-
reimbursement contracts are recorded, together with the
fees earned, as costs are incurred.
Revenues recognized under the cost-to-cost
percentage-of-completion basis during fiscal 1995, 1994
and 1993 approximated 16%, 26% and 37% of total revenues,
respectively, with remaining revenues recognized as
delivery of finished units is made, or as costs are
incurred under cost-reimbursement contracts. Included in
revenues for fiscal 1995, 1994 and 1993 are $18,771,000,
$27,496,000 and $19,155,000 respectively, of customer-
sponsored research and development.
Revisions in profit estimates are reflected in
the year in which the facts, which require the revisions,
become known, and any estimated losses and other future
costs are accrued in full.
Approximately 84%, 94% and 83% of the Company's
revenues in fiscal 1995, 1994 and 1993, respectively,
were derived directly or indirectly from defense-industry
contracts with the United States Government (principally
the U.S. Navy). In addition, approximately 7%, 3% and
17% of the Company's revenues in fiscal 1995, 1994 and
1993, respectively, were derived directly or indirectly
from sales to foreign governments. Sales to commercial
customers comprised 9% and 3% of revenues in fiscal 1995
and 1994, respectively.
D. INVENTORIES
Costs accumulated under contracts are stated at
actual cost, not in excess of estimated net realizable
value, including, for long-term government contracts,
applicable amounts of general and administrative expens-
es, which include research and development costs, where
such costs are recoverable under customer contracts.
In accordance with industry practice, invento-
ries include amounts relating to contracts having produc-
tion cycles longer than one year, and a portion thereof
will not be realized within one year.
E. DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
Depreciation and amortization have been provid-
ed on the straight-line method. The ranges of estimated
useful lives are: office furnishings, motor vehicles and
equipment, 3-10 years; building and building improve-
ments, 15-40 years; and leasehold improvements, over the
shorter of the estimated useful lives or the life of the
lease.
Maintenance and repairs are charged to opera-
tions as incurred; renewals and betterments are capital-
ized. The cost of assets retired, sold or otherwise
disposed of are removed from the accounts, and any gains
or losses thereon are reflected in operations.
F. EXCESS OF COST OVER NET ASSETS OF BUSINESSES
ACQUIRED
Intangibles resulting from acquisitions repre-
sent the excess of cost of the investments over the fair-
market values of the underlying net assets at the dates
of investment. All intangibles are being amortized on
the straight-line method, over five to thirty years. The
carrying value of intangible assets periodically is
reviewed by the Company, and impairments are recognized
when the expected undiscounted future operating cash
flows derived from such intangible assets are less than
their carrying value.
G. INCOME TAXES
In February 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred
tax asset will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recog-
nized in income in the period that includes the enactment
date. SFAS 109 supersedes Statement of Financial Ac-
counting Standards No. 96, "Accounting for Income Taxes"
("SFAS 96").
Effective April 1, 1993, the Company adopted
SFAS 109. The cumulative effect of adopting SFAS 109 was
not material to the Company's consolidated results of
operations or financial position.
Prior-year financial statements have not been
restated to apply the provisions of SFAS 109. Until
March 31, 1993, the Company used the asset and liability
method of accounting for income taxes, as set forth in
SFAS 96. Under SFAS 96, deferred income taxes are recog-
nized by applying statutory tax rates to the difference
between the financial statement carrying amounts and tax
bases of assets and liabilities. The statutory tax rates
applied are those applicable to the years in which the
differences are expected to reverse. Deferred tax ex-
pense represents the change in the liability for deferred
taxes from year to year.
H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In December 1990, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS
106"). The Company adopted SFAS 106 during the first
quarter of fiscal 1994, and its adoption did not have a
material impact on the Company's consolidated results of
operations or financial position.
I. POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). The Company
adopted SFAS 112 during the first quarter of fiscal 1995,
and its adoption did not have a material impact on the
Company's consolidated results of operations or financial
position.
J. EARNINGS PER SHARE
Earnings per share of common stock is computed
by dividing net earnings by the weighted average number
of shares of Class A and Class B Common Stock outstanding
during each period. For the six month period ended
September 30, 1995 and in fiscal 1995, the computation of
earnings per share included approximately 171,000 and
123,000 shares, respectively, from the assumed exercise
of dilutive stock options computed using the treasury
stock method. Options outstanding to purchase shares of
common stock are not included in the computation of
earnings per share for fiscal 1994 and 1993 or for the
six month period ended September 30, 1994, because their
effect was not material. For the six month period ended
September 30, 1995, the computation of fully diluted
earnings per share included approximately 25,000 shares
from the assumed conversion of the Company's 9% Senior
Subordinated Convertible Debentures due 2003. Additional
shares assumed to be outstanding applicable to the
Company's Convertible Subordinated Debentures due 1998
(the "1998 Debentures") were excluded from these computa-
tions for all periods presented, as their effect on
earnings per share was antidilutive.
NOTE 2. ACCOUNTS RECEIVABLE
The component elements of accounts receivable are as follows:
March 31,
1995 1994
U.S. Government:
Amounts Billed . . . . . $ 5,885,000 $ 5,746,000
Recoverable Costs and Ac-
crued Profit on Progress
Completed, Not
Billed . . . . . . . . . 7,264,000 5,374,000
13,149,000 11,120,000
Other U.S. Defense Contracts:
Amounts Billed . . . . . 1,418,000 2,981,000
Recoverable Costs and Ac-
crued Profit on Progress
Completed, Not Billed . . . 639,000 537,000
2,057,000 3,518,000
Other Amounts Billed . . 2,226,000 900,000
Total . . . . . . . . . . $ 17,432,000 $ 15,538,000
Generally, no accounts receivable arise from
retainage provisions in contracts. The Company receives
progress payments on certain contracts from the U.S.
Government of between 80-100% of allowable costs in-
curred; the remainder, including profits and incentive
fees, if any, is billed upon delivery and final accep-
tance of the product. In addition, the Company may bill
based upon units delivered.
NOTE 3. INVENTORIES
Inventories are summarized as follows:
March 31, September 30,
1995 1994 1995
(unaudited)
Work-in-Process . . . $ 23,017,000 $ 14,639,000 $34,831,000
Raw Material . . . . 2,573,000 2,917,000 3,301,000
25,590,000 17,556,000 38,132,000
Less Progress Payments. . 13,866,000 12,514,000 22,638,000
Total . . . . . . . . $ 11,724,000 $ 5,042,000 $15,494,000
General and administrative costs included in work-
in-process were $6,584,000 and $3,753,000 at March 31, 1995
and 1994 and $9,385,000 at September 30, 1995 (unaudited),
respectively. General and administrative costs included in
costs and expenses amounted to $17,681,000, $16,896,000 and
$14,028,000 in fiscal 1995, 1994 and 1993, respectively.
Included in those amounts are expenditures for Company-
sponsored independent research and development, amounting to
approximately $795,000, $537,000 and $470,000 in fiscal
1995, 1994 and 1993, respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1995
and 1994 are summarized as follows:
March 31,
1995 1994
Land . . . . . . . . . . $ 1,350,000 $ 1,350,000
Building and Building
Improvements . . . . . . 2,384,000 2,289,000
Office Furnishings and
Equipment . . . . . . . . 3,621,000 3,754,000
Laboratory and Production
Equipment . . . . . . . . 15,639,000 14,457,000
Motor Vehicles . . . . . 235,000 389,000
Computer Equipment . . . 7,246,000 7,323,000
Leasehold Improvements . 3,186,000 2,620,000
Total . . . . . . . . . . $33,661,000 $32,182,000
Depreciation and amortization of plant and
equipment amounted to $1,833,000, $2,061,000 and
$2,748,000 in fiscal 1995, 1994 and 1993, respectively.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The component elements of accounts payable and
accrued expenses are as follows:
March 31,
1995 1994
Payrolls, Including Payroll Taxes .. $ 648,000 $ 1,753,000
Holiday and Vacation Pay . . . . . . 1,102,000 849,000
Income Taxes Payable . . 1,821,000 1,917,000
Losses and Future Costs
Accrued on
Uncompleted Contracts . . 4,555,000 3,214,000
Other . . . . . . . . . . 3,897,000 4,101,000
12,023,000 11,834,000
Accounts Payable . . . . 7,966,000 4,307,000
Total . . . . . . . . . . $19,989,000 $16,141,000
NOTE 6. LONG-TERM DEBT
A summary of long-term debt is as follows:
March 31,
1995 1994
Convertible Subordinated
Debentures, Due 1998 . . $ 12,209,000 $ 14,889,000
Industrial Revenue Bonds,
Due 1998 . . . . . . . . 1,895,000 2,095,000
Other Obligations . . . . 120,000 195,000
14,224,000 17,179,000
Less Current Installments
of Long-Term Debt . . . . 2,492,000 2,664,000
Total . . . . . . . . . . $ 11,732,000 $ 14,515,000
The 1998 Debentures bear interest at a rate of
81/2% per annum and are convertible at their face amount
any time prior to maturity into shares of Class B Common
Stock, unless previously redeemed, at a conversion price
of $15.00 per share, subject to adjustment under certain
conditions. The 1998 Debentures are redeemable at the
option of the Company, in whole or in part, at face
value, together with interest accrued to the redemption
date. As of August 1, 1990 and on August 1 of each year
thereafter, to and including August 1, 1997, the Company
is required to provide for the retirement of the 1998
Debentures by mandatory redemption (the "sinking fund")
in the aggregate annual principal amount of $2,500,000.
As of March 31, 1995, the Company had repurchased
$12,791,000 of the 1998 Debentures and has satisfied all
sinking fund requirements to date. The Consolidated
Statements of Earnings for fiscal years 1995, 1994 and
1993 reflect gains resulting from these repurchases of
$13,000, $257,000 and $500,000, respectively.
The 1998 Debentures are subordinate to the
prior payment in full of the principal and interest on
all senior indebtedness of the Company, which amounted to
$2,015,000 at March 31, 1995. The indenture pursuant to
which the 1998 Debentures were issued contains certain
dividend and other restrictions. Under such provisions,
the Company may not distribute dividends or purchase,
redeem or otherwise acquire or retire any of its capital
stock in excess of an aggregate amount which, at March
31, 1995, was approximately $4,400,000.
On December 19, 1991, the Suffolk County
Industrial Development Agency (the "Agency") issued
variable rate demand industrial development revenue
refunding bonds (the "Bonds") in the amount of $2,395,000
to refinance a prior bond issue which provided funds for
the construction of the manufacturing facilities of
Photronics Corp. ("Photronics"), a wholly-owned
subsidiary of the Company. All property, plant and
equipment acquired or constructed from the proceeds of
the original bonds collateralizes the obligation, and
payment of the principal and interest and premium (if
any) on the Bonds is further secured by the unconditional
guaranty of the Company. The Bonds are supported by an
irrevocable, direct-pay letter of credit in an amount
equal to the principal balance plus interest thereon for
45 days. At March 31, 1995, the contingent liability of
the Company as guarantor under the letter of credit was
approximately $1,930,000. The Company has collateralized
the letter of credit with accounts receivable and also
has agreed to certain financial covenants, including the
maintenance of: (i) a certain minimum ratio of
consolidated tangible net worth to total debt (the "Debt
Ratio"), (ii) a certain minimum quarterly ratio of
earnings before interest and taxes to interest (the
"Interest Ratio"), and (iii) a certain minimum balance of
billed and unbilled accounts receivable (the "Eligible
Receivables"), all as defined in the related agreements.
At March 31, 1995, the covenants, all of which the
Company was in compliance with, required (i) a Debt Ratio
of 0.6:1, (ii) an Interest Ratio of 1.5:1, and (iii)
Eligible Receivables of $2,500,000. The financial
covenants also require that the Company realize a certain
level of profits during each quarter of fiscal 1996 in
order to be in compliance. A default under the Bonds
constitutes a default on the Debentures.
Commencing February 1, 1992 and on the first
business day of each month thereafter, interest on the
Bonds is payable at that daily rate determined to be
necessary under prevailing market conditions to enable
the Bonds to be sold at a price equal to 100% of the
principal amount thereof plus accrued interest. Such
rate was 4.5% at March 31, 1995. At the option of the
Company, the interest rate payable on the Bonds may be
changed to a weekly or fixed rate.
Commencing February 1, 1992 and until such time
as the Bonds may be converted to fixed-rate obligations,
the Bonds are subject to redemption, in whole or in part,
at the option of the Company at a price equal to their
principal amount plus accrued interest. On or after the
second anniversary of a conversion, Bonds bearing
interest at a fixed rate are subject to the redemption,
in whole on any date or in part on any interest payment
date, at the option of the Company at an annual
redemption rate of 102% at the second anniversary of such
conversion and diminishing by one percent each year to
100% on or after the fourth anniversary of such
conversion. Commencing January 1, 1993 and on each
January 1 thereafter, to and including January 1, 1998,
the Bonds are subject to a schedule of mandatory sinking
fund redemptions at a price equal to 100% of the
principal amount of the Bonds redeemed plus accrued
interest. The principal amount of the Bonds redeemed at
January 1, 1995 was $200,000.
Cash payments for interest during fiscal 1995,
1994 and 1993 were $1,237,000, $1,448,000 and $1,687,000,
respectively.
The aggregate maturities of long-term debt for
the five years ending March 31, 2000 are as follows:
1996, $2,492,000; 1997, $2,637,000; 1998, $4,095,000;
1999, $5,000,000; and 2000, $0.
NOTE 7. OTHER INCOME, NET
Other income, net includes:
Years Ended March 31,
1995 1994 1993
Interest Income $439,000 $370,000 $585,000
Royalty Income 63,000 157,000 221,000
Gain on
Repurchase of
Subordinated
Debentures . . 13,000 257,000 500,000
Other . . . . . 19,000 50,000 (82,000)
Total . . . . . $534,000 $834,000 $1,224,000
NOTE 8. INCOME TAXES
Income tax expense consists of:
Years Ended March 31,
1995 1994 1993
Current:
Federal $ 1,498,000 $ 884,000 $ 688,000
State . 128,000 224,000 58,000
1,626,000 1,108,000 746,000
Deferred:
Federal 172,000 33,000 (103,000)
State . (146,000) (48,000) 72,000
26,000 (15,000) (31,000)
Total . $ 1,652,000 $1,093,000 $ 715,000
Deferred income taxes at March 31, 1995 and
1994 reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The
tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and
deferred tax liabilities at March 31, 1995 and 1994 are
as follows:
March 31,
DEFERRED TAX ASSETS: 1995 1994
State Net Operating Loss
Carryforwards . . . . . . . . . . $3,977,000 $ 5,849,000
Inventory Capitalization . . . . 1,687,000 1,888,000
Costs Accrued on Uncompleted
Contracts . . . . . . . . . . . . 2,627,000 2,163,000
Other . . . . . . . . . . . . . . 2,287,000 1,846,000
Total Gross Deferred Tax Assets . 10,578,000 11,746,000
Less Valuation Allowance . . . . (2,279,000) (3,575,000)
Net Deferred Tax Assets . . . . . 8,299,000 8,171,000
DEFERRED TAX LIABILITIES:
Depreciation and Amortization . . (5,048,000) (5,540,000)
General and Administrative Costs (4,325,000) (2,740,000)
Federal Impact of the State
Benefits . . . . . . . . . . . . (1,136,000) (1,986,000)
Other . . . . . . . . . . . . . (828,000) (917,000)
Total Gross Deferred Tax
Liabilities . . . . . . . . . . . (11,337,000) (11,183,000)
Net Deferred Tax Liabilities . . $ (3,038,000) $ (3,012,000)
A valuation allowance is provided when it is more
likely than not that some portion or all of a deferred
tax asset will not be realized. The Company has
established a valuation allowance for the deferred tax
asset attributable to state net operating loss
carryforwards, due to the uncertainty of future Company
earnings attributable to various states and the status of
applicable statutory regulations that could limit or
preclude utilization of these benefits in future periods.
A deferred tax asset of $1,567,000 and $1,612,000 is
included in Other Current Assets in the Consolidated
Balance Sheets at March 31, 1995 and 1994, respectively.
Approximately $47,647,000 of state net operating loss
carryforwards were available in various tax jurisdictions
at March 31, 1995. Of that amount, $29,655,000 will
expire between fiscal years 1997 and 2002; the remaining
$17,992,000 will expire between fiscal years 2005 and
2010.
A reconciliation of the statutory federal income tax
rate to the effective tax rate follows:
Years Ended March 31,
1995 1994 1993
Statutory Tax Rate 34% 34% 34%
State Income Tax,
Net of Federal
Income Tax Benefit 3 4 5
Amortization of
Intangible Assets . 1 2 3
Other . . . . . . . 1 -- (2)
Total . . . . . . . 39% 40% 40%
The provision for income taxes includes all
estimated income taxes payable to federal and state
governments, as applicable.
Cash payments for income taxes during fiscal 1995,
1994 and 1993 amounted to $1,723,000, $311,000 and
$303,000, respectively.
NOTE 9. COMMON STOCK, STOCK OPTION PLANS AND EMPLOYEE
BENEFIT PLANS
The Company has three authorized classes of stock:
A class consisting of 10,000,000 shares of Class A Common
Stock, a class consisting of 20,000,000 shares of Class B
Common Stock, and a class consisting of 2,000,000 shares
of Preferred Stock (none of which has been issued). The
holders of Class A and Class B Common Stock are entitled
to one vote per share and one-tenth vote per share,
respectively.
On February 7, 1991, the Board of Directors (the
"Board") adopted the 1991 Stock Option Plan (the "Stock
Option Plan"), which authorizes the issuance of up to
600,000 shares of Class B Common Stock. The Stock Option
Plan was approved by the Company's stockholders on August
8, 1991. The Stock Option Plan is the successor to the
Company's 1981 Non-Qualified Stock Option Plan (the "Non-
Qualified Plan") that expired on May 12, 1991 and to the
1981 Incentive Stock Option Plan (the "Incentive Plan")
that expired on October 31, 1991. Under the terms of the
Stock Option Plan, options to purchase shares of Class B
Common Stock may be granted to key employees, directors
and consultants of the Company. Options granted under
the Stock Option Plan are at the discretion of the Stock
Option Committee of the Board (the "Stock Option
Committee") and may be incentive stock options or non-
qualified stock options, except that incentive stock
options may be granted only to employees. The option
price is determined by the Stock Option Committee and
must be a price per share which is not less than the par
value per share of the Class B Common Stock, and in the
case of an incentive stock option, may not be less than
the fair-market value of the Class B Common Stock on the
date of the grant. Options may be exercised during the
exercise period, as determined by the Stock Option
Committee, except that no option may be exercised within
six months of its grant date, and in the case of an
incentive stock option, generally, the exercise period
may not exceed ten years from the date of the grant. At
March 31, 1995, 286,250 shares of Class B Common Stock
were reserved for future grants under the Stock Option
Plan.
The Non-Qualified Plan, as amended, provided for the
grant of options to purchase a total of 100,000 shares of
Class A Common Stock and 50,000 shares of Class B Common
Stock through May 12, 1991. Under the Non-Qualified
Plan, the Stock Option Committee had discretion to grant
options to employees, consultants and directors of the
Company. The exercise price of an option granted under
the Non-Qualified Plan was the price, as determined by
the Stock Option Committee, but was not less than the
aggregate par value of the shares subject to the option.
Options granted under the Non-Qualified Plan are
exercisable in accordance with the terms of the grant
during a specified period, which did not exceed five
years. Upon the expiration of the Non-Qualified Plan, a
total of 87,600 shares of Class A Common Stock and a
total of 10,300 shares of Class B Common Stock remained
ungranted.
The Incentive Plan, as amended, provided for the
grant of options to purchase a total of 150,000 shares of
Class A Common Stock and 475,000 shares of Class B Common
Stock through October 31, 1991. Under the Incentive
Plan, options were granted at the discretion of the Stock
Option Committee only to employees of the Company.
Options are exercisable in accordance with the terms of
the grant within a specified period, which may not exceed
ten years. Each option granted provided for the purchase
of a specified number of shares of Class A Common Stock
or Class B Common Stock, or both, at an exercise price
not less than the fair-market value of the shares subject
to the option on the date of grant. Upon the expiration
of the Incentive Plan, options representing a total of
23,665 shares of Class A Common Stock and a total of
269,832 shares of Class B Common Stock remained
ungranted.
Under the Stock Option Plan, pursuant to the terms
of exercise under the grant, the excess of the fair-
market value of shares under option at the date of grant
over the option price may be charged to unamortized
restricted stock compensation or to earnings as
compensation expense and credited to additional paid-in
capital. The unamortized restricted stock compensation,
if any, is charged to expense as the options become
exercisable, in accordance with the terms of the grant.
Under the Non-Qualified Plan, pursuant to the restriction
periods on the exercise of options as stated in the stock
option agreements, the excess of the fair-market value of
shares under option at the date of grant over the option
price was charged to unamortized restricted stock
compensation and credited to additional paid-in capital.
The unamortized restricted stock compensation is charged
to expense as services are performed during the periods
of restriction. As restricted options expire, the amount
of unamortized restricted stock compensation relating to
the options is credited and eliminated through a charge
to additional paid-in capital. In addition, the total
amount of compensation previously charged to expense is
credited. The amount of compensation charged (credited)
to earnings for all plans in fiscal 1995, 1994 and 1993
was $106,000, $27,000 and ($17,000), respectively.
When stock is issued on exercise of options, the par
value of each share ($.01) is credited to common stock
and the remainder of the option price is credited to
paid-in capital. No charge is made to operations.
A summary of all transactions under the Stock
Option, Incentive and Non-Qualified Plans follows:
Number of
Shares of Option Number of
Class A Price Shares of Option
Common per Class B Price per
Stock Share Common Stock Share
OUTSTANDING
AT MARCH 31,
1992
(of Which
16,250
Shares and
77,238
Shares of
Class A and
Class B,
Respectively,
Were
Exercisable) 65,000 $2.61 205,450 $ .01-4.75
Granted . . -- -- 10,000 $ .01
Exercised . -- -- (5,000) $ .01
Expired . . -- -- (35,600) $ .01-4.75
OUTSTANDING
AT MARCH 31,
1993
(of Which
32,500
Shares and
111,925
Shares of
Class A and
Class B,
Respectively,
Were
Exercisable) 65,000 $2.61 174,850 $ .01-4.75
Granted . . -- -- 142,750 $ .01-3.63
Exercised . -- -- (11,000) $ .01-2.25
Expired . . -- -- (32,250) $2.13-2.25
OUTSTANDING
AT MARCH 31,
1994
(of Which
48,750
Shares and
111,163
Shares of
Class A and
Class B,
Respectively,
Were
Exercisable) 65,000 $2.61 274,350 $ .01-4.75
Granted . . -- -- 150,000 $ .01-4.95
Exercised . (25,000) $2.61 (57,725) $ .01-3.63
Expired . . -- -- (17,000) $ .01-3.63
OUTSTANDING
AT MARCH 31,
1995
(of Which
40,000
Shares and
145,425
Shares of
Class A and
Class B,
Respectively,
Were
Exercisable) 40,000 $2.61 349,625 $ .01-4.95
The Company also maintains defined contribution
plans covering substantially all full-time eligible
employees. The Company's contributions to these plans,
which are discretionary, for fiscal 1995 and 1994
amounted to $365,000 and $203,000, respectively. The
Company did not make any contributions to these plans
during fiscal 1993.
NOTE 10. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
At March 31, 1995, the Company was party to
various noncancellable operating leases (principally for
administration, engineering and production facilities)
with minimum rental payments as follows:
1996 $1,909,000
1997 1,555,000
1998 1,133,000
1999 811,000
2000 695,000
Thereafter 72,000
Total $6,175,000
It is not certain as to whether the Company
will negotiate new leases as existing leases expire.
Determinations to that effect will be made as existing
leases approach expiration and will be based on an
assessment of the Company's capacity requirements at that
time.
Total rent expense aggregated $2,490,000,
$1,703,000 and $1,492,000 in fiscal 1995, 1994 and 1993,
respectively.
In April 1984, the Board of Directors approved
a lease agreement with LDR Realty Co. (wholly owned by
the Chairman of the Board of Directors and former
President) for additional office and manufacturing space
for the Company. The LDR lease, which expired on May 31,
1988, was renegotiated for a ten-year term commencing
June 1, 1988 at a net annual rental of $233,000. The
Company is required to pay all real-estate taxes,
maintenance and repairs to the facility.
Effective July 20, 1994, the Company entered
into an Employment, Non-Competition and Termination
Agreement (the "Gross Agreement") and a Stock Purchase
Agreement (the "Stock Purchase Agreement") with David E.
Gross, who retired as President and Chief Technical
Officer of the Company on May 12, 1994. Under the terms
of the Gross Agreement, Mr. Gross will receive a total of
$600,000 as compensation for his services under a five-
year consulting agreement with the Company and a total of
$750,000 as consideration for a five-year non-compete
arrangement. The payments will be charged to expense
over the term of the Gross Agreement as services are
performed and obligations are fulfilled by Mr. Gross. He
will also receive, at the conclusion of such initial
five-year period, an aggregate of approximately $1.3
million payable over a nine-year period as deferred
compensation. The net present value of the payments to
be made to Mr. Gross, pursuant to the deferred
compensation portion of the Gross Agreement, approximated
the amount of the Company's previous deferred
compensation arrangement with Mr. Gross. On July 28,
1994, pursuant to the Stock Purchase Agreement, the
Company purchased 659,220 shares of Class A Common Stock
and 45,179 shares of Class B Common Stock owned by Mr.
Gross for $4.125 and $4.00 per share, respectively,
totaling approximately $2.9 million in cash (the "Buy-
back"). The Stock Purchase Agreement also includes
certain provisions regarding the sale and voting of Mr.
Gross' remaining shares of stock in the Company, as well
as the adjustment which would have been made in the
purchase price paid to Mr. Gross pursuant to the Buy-back
should a change in control of the Company occur within
three years from the date of the Stock Purchase
Agreement.
On October 18, 1994, the Company filed a
Registration Statement on Form S-2, and on November 10,
1994, the Company filed Amendment No. 1 to such
Registration Statement (the "Registration Statement")
with the Securities and Exchange Commission for the
purpose of selling shares of its common stock purchased
by the Company in the Buy-back. Pursuant to the
Registration Statement, the Company offered to sell
650,000 shares of its Class A Common Stock at a purchase
price of between $3.92 per share and $4.33 per share and
45,000 shares of its Class B Common Stock at a purchase
price of between $3.80 per share and $4.20 per share. As
of March 31, 1995, all shares of Class A and Class B
Common Stock offered for sale under the Registration
Statement had been sold at a price of $4.125 per share
and $4.00 per share, respectively, totaling approximately
$2.9 million.
As of March 31, 1995, the Company was in the
process of finalizing an Employment, Non-Competition and
Termination Agreement (the "Newman Agreement") between
the Company and Leonard Newman, the Chairman of the Board
and Secretary of the Company. Pursuant to the Newman
Agreement, it is expected that Mr. Newman will receive
certain compensation from the Company over a five-year
period for consulting services and a non-compete
arrangement. In addition, Mr. Newman will receive
certain retirement benefits payable over a ten-year
period at the conclusion of such initial five-year
period. Results of operations for fiscal 1995 reflect a
charge of $1.5 million representing the estimated net
present value of the Company's obligation under the
Newman Agreement. The corresponding amount was included
in Other Liabilities in the Consolidated Balance Sheet at
March 31, 1995 as an addition to the accrual which had
been established to cover the Company's liability to Mr.
Newman under a previous deferred compensation
arrangement.
The Company is a party to various legal actions
and claims arising in the ordinary course of its
business. In management's opinion, the Company has
adequate legal defenses for each of the actions and
claims and believes that their ultimate disposition will
not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Since substantially all of the Company's
revenues are derived from contracts or subcontracts with
the U.S. Government, future revenues and profits will be
dependent upon continued contract awards, Company
performance and volume of Government business. The books
and records of the Company are subject to audit and post-
award review by the Defense Contract Audit Agency.
NOTE 11. BUSINESS COMBINATIONS
On October 1, 1993, the Company acquired
(through TAS Acquisition Corp., a wholly-owned
subsidiary) a 95.7% equity interest in Technology
Applications and Service Company ("TAS"), a Maryland
corporation, pursuant to a Stock Purchase Agreement (the
"Agreement") dated as of August 6, 1993. Under the terms
of the Agreement, the Company paid $15.10 in cash for a
total of 97,317 issued and outstanding shares of common
stock, par value $.01 per share, of TAS. TAS,
headquartered in Gaithersburg, Maryland, was a privately
held company incorporated in 1991. It applies state-of-
the-art technology to produce emulators that can replace
display consoles and computer peripherals used by the
military. TAS also produces simulators, stimulators and
training products used primarily for testing and training
at military land-based sites, as well as provides
technical services to both Department of Defense and
commercial customers. On September 30, 1993, the
Company, in anticipation of the acquisition, advanced
$1,800,000 to TAS pursuant to a demand promissory note.
Such advance was converted to an intercompany liability
on the date of the acquisition and is eliminated in
consolidation. On November 1, 1993, Articles of Merger
were filed in order to merge TAS into TAS Acquisition
Corp. The name TAS Acquisition Corp. was changed to
Technology Applications & Service Company ("TAS").
The acquisition has been accounted for using
the purchase method of accounting. The excess of cost
over the estimated fair value of net assets acquired was
approximately $405,000 and is being amortized on a
straight-line basis over 30 years, or $14,000 annually.
The Consolidated Statements of Earnings include the
operations of TAS from October 1, 1993.
The following unaudited pro forma financial
information shows the results of operations for the years
ended March 31, 1994 and 1993 as though the acquisition
of TAS had occurred at the beginning of each period
presented. In addition to combining the historical
results of operations of the two companies, the pro forma
calculations include: the amortization of the excess of
cost over the estimated fair value of net assets
acquired; the effect of a reduction in interest expense
arising from the assumed repayment by TAS prior to the
acquisition date of its outstanding borrowings under a
bank line of credit; the effect of a reduction in
interest income from the assumed decrease in cash
associated with the $1,800,000 advanced to TAS prior to
the acquisition and the funding of the TAS operating loss
for the periods presented; and the adjustment to income
taxes (benefit) to reflect the effective income tax
(benefit) rate assumed for the Company and TAS on a
combined basis for each pro forma period presented:
Years Ended March 31,
1994 1993
Revenues . . . . . . . . . . . $ 65,944,000 $ 56,652,000
Net Earnings (Loss) before
Extraordinary Item . . . . . . $ 1,291,000 $ (2,364,000)
Net Earnings (Loss) per Share
before Extraordinary Item . . . $ .24 $ (.44)
The unaudited pro forma financial information
is not necessarily indicative either of the results of
operations that would have occurred had the acquisition
been made at the beginning of the period, or of the
future results of operations of the combined companies.
On December 13, 1993, pursuant to a Joint
Venture Agreement dated November 3, 1993 and a
Partnership Agreement dated December 13, 1993, by and
between DRS Systems Management Corporation, a wholly-
owned subsidiary of the Company, and Laurel Technologies,
Inc. ("Laurel") of Johnstown, Pennsylvania, the Company
entered into a partnership with Laurel (the
"Partnership") for the purposes of electronic cable and
harness manufacturing, military-quality circuit card
assembly and other related activities. The Company's
contribution to the Partnership consisted of cash, notes
and equipment valued at approximately $600,000,
representing an 80% controlling interest in the
Partnership. As a result, the financial position of the
Partnership has been consolidated with that of the
Company's, and the Consolidated Statements of Earnings
include the operations of Laurel from December 13, 1993.
The related minority interest in the Partnership has been
included in Other Liabilities and Other Income, Net,
respectively, in the Company's consolidated financial
statements for the periods ended March 31, 1995 and 1994.
The Company also made one other asset
acquisition in December 1993 which was not significant to
the Company's consolidated financial statements.
On November 17, 1994, Precision Echo, Inc., a
wholly-owned subsidiary of the Company, acquired, through
its wholly-owned subsidiary ("Precision Echo"), the net
assets of Ahead Technology Corporation ("Ahead"),
pursuant to an Asset Purchase Agreement dated October 28,
1994. Under the terms of the Asset Purchase Agreement,
Precision Echo paid, on the date of acquisition,
approximately $1,100,000 for the net assets of Ahead. In
addition, Precision Echo entered into a Covenant and
Agreement Not to Compete ("Covenant"), dated October 28,
1994, with the chairman of the board of Ahead. Under the
terms of the Covenant, the total cash consideration to be
paid by Precision Echo consisted of approximately
$400,000 payable at the acquisition date, and an
additional $540,000 payable in equal monthly installments
over a period of five years from the acquisition date.
Ahead, located in Los Gatos, California, designs and
manufactures a variety of consumable magnetic head
products used in the production of computer disk drives.
It products include burnish heads, glide heads and
specialty test heads.
The acquisition has been accounted for using
the purchase method of accounting and, therefore, Ahead's
financial statements are included in the consolidated
financial statements of the Company from the date of
acquisition. The excess of cost over the estimated fair
value of net assets acquired was approximately $940,000
and will be amortized on a straight-line basis over five
years, or approximately $188,000 annually. The financial
position and results of operations of Ahead were not
significant to those of the Company's at the date of
acquisition.
NOTE 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth unaudited
quarterly financial information for the third and fourth
quarters of fiscal 1994, each quarter of fiscal 1995 and
the first and second quarters of fiscal 1996:
First Quarter Second Quarter
1996 1995 1996 1995
Revenues . $ 17,279,000 $ 16,012,000 $ 22,786,000 $15,650,000
Operating
Income . . $ 1,314,000 $ 1,076,000 $ 1,844,000 $ 1,180,000
Income
Taxes . . . $ 420,000 $ 382,000 $ 584,000 $ 335,000
Net Earnings $ 656,000 $ 508,000 $ 915,000 $ 570,000
Net Earnings
per Share . $ .12 $ .10 $ .16 $ .12
Third Quarter Fourth Quarter
1995 1994 1995 1994
Revenues . . $ 15,742,000 $ 15,101,000 $ 22,526,000 $22,451,000
Operating
Income . . . $ 1,005,000 $ 728,000 $ 1,833,000 $ 1,275,000
Income
Taxes . . . . $ 425,000 $ 192,000 $ 510,000 $ 413,000
Net Earnings $ 634,000 $ 266,000 $ 892,000 $ 617,000
Net Earnings
per Share . . $ .13 $ .05 $ .16 $ .12
Primary and fully diluted net earnings per share amounts
shown above are the same for each of the periods presented.
NOTE 13. SUBSEQUENT EVENTS (UNAUDITED)
In July 1995, the Company, through its
subsidiary OMI Acquisition Corp. ("OMI"), acquired
substantially all of the assets of Opto Mechanik, Inc.,
located in Melbourne, Florida. OMI designs and
manufactures electro-optical sighting and targeting
systems used primarily in military fire-control devices
and in various weapons systems.
On September 29, 1995 (the "Debenture Closing
Date"), the Company issued $20,000,000 in aggregate
principal amount of the Company's 9% Senior Subordinated
Convertible Debentures due 2003 (the "Senior Subordinated
Convertible Debentures") pursuant to a private placement.
Net proceeds from the private placement of these Senior
Subordinated Convertible Debentures were approximately
$19,000,000. On November 3, 1995, the Company issued an
additional $5,000,000 in aggregate principal amount of
the Senior Subordinated Convertible Debentures, upon
exercise of the over-allotment option pursuant to the
Purchase Agreement between the Company and Forum Capital
Markets L.P. ("Forum") , dated September 22, 1995. Net
proceeds from the exercise of the over-allotment option
were approximately $4,750,000. Pursuant to the related
Registration Rights Agreement dated September 22, 1995
between the Company and Forum, acting on behalf of
holders of the Senior Subordinated Convertible Debentures
(the "Registration Rights Agreement"), the Company has
agreed to file, within ninety (90) days after the
Debenture Closing Date, a shelf registration statement
relating to the Senior Subordinated Convertible
Debentures and the shares of Class A Common Stock which
are issuable from time to time upon conversion of the
Senior Subordinated Convertible Debentures, and to cause
the shelf registration statement to become effective
within one hundred fifty (150) days after the Debenture
Closing Date. In addition, the Company has agreed to use
its reasonable best efforts to keep the shelf
registration statement effective until at least the third
anniversary of the issuance of the Senior Subordinated
Convertible Debentures. In connection with these
transactions, the Company expects to incur approximately
$500,000 of professional fees and other costs. These
costs, together with Forum's commissions in connection
with the private placement of the Senior Subordinated
Convertible Debentures, will be amortized ratably through
the maturity date of the Senior Subordinated Convertible
Debentures.
The Company's Bonds (see Note 6) are supported by
an irrevocable, direct-pay letter of credit in an amount
equal to the principal balance plus interest thereon for
45 days. At September 30, 1995, the contingent liability
of the Company as guarantor under the letter of credit
was approximately $1,930,000. The Company has
collateralized the letter of credit with accounts
receivable and has also agreed to certain financial
covenants, including the maintenance of: (i) a certain
minimum ratio of consolidated tangible net worth to total
debt (the "Debt Ratio"), (ii) a certain minimum quarterly
ratio of earnings before interest and taxes to interest
(the "Interest Ratio"), and (iii) a certain minimum
balance of billed and unbilled accounts receivable
("Eligible Receivables"). At September 30, 1995, the
covenants required: (i) a Debt Ratio of 0.6:1, (ii) an
Interest Ratio of 1.5:1 and (iii) Eligible Receivables of
$2,500,000. As a result of the issuance of $20,000,000
aggregate principal amount of the Senior Subordinated
Convertible Debentures on September 29, 1995, the Debt
Ratio at September 30, 1995 was 0.4:1. The Company has
obtained a waiver, renewable annually, from the bank of
the required debt ratio and is in compliance with all
covenants under the letter of credit.
NO PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT
CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS,
AND ANY INFORMATION OR $25,000,000
REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE
HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY DIAGNOSTIC/RETRIEVAL
THE COMPANY OR ANY UNDERWRITER. SYSTEMS, INC.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY
SECURITY OTHER THAN THE
REGISTERED SECURITIES TO WHICH 9% SENIOR SUBORDINATED
IT RELATES OR AN OFFER TO ANY CONVERTIBLE
PERSON IN ANY JURISDICTION DEBENTURES DUE 2003
WHERE SUCH OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY _______________
IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE PROSPECTUS
COMPANY SINCE THE DATE HEREOF. ______________
_____________
TABLE OF CONTENTS
Page
Available Information . . . . 2
Incorporation of Certain
Documents
by Reference . . . . . . . 2
Prospectus Summary . . . . . 3
Risk Factors . . . . . . . . 7
The Company . . . . . . . . 11
Use of Proceeds . . . . . . 13
Capitalization . . . . . . 13
Market Prices of Capital
Stock . . . . . . . . . 14
Dividend Policy . . . . . . 14
Selected Consolidated Financial
Data . . . . . . . . . . . 15
Management's Discussion and
Analysis of Financial
Condition
and Results of Operations 17
Business . . . . . . . . . 26
Management . . . . . . . . 38
Description of the
Debentures . . . . . . . 40
Description of 1998
Debentures . . . . . . . 61
Description of Capital
Stock . . . . . . . . . . 62
Plan of Distribution . . . 64
Selling Security Holders . 66
Legal Matters . . . . . . . 68
Experts . . . . . . . . . . 68 , 1995
Index to Financial
Statements F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses (other than
underwriting discounts and commissions) payable by the Company in
connection with the sale of the Debentures and the Class A Common
Stock being registered. All amounts (other than the registration
fee) are estimated.
Item Amount
Securities and Exchange Commission registration fee $ 8,620.69
AMEX listing fee . . . . . . . . . . . *
Blue Sky fees and expenses . . . . . . *
Accountants' fees and expenses . . . . *
Legal fees and expenses . . . . . . . *
Trustee's fees . . . . . . . . . . . . *
Transfer agent and registrar fees and expenses *
Miscellaneous . . . . . . . . . . . . *
___________
Total . . . . . . . . . . . . . . $ *
_____________________________________
* To be filed by amendment
ITEM 15. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of
the Company's Restated Certificate of Incorporation, as amended
(the "Restated Certificate of Incorporation"), the Bylaws (the
"Bylaws") of the Company and the General Corporation Law of the
State of Delaware, as such provisions relate to the
indemnification of the directors and officers of the Company.
This description is intended only as a summary and is qualified
in its entirety by reference to the Restated Certificate of
Incorporation, Bylaws, and the General Corporation Law of the
State of Delaware.
The Company's Restated Certificate of Incorporation provides
that the Company shall, to the full extent permitted by Sections
102 and 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons
whom it may indemnify pursuant thereto and eliminates the
personal liability of its directors to the full extent permitted
by Section 102(b)(7) of the General Corporation Law of the State
of Delaware, as amended from time to time.
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and
officers against expenses (including attorney's fees), judgments,
fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or suit,
and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall
have been adjudged liable for negligence or misconduct in the
performance of his respective duties to the corporation, although
the court in which the action or suit was brought may determine
upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the
State of Delaware provides that a corporation may eliminate or
limit the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision
shall eliminate or limit the ability of a director for any act or
omission occurring prior to the date when such provision becomes
effective.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) Certain of the following exhibits, designated with an
asterisk (*), are filed herewith and certain of the following
exhibits, designated with two asterisks (**), are to be filed by
amendment. The exhibits not so designated have been previously
filed with the Commission and are incorporated herein by
reference to the documents indicated in brackets following the
descriptions of such exhibits.
Exhibit Description
No.
*1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P.
3.1 - Restated Certificate of
Incorporation of the Company
[Registration Statement No. 2-
70062-NY, Amendment No. 1, Exhibit
2(a)]
3.2 - Certificate of Amendment of the
Restated Certificate of
Incorporation of the Company, as
filed July 7, 1983 [Registration
Statement on Form 8-A of the
Company, dated July 13, 1983,
Exhibit 2.2]
3.3 - Composite copy of the Restated
Certificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - By-laws of the Company, as amended
to November 7, 1994 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.4]
3.5 - Certificate of Amendment of the
Certificate of Incorporation of
Precision Echo Acquisition Corp.,
as filed March 10, 1995 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.5]
*4.1 - Indenture, dated as of September
22, 1995, between the Company and
The Trust Company of New Jersey, as
Trustee, in respect of the
Company's 9% Senior Subordinated
Convertible Debentures Due 2003
*4.2 - Form of 9% Senior Subordinated
Convertible Debenture Due 2003
(included as part of Exhibit 4.1)
*4.3 - Registration Rights Agreement,
dated as of September 22, 1995
between the Company and Forum
Capital Markets L.P.
4.4 - Indenture, dated as of August 1,
1983, between the Company and
Bankers Trust Company, as Trustee
[Form 10-Q, quarter ended September
30, 1983, File No. 1-8533, Exhibit
4.2]
4.5 - Indenture of Trust, dated December
1, 1991, among Suffolk County
Industrial Development Agency,
Manufacturers and Traders Trust
Company, as Trustee and certain
bondholders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated
December 1, 1991, among Photronics
Corp., the Company and Morgan
Guaranty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(1)]
10.2 - Waiver Letter, dated as of
September 30, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(2)]
10.3 - Joint Venture Agreement, dated as
of November 3, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(3)]
10.4 - Waiver Letter, dated as of December
13, 1993, by and between DRS
Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-
Q, quarter ended December 31, 1993,
File No. 1-8533, Exhibit 6(a)(4)]
10.5 - Partnership Agreement, dated
December 13, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(5)]
10.6 - Lease, dated June 28, 1979, between
the Company and J.L. Williams &
Co., Inc. ("Williams")
[Registration Statement No. 2-
70062-NY, Exhibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the
Company [Form 10-K, fiscal year
ended March 31, 1984, File No. 1-
8533, Exhibit 10.7]
10.8 - Renegotiated Lease, dated June 1,
1988, between LDR Realty Co. and
the Company [Form 10-K, fiscal year
ended March 31, 1989, File No. 1-
8533, Exhibit 10.8]
10.9 - Lease, dated July 20, 1988, between
Precision Echo, Inc. and Bay 511
Corporation [Form 10-K, fiscal year
ended March 31, 1991, File No. 1-
8533, Exhibit 10.9]
10.10 - Amendment to Lease, dated July 1,
1993, between Precision Echo, Inc.
and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.12]
**10.11 - Second Amendment to Lease, dated
October 17, 1995 between Precision
Echo, Inc. and Bay 511 Corporation
10.12 - Lease Modification Agreement, dated
February 22, 1994, between
Technology Applications and Service
Company and Atlantic Real Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.13]
10.13 - Amendment to Lease Modification,
dated June 1, 1994, between
Technology Applications and Service
Company and Atlantic Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.11]
10.14 - Triple Net Lease, dated October 22,
1991, between Technology
Applications and Service Company
and Marvin S. Friedberg [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.14]
10.15 - Lease, dated November 10, 1993,
between DRS Systems Management
Corp. and Skateland Roller Rink,
Inc. [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.17]
10.16 - Lease, dated March 23, 1992,
between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.15]
10.17 - Amendment to Lease, dated May 21,
1992, between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.16]
10.18 - Revision to Lease Modification,
dated August 25, 1992, between
Ahead Technology Corporation and
Vasona Business Park [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.17]
10.19 - Lease, dated January 13, 1995,
between the Company and Sammis New
Jersey Associates [Form 10-K,
fiscal year ended March 31, 1995,
File No.-8533, Exhibit 10.18]
10.20 - Memorandum of Understanding, dated
March 23, 1995, between Laurel
Technologies and West Virginia Air
Center [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the
Company [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102,
dated September 28, 1992, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.45]
10.23 - Modification No. P00005, dated
August 24, 1994, to Contract No.
N00024-92-C-6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.22]
10.24 - Modification No. P00006, dated
September 7, 1994, to Contract No.
N00024-92-C6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.23]
10.25 - Contract No. N00024-92-C-6308,
dated April 1, 1992, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993,
File No. 1-8533, Exhibit 10.46]
10.26 - Modification No. P00001, dated July
30, 1992, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1993, File No. 1-
8533, Exhibit 10.47]
10.27 - Modification No. P00002, dated
September 25, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.48]
10.28 - Modification No. P00003, dated
October 22, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.49]
10.29 - Modification No. P00004, dated
February 24, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.50]
10.30 - Modification No. P00005, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.26]
10.31 - Modification No. P00006, dated
March 26, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.51]
10.32 - Modification No. P00007, dated May
3, 1993, to Contract No. N00024-92-
C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.28]
10.33 - Modification No. PZ0008, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.29]
10.34 - Contract No. N39998-94-C-2228,
dated November 30, 1993, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.30]
10.35 - Order No. 87KA-SG-51484, dated
December 10, 1993, under Contract
No. N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.31]
10.36 - Purchase Order Change Notice Order
No. 87KA-SX-51484-P, dated April
21, 1994, under Contract No.
N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.35]
10.37 - Letter Subcontract No. 483901(L),
dated February 18, 1994, under
Contract No. N00024-94-D-5204,
between the Company and Unisys
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.32]
10.38 - Subcontract No. 483901(D), dated
June 24, 1994, under Contract No.
N00024-94-D-5204, between the
Company and Unisys Corporation
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1995, File No. 1-8533,
Exhibit 10.37]
10.39 - Contract No. N00019-90-G-0051,
dated March 1, 1990, between
Precision Echo, Inc. and the Navy
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.35]
10.40 - Amendment 1A, dated February 26,
1992, to Contract No. N00019-90-G-
0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.36]
10.41 - Amendment 1B, dated April 23, 1993,
to Contract No. N00019-90-G-0051
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.37]
10.42 - Contract No. N00019-93-C-0041,
dated January 29, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.54]
10.43 - Modification No. P00001, dated
March 29, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.39]
10.44 - Modification No. PZ0002, dated
November 12, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.40]
10.45 - Modification No. P00003, dated
February 1, 1994, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.41]
**10.46 - Modification No. P00004, dated
January 29, 1993, to Contract No.
N00019-93-C-0041 [P]
**10.47 - Modification No. P00005, dated
January 29, 1993, to Contract No.
N00019-93-C-0041 [P]
10.48 - Contract No. N00019-93-C-0202,
dated August 30, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.42]
10.49 - Modification No. P00001, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.43]
10.50 - Modification No. P00002, dated
April 29, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.44]
10.51 - Modification No. P00003, dated
August 9, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.55]
10.52 - Modification No. P00004, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.56]
**10.53 - Modification No. P00005, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 [P]
**10.54 - Modification No. P00006, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 [P]
10.55 - Contract No. N00024-93-C-5204,
dated November 18, 1992, between
Technology Applications and Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.53]
10.56 - Modification No. P00001, dated May
6, 1993, to Contract No. N00024-93-
C-5204 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.54]
10.57 - Modification No. P00002, dated
August 24, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.55]
10.58 - Modification No. PZ0003, dated
September 30, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.56]
10.59 - Contract No. N00174-94-D-0006,
dated February 17, 1994, between
Technology Applications & Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.57]
10.60 - Modification No. P00001, dated
March 7, 1994, to Contract No.
N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.58]
10.61 - Modification No. P00003, dated May
19, 1994, to Contract No. N00174-
94-D-0006 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.59]
10.62 - Purchase Order No. N538010, dated
March 28, 1994, between Laurel
Technologies, Inc. and Short
Brothers PLC [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.60]
10.63 - Purchase Order No. 2285, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.73]
10.64 - Amendment No. 1, dated December 1,
1994, to Purchase Order No. 2285
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
10.74]
10.65 - Purchase Order No. 2286, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.75]
10.66 - Purchase Order No. CN74325, dated
December 14, 1994, between
Precision Echo and Lockheed
Aeronautical Systems Company [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.76]
**10.67 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems
Company [P]
**10.68 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325
between Precision Echo and Lockheed
Aeronautical Systems Company [P]
10.69 - Contract No. N39998-94-C-2239,
dated July 26, 1993, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.77]
10.70 - Contract No. N00019-95-C-0057,
dated December 16, 1994, between
Precision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.71 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 1]
10.72 - Stock Purchase Agreement, dated as
of July 20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 2]
10.73 - Asset Purchase Agreement, dated
October 28, 1994, Acquisition by PE
Acquisition Corp., a subsidiary of
Precision Echo, Inc. of all of the
Assets of Ahead Technology
Corporation [Form 10-Q, quarter
ended December 31, 1994, File No.
1-8533, Exhibit 1]
10.74 - Amendment to Agreement for
Acquisition of Assets, dated July
5, 1995, between Photronics Corp.
and Opto Mechanik, Inc. [Form 8-K,
Amendment No. 1, July 5, 1995, File
No. 1-8533, Exhibit 1]
**10.75 - Contract No. N00421-95-D-1067,
dated September 30, 1995, between
the Company and the Navy [P]
**10.76 - Lease, dated August 17, 1995,
between Ahead Technology, Inc. and
South San Jose Interests
**10.77 - Contract No. DAAH01-95-C-0308,
dated July 21, 1995, between
Photronics Corp. and the Army [P]
**10.78 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P.
**10.79 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense [P]
**10.80 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense [P]
**10.81 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.82 - Lease, dated August, 1995, by and
between OMI Acquisition Corp and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.83 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties
**10.84 - Memorandum of Lease, dated August,
1995, by and between OMI
Acquisition Corp. and Fred E.
Sutton and Harold S. Sutton d/b/a
Sutton Properties
**10.85 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
**10.86 - Schedule No. 001 to Lease, dated
September 1, 1995, between OMI
Acquisition Corp. and General
Electric Capital Corp.
**10.87 - Schedule No. 002 to Lease, dated
October 20, 1995, between OMI
Acquisition Corp. and General
Electric Capital Corp.
11.1 - Computation of earnings (loss) per
share [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 11]
13.1 - 1994 Annual Report to Stockholders
(for the fiscal year ended March
31, 1994). Except for the portions
of the Annual Report which are
incorporated expressly by reference
in the Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
this Annual Report was furnished
for the information of the
Commission and is not to be deemed
"filed" as part of the report [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 13]
22.1 - List of subsidiaries of the Company
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
21]
*23.1 - Accountants' Consent and Report on
Schedules
**23.2 - Consent of Skadden, Arps, Slate,
Meagher & Flom, contained in their
opinion filed as Exhibit 5.1
*24.1 - Power of Attorney (included in
signature page to Registration
Statement)
*25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939
________________________
* Filed herewith.
** To be filed by amendment.
(b) Financial Statements:
Financial Statements filed as part of this Registration
Statement are listed in the Index to Financial Statements on page
F-1.
(c) Financial Statement Schedules:
Consolidated Financial Statement Schedules as part of
this Registration Statement are listed in the Index to the
Consolidated Financial Schedules on page S-1.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold as of the termination of the offering.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as a part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO
BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM
S-2 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF NEW YORK, STATE OF NEW YORK ON, NOVEMBER 30, 1995.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/Mark S. Newman
_________________________________
Mark S. Newman
Chairman of the Board, President,
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Mark S.
Newman and Nancy R. Pitek his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration
Statement, including post-effective amendments, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents each acting alone, or their
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
/s/Mark S. Newman President, Chief Executive November 30, 1995
Mark S. Newman Officer, Chairman of the
Board and Director (Principal
Executive Officer)
/s/Nancy R. Pitek Controller, Treasurer November 30, 1995
Nancy R. Pitek and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
/s/Stuart F. Platt Vice President, President of November 30, 1995
Stuart F. Platt Precision Echo and Director
/s/Leonard Newman Director and Chairman November 30, 1995
Leonard Newman Emeritus
/s/Theodore Cohn Director November 30, 1995
Theodore Cohn
/s/Donald C. Fraser Director November 30, 1995
Donald C. Fraser
/s/Mark N. Kaplan Director November 30, 1995
Mark N. Kaplan
/s/Jack Rachleff Director November 30, 1995
Jack Rachleff
DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
Years ended March 31, 1995, 1994 and 1993
Page
Schedule II. Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . . . S-2
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Schedule II. Valuation and Qualifying Accounts
Years Ended March 31, 1995, 1994 and 1993
- -------------------------------------------------------------------------------------------------------------------------------
Col. A. Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------------------
Description Balance at Additions (a) Deductions (b) Balance
Beginning of ----------------------------- ---------------------------------- at End of
Period Period
(1) (2) (1) (2)
Charged to Charged to Credited to Credited to
Costs and Other Cost and Other
Expenses Accounts - Expenses Accounts -
Describe Describe
<S> <C> <C> <C> <C> <C> <C>
Inventory Reserve
Year ended March 31, 1995 $ 2,409,000 $ 439,000 $ - $ 83,000(d) $1,365,000(c) $1,400,000
Year ended March 31, 1994 $ 2,620,000 $ 674,000 $ - $ 885,000(e) $ - $2,409,000
Year ended March 31, 1993 $ 8,200,000 $2,277,000 $ 33,000(c) $7,648,000(d) $ 242,000(c) $2,620,000
Losses & Future Costs
Accrued on
Uncompleted Contracts
Year ended March 31, 1995 $ 3,214,000 $2,168,000 $ - $ 291,000 $ 536,000(c) $4,555,000
Year ended March 31, 1994 $ 3,722,000 $1,735,000 $ 254,000(g) $2,497,000(f) $ - $3,214,000
Year ended March 31, 1993 $ 3,835,000 $2,665,000 $ 242,000(c) $2,987,000 $ 33,000(c) $3,722,000
OTHER
Year ended March 31, 1995 $ 290,000 $ - $ - $ - $ - $ 290,000
Year ended March 31, 1994 $ 290,000 $ - $ - $ - $ - $ 290,000
Year ended March 31, 1993 $ 290,000 $ - $ - $ - $ - $ 290,000
<FN>
(a) Represents, on a full-year basis, net credits to reserve accounts.
(b) Represents, on a full-year basis, net charges to reserve accounts.
(c) Represents amounts reclassified.
(d) Represents amounts credited to costs and expenses associated with the
corresponding write-off of related inventory costs.
(e) Includes $801,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(f) Includes $2,302,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(g) Includes an increase to reserves of $111,000 as a result of business
combinations and a charge of $143,000 to revenues.
</TABLE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk
(*), are filed herewith and certain of the following exhibits,
designated with two asterisks (**), are to be filed by amendment. The
exhibits not so designated have been previously filed with the
Commission and are incorporated herein by reference to the documents
indicated in brackets following the descriptions of such exhibits.
Page No.
Exhibit Description in This
No. Filing
*1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P. . . . .
3.1 - Restated Certificate of
Incorporation of the Company
[Registration Statement No. 2-
70062-NY, Amendment No. 1, Exhibit
2(a)]
3.2 - Certificate of Amendment of the
Restated Certificate of
Incorporation of the Company, as
filed July 7, 1983 [Registration
Statement on Form 8-A of the
Company, dated July 13, 1983,
Exhibit 2.2]
3.3 - Composite copy of the Restated
Certificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - By-laws of the Company, as amended
to November 7, 1994 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.4]
3.5 - Certificate of Amendment of the
Certificate of Incorporation of
Precision Echo Acquisition Corp.,
as filed March 10, 1995 [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 3.5]
*4.1 - Indenture, dated as of September
22, 1995, between the Company and
The Trust Company of New Jersey, as
Trustee, in respect of the
Company's 9% Senior Subordinated
Convertible Debentures Due 2003 .
*4.2 - Form of 9% Senior Subordinated
Convertible Debenture Due 2003
(included as part of Exhibit 4.1)
*4.3 - Registration Rights Agreement,
dated as of September 22, 1995
between the Company and Forum
Capital Markets L.P. . . . . . . .
4.4 - Indenture, dated as of August 1,
1983, between the Company and
Bankers Trust Company, as Trustee
[Form 10-Q, quarter ended September
30, 1983, File No. 1-8533, Exhibit
4.2]
4.5 - Indenture of Trust, dated December
1, 1991, among Suffolk County
Industrial Development Agency,
Manufacturers and Traders Trust
Company, as Trustee and certain
bondholders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated
December 1, 1991, among Photronics
Corp., the Company and Morgan
Guaranty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom . . . . . . . . . .
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(1)]
10.2 - Waiver Letter, dated as of
September 30, 1993, among TAS
Acquisition Corp., Technology
Applications and Service Company,
Paul G. Casner, Jr. and Terrence L.
DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533,
Exhibit 6(a)(2)]
10.3 - Joint Venture Agreement, dated as
of November 3, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(3)]
10.4 - Waiver Letter, dated as of December
13, 1993, by and between DRS
Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-
Q, quarter ended December 31, 1993,
File No. 1-8533, Exhibit 6(a)(4)]
10.5 - Partnership Agreement, dated
December 13, 1993, by and between
DRS Systems Management Corporation
and Laurel Technologies, Inc. [Form
10-Q, quarter ended December 31,
1993, File No. 1-8533, Exhibit
6(a)(5)]
10.6 - Lease, dated June 28, 1979, between
the Company and J.L. Williams &
Co., Inc. ("Williams")
[Registration Statement No. 2-
70062-NY, Exhibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the
Company [Form 10-K, fiscal year
ended March 31, 1984, File No. 1-
8533, Exhibit 10.7]
10.8 - Renegotiated Lease, dated June 1,
1988, between LDR Realty Co. and
the Company [Form 10-K, fiscal year
ended March 31, 1989, File No. 1-
8533, Exhibit 10.8]
10.9 - Lease, dated July 20, 1988, between
Precision Echo, Inc. and Bay 511
Corporation [Form 10-K, fiscal year
ended March 31, 1991, File No. 1-
8533, Exhibit 10.9]
10.10 - Amendment to Lease, dated July 1,
1993, between Precision Echo, Inc.
and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.12]
**10.11 - Second Amendment to Lease, dated
October 17, 1995 between Precision
Echo, Inc. and Bay 511 Corporation
10.12 - Lease Modification Agreement, dated
February 22, 1994, between
Technology Applications and Service
Company and Atlantic Real Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.13]
10.13 - Amendment to Lease Modification,
dated June 1, 1994, between
Technology Applications and Service
Company and Atlantic Estate
Partners II [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.11]
10.14 - Triple Net Lease, dated October 22,
1991, between Technology
Applications and Service Company
and Marvin S. Friedberg [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.14]
10.15 - Lease, dated November 10, 1993,
between DRS Systems Management
Corp. and Skateland Roller Rink,
Inc. [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.17]
10.16 - Lease, dated March 23, 1992,
between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.15]
10.17 - Amendment to Lease, dated May 21,
1992, between Ahead Technology
Corporation and Vasona Business
Park [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 10.16]
10.18 - Revision to Lease Modification,
dated August 25, 1992, between
Ahead Technology Corporation and
Vasona Business Park [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.17]
10.19 - Lease, dated January 13, 1995,
between the Company and Sammis New
Jersey Associates [Form 10-K,
fiscal year ended March 31, 1995,
File No.-8533, Exhibit 10.18]
10.20 - Memorandum of Understanding, dated
March 23, 1995, between Laurel
Technologies and West Virginia Air
Center [Form 10-K, fiscal year
ended March 31, 1995, File No. 1-
8533, Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the
Company [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102,
dated September 28, 1992, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.45]
10.23 - Modification No. P00005, dated
August 24, 1994, to Contract No.
N00024-92-C-6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.22]
10.24 - Modification No. P00006, dated
September 7, 1994, to Contract No.
N00024-92-C6102 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.23]
10.25 - Contract No. N00024-92-C-6308,
dated April 1, 1992, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993,
File No. 1-8533, Exhibit 10.46]
10.26 - Modification No. P00001, dated July
30, 1992, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1993, File No. 1-
8533, Exhibit 10.47]
10.27 - Modification No. P00002, dated
September 25, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.48]
10.28 - Modification No. P00003, dated
October 22, 1992, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.49]
10.29 - Modification No. P00004, dated
February 24, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.50]
10.30 - Modification No. P00005, dated June
11, 1993, to Contract No. N00024-
92-C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.26]
10.31 - Modification No. P00006, dated
March 26, 1993, to Contract No.
N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No.
1-8533, Exhibit 10.51]
10.32 - Modification No. P00007, dated May
3, 1993, to Contract No. N00024-92-
C-6308 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.28]
10.33 - Modification No. PZ0008, dated June
11, 1993, to Contract No. N00024-
92-C-6302 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.29]
10.34 - Contract No. N39998-94-C-2228,
dated November 30, 1993, between
the Company and the Navy [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.30]
10.35 - Order No. 87KA-SG-51484, dated
December 10, 1993, under Contract
No. N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.31]
10.36 - Purchase Order Change Notice Order
No. 87KA-SX-51484-P, dated April
21, 1994, under Contract No.
N00024-93-G-6336, between the
Company and Westinghouse Electric
Corporation Oceanic Division [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.35]
10.37 - Letter Subcontract No. 483901(L),
dated February 18, 1994, under
Contract No. N00024-94-D-5204,
between the Company and Unisys
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.32]
10.38 - Subcontract No. 483901(D), dated
June 24, 1994, under Contract No.
N00024-94-D-5204, between the
Company and Unisys Corporation
Government Systems Group [Form 10-
K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.37]
10.39 - Contract No. N00019-90-G-0051,
dated March 1, 1990, between
Precision Echo, Inc. and the Navy
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.35]
10.40 - Amendment 1A, dated February 26,
1992, to Contract No. N00019-90-G-
0051 [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
Exhibit 10.36]
10.41 - Amendment 1B, dated April 23, 1993,
to Contract No. N00019-90-G-0051
[Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit
10.37]
10.42 - Contract No. N00019-93-C-0041,
dated January 29, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1993, File No. 1-8533, Exhibit
10.54]
10.43 - Modification No. P00001, dated
March 29, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.39]
10.44 - Modification No. PZ0002, dated
November 12, 1993, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.40]
10.45 - Modification No. P00003, dated
February 1, 1994, to Contract No.
N00019-93-C-0041 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.41]
**10.46 - Modification No. P00004, dated
January 29, 1993, to Contract No. P
N00019-93-C-0041 . .
**10.47 - Modification No. P00005, dated
January 29, 1993, to Contract No. P
N00019-93-C-0041 . . . . . . . . .
10.48 - Contract No. N00019-93-C-0202,
dated August 30, 1993, between
Photronics Corp. and the Navy [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit
10.42]
10.49 - Modification No. P00001, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.43]
10.50 - Modification No. P00002, dated
April 29, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.44]
10.51 - Modification No. P00003, dated
August 9, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.55]
10.52 - Modification No. P00004, dated
March 30, 1994, to Contract No.
N00019-93-C-0202 [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.56]
**10.53 - Modification No. P00005, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 . . . . . . . . . P
**10.54 - Modification No. P00006, dated
August 30, 1993, to Contract No.
N00019-93-C-0202 . . . . . . . . . P
10.55 - Contract No. N00024-93-C-5204,
dated November 18, 1992, between
Technology Applications and Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.53]
10.56 - Modification No. P00001, dated May
6, 1993, to Contract No. N00024-93-
C-5204 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.54]
10.57 - Modification No. P00002, dated
August 24, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.55]
10.58 - Modification No. PZ0003, dated
September 30, 1993, to Contract No.
N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.56]
10.59 - Contract No. N00174-94-D-0006,
dated February 17, 1994, between
Technology Applications & Service
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.57]
10.60 - Modification No. P00001, dated
March 7, 1994, to Contract No.
N00174-94-D-0006 [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.58]
10.61 - Modification No. P00003, dated May
19, 1994, to Contract No. N00174-
94-D-0006 [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-
8533, Exhibit 10.59]
10.62 - Purchase Order No. N538010, dated
March 28, 1994, between Laurel
Technologies, Inc. and Short
Brothers PLC [Form 10-K, fiscal
year ended March 31, 1994, File No.
1-8533, Exhibit 10.60]
10.63 - Purchase Order No. 2285, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.73]
10.64 - Amendment No. 1, dated December 1,
1994, to Purchase Order No. 2285
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
10.74]
10.65 - Purchase Order No. 2286, dated June
6, 1994, between Photronics Corp.
and International Precision
Products N.V. [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.75]
10.66 - Purchaser Order No. CN74325, dated
December 14, 1994, between
Precision Echo and Lockheed
Aeronautical Systems Company [Form
10-K, fiscal year ended March 31,
1995, File No. 1-8533, Exhibit
10.76]
**10.67 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems
Company . . . . . . . . . . . . . P
**10.68 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325,
between Precision Echo and Lockheed
Aeronautical Systems Company . . . P
10.69 - Contract No. N39998-94-C-2239,
dated July 26, 1993, between the
Company and the Navy [Form 10-K,
fiscal year ended March 31, 1995,
File No. 1-8533, Exhibit 10.77]
10.70 - Contract No. N00019-95-C-0057,
dated December 16, 1994, between
Precision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.71 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 1]
10.72 - Stock Purchase Agreement, dated as
of July 20, 1994, between
Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q,
quarter ended June 30, 1994, File
No. 1-8533, Exhibit 2]
10.73 - Asset Purchase Agreement, dated
October 28, 1994, Acquisition by PE
Acquisition Corp., a subsidiary of
Precision Echo, Inc. of all of the
Assets of Ahead Technology
Corporation [Form 10-Q, quarter
ended December 31, 1994, File No.
1-8533, Exhibit 1]
10.74 - Amendment to Agreement for
Acquisition of Assets, dated July
5, 1995, between Photronics Corp.
and Opto Mechanik, Inc. [Form 8-K,
Amendment No. 1, July 5, 1995, File
No. 1-8533, Exhibit 1]
**10.75 - Contract No. N00421-95-D-1067,
dated September 30, 1995, between
the Company and the Navy . . . . . P
**10.76 - Lease, dated August 17, 1995,
between Ahead Technology, Inc. and
South San Jose Interests . . . . .
**10.77 - Contract No. DAAH01-95-C-0308,
dated July 21, 1995, between
Photronics Corp. and the Army . . P
**10.78 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P. . . . . . . . . . . . .
**10.79 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense . . . . . . . P
**10.80 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense . . P
**10.81 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.82 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.83 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties . . . . .
**10.84 - Memorandum of Lease, dated August,
1995, by and between OMI
Acquisition Corp. and Fred E.
Sutton and Harold S. Sutton d/b/a
Sutton Properties . . . . . . . .
**10.85 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
**10.86 - Schedule No. 001 to Lease, dated
September 1, 1995, between OMI
Acquisition Corp. and General
Electric Capital Corp . . . . . .
**10.87 - Schedule No. 002 to Lease, dated
October 20, 1995, between OMI
Acquisition Corp. and General
Electric Capital Corp. . . . . . .
11.1 - Computation of earnings per share
[Form 10-K, Amendment No. 1, July
5, 1995, File No. 1-8533, Exhibit
11]
13.1 - 1994 Annual Report to Stockholders
(for the fiscal year ended March
31, 1994). Except for the portions
of the Annual Report which are
incorporated expressly by reference
in the Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533,
this Annual Report was furnished
for the information of the
Commission and is not to be deemed
"filed" as part of the report [Form
10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 13]
22.1 - List of subsidiaries of the Company
[Form 10-K, fiscal year ended March
31, 1995, File No. 1-8533, Exhibit
21]
*23.1 - Accountants' Consent and Report on
Schedules . . . . . . . . . . . .
**23.2 - Consent of Skadden, Arps, Slate,
Meagher & Flom, contained in their
opinion filed as Exhibit 5.1 . . .
*24.1 - Power of Attorney (included in
signature page to Registration
Statement) . . . . . . . . . . . .
*25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939 . . . . . . . . . . . . . . .
___________________
* Filed herewith
** To be filed by Amendment
$20,000,000
9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE 2003
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
PURCHASE AGREEMENT
EXECUTION COPY
New York, New York
September 22, 1995
FORUM CAPITAL MARKETS L.P.
53 Forest Avenue
Old Greenwich, Connecticut 06870
Ladies and Gentlemen:
Diagnostic/Retrieval Systems, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to Forum
Capital Markets L.P. (the "Initial Purchaser") $20,000,000
principal amount of its 9% Senior Subordinated Convertible
Debentures due 2003 (the "Debentures") to be issued pursuant to
the provisions of an indenture dated as of the date hereof (the
"Indenture") between the Company and The Trust Company of New
Jersey, as trustee (the "Trustee"). Such $20,000,000 aggregate
principal amount of Debentures are hereafter referred to as the
"Firm Debentures." Upon the request of the Initial Purchaser, as
provided in Section 2(b) of this Agreement, the Company shall
also issue and sell to the Initial Purchaser up to an additional
$5,000,000 aggregate principal amount of Debentures for the
purpose of covering over-allotments, if any. Such $5,000,000
aggregate principal amount of Debentures are hereinafter referred
to as the "Option Debentures." The Firm Debentures and Option
Debentures collectively constitute all of the Debentures. The
Company hereby confirms its agreement with the Initial Purchaser
with respect to the sale by the Company and the purchase by the
Initial Purchaser of the Debentures. The shares of the Company's
Class A common stock, par value $.01 per share (the "Common
Stock"), issuable upon conversion of the Debentures are
hereinafter referred to as the "Underlying Stock."
The Debentures will be offered and sold to the Initial
Purchaser without being registered under the Securities Act of
1933, as amended (the "Securities Act"), in reliance on an
exemption therefrom. The Company has prepared a preliminary
offering circular dated September 11, 1995 as amended by a
Supplement to the Preliminary Offering Circular dated September
14, 1995 (such preliminary offering circular , as amended, being
hereinafter referred to as the "Preliminary Offering Circular"),
and a final offering circular dated September 22, 1995 (such
offering circular being hereinafter referred to as the "Offering
Circular"), setting forth information regarding the Company, the
Debentures and the Underlying Stock. Unless stated to the
contrary, all references herein to the Offering Circular are to
the Offering Circular at the date and time that this Agreement is
executed and delivered by the parties hereto (the "Execution
Time") and are not meant to include any amendment or supplement,
or any information incorporated by reference therein, subsequent
to the Execution Time. The Company hereby confirms that it has
authorized the use of the Preliminary Offering Circular and the
Offering Circular in connection with the offering and sale of the
Debentures.
Holders (including subsequent transferees) of the
Debentures will have the registration rights set forth in the
Registration Rights Agreement (the "Registration Rights
Agreement"), dated concurrently herewith. Pursuant to the
Registration Rights Agreement, the Company has agreed to file
with the Securities and Exchange Commission (the "Commission") a
shelf registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement") to cover
public resales of the Debentures and the Underlying Stock by the
Holders thereof.
Capitalized terms used herein without definition have
the respective meanings specified therefor in the Offering
Circular. For purposes hereof, "Rules and Regulations" means the
rules and regulations adopted by the Commission under the
Securities Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as applicable.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the
Initial Purchaser of the date hereof, and as of the Closing Date
and each Option Closing Date (as defined in Section 2(b) hereof),
if any, as follows:
(a) The Offering Circular, as of its date, together
with each amendment or supplement thereto, as of its date,
contains all the information that, if requested by a prospective
purchaser, would be required to be provided pursuant to Rule
144A(d)(4) under the Securities Act. The Offering Circular does
not, and at the Closing Date and any Option Closing Date will
not, and any amendment or supplement thereto, if any, as of its
date, will not, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The preceding sentence does not
apply to information contained in or omitted from the Preliminary
Offering Circular or the Offering Circular (or any supplement or
amendment thereto) in reliance upon and in conformity with
written information furnished to the Company by or on behalf of
any Initial Purchaser specifically for use therein (the "Initial
Purchaser's Information"). The parties acknowledge and agree
that the Initial Purchaser's Information consists solely of the
last paragraph at the bottom of the front cover page concerning
the terms of the offering by the Initial Purchaser, the legend
concerning over-allotment and trading activities of affiliates on
the inside front cover page and the paragraphs under the caption
"Plan of Distribution" in the Offering Circular. The Company is
subject to Section 13 or 15(d) of the Exchange Act.
(b) The Company and each of its direct and indirect
corporate subsidiaries wherein are listed on Schedule I hereto
(collectively, the "Corporate Subsidiaries"), has been duly
organized and is validly existing as a corporation in good
standing under the laws of the state of its incorporation. Laurel
Technologies (the "Partnership," and together with the Corporate
Subsidiaries, the "Subsidiaries") is a partnership which has been
duly organized under the laws of the State of Pennsylvania. Each
of the Company and the Subsidiaries is duly qualified and
licensed and in good standing as a foreign corporation (or with
respect to the Partnership, as a foreign partnership) in each
jurisdiction in which its ownership or leasing of any properties
or the character of its operations require such qualification or
licensing, except where the failure to be so qualified or
licensed would not have a material adverse effect on the
condition, financial or otherwise, results of operations,
business or prospects of the Company and the Subsidiaries, taken
as a whole (a "Material Adverse Effect"). The Company owns,
either directly or through other Subsidiaries, one hundred
percent (100%) of the outstanding capital stock of each Corporate
Subsidiary, and the Company owns an eighty percent (80%) general
partnership interest in the Partnership, in each case free and
clear of all liens, charges, claims, encumbrances, pledges,
security interests defects or other restrictions or equities of
any kind whatsoever; and all outstanding capital stock of the
Corporate Subsidiaries has been validly issued and is fully paid
and non-assessable and not issued in violation of any preemptive
rights or applicable securities laws. Each of the Company and
the Subsidiaries has all requisite power and authority
(corporate, partnership and other), and has obtained any and all
necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental
or regulatory officials and bodies, to own or lease its
properties and conduct its business as described in the Offering
Circular except for such authorizations, approvals, orders,
licenses, certificates, franchises and permits the failure to
obtain which would not have a Material Adverse Effect; each of
the Company and the Subsidiaries is and has been doing business
in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal,
foreign, state and local laws, rules and regulations except where
failure to so comply would not have a Material Adverse Effect;
and neither the Company nor any of the Subsidiaries has received
any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(c) The Company had an authorized capitalization as of
the period indicated therein as set forth in the Offering
Circular and will have the adjusted capitalization as of the
period indicated therein, based upon the assumptions set forth
therein. Neither the Company nor any of the Subsidiaries is a
party to or bound by any instrument, agreement or other
arrangement, including, but not limited to, any voting trust
agreement, stockholders' agreement or other agreement or
instrument, affecting the securities or rights or obligations of
securityholders of the Company or any of the Subsidiaries or
providing for any of them to issue, sell, transfer or acquire any
capital stock, rights, warrants, options or other securities of
the Company or any of the Subsidiaries, except for this
Agreement, the Indenture, as set forth in the Offering Circular
and, with respect to the Partnership, its partnership agreement.
The Debentures and the Company's Capital Stock conform in all
material respects to all statements with respect thereto
contained in the Offering Circular. All issued and outstanding
shares of capital stock or other securities evidencing equity
ownership of each of the Company or any of the Subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable, as applicable; the holders thereof have no rights
of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of
such securities were issued in violation of the preemptive rights
of any securityholder of the Company or any of the Subsidiaries
or similar contractual rights granted by the Company or any of
the Subsidiaries. The Debentures will be issued pursuant to the
terms and conditions of the Indenture, and the Indenture and the
Registration Rights Agreement will each conform to the
description thereof contained in the Offering Circular. At the
Closing Date, the Indenture will conform in all material respects
to the requirements of the Trust Indenture Act and the Rules and
Regulations applicable to an indenture which is qualified
thereunder. The Debentures have been duly authorized and, when
validly authenticated, issued, delivered and paid for in the
manner contemplated by the Indenture, will be duly authorized,
validly issued and outstanding obligations of the Company
entitled to the benefits of the Indenture. The shares of Common
Stock issuable upon conversion of the Debentures will, upon such
issuance, be duly authorized, validly issued, fully paid and non-
assessable, and the Company has duly authorized and reserved for
issuance upon conversion of the Debentures the shares of Common
Stock issuable upon such conversion. The Debentures and the
Underlying Stock are not and will not be subject to any
preemptive or other similar rights of any securityholder of the
Company or any of the Subsidiaries; all corporate action required
to be taken for the authorization, issue and sale of the
Debentures and the Underlying Stock has been duly and validly
taken; and the certificates representing the Debentures and the
Underlying Stock will be in due and proper form. Upon the
issuance and delivery pursuant to the terms of this Agreement and
the Indenture of the Debentures to be sold by the Company
hereunder and thereunder, the Initial Purchaser will acquire good
and marketable title thereto free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(d) The consolidated historical financial statements of
the Company and the Subsidiaries together with the related notes
thereto included in the Preliminary Offering Circular and the
Offering Circular fairly present the financial position, income,
changes in stockholders' equity, cash flow and results of
operations of the Company and the Subsidiaries at the respective
dates and for the respective periods to which they apply and such
historical financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods
involved; the pro forma financial information included in each
Preliminary Offering Circular and the Offering Circular presents
fairly the information shown therein in accordance with Article
11 of Regulation S-X. Except as described in the Offering
Circular, there has been no material adverse change or
development involving a material prospective change in the
condition, financial or otherwise, or in the earnings, business
prospects, or results of operations of the Company or any of the
Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, since the date of the financial
statements included in the Offering Circular and the outstanding
debt, the property, both tangible and intangible, and the
businesses of each of the Company and the Subsidiaries conform in
all material respects to the descriptions thereof contained in
the Offering Circular. Financial information set forth in the
Offering Circular under the headings "SUMMARY CONSOLIDATED
FINANCIAL DATA," "SELECTED CONSOLIDATED FINANCIAL DATA,"
"CAPITALIZATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" fairly present, on
the basis stated in the Offering Circular, the information set
forth therein and have been derived from or compiled on a basis
consistent with that of the audited financial statements included
in the Offering Circular.
(e) Each of the Company and the Subsidiaries has filed
all material tax returns required to be filed by it in any
jurisdiction, other than those filings being contested in good
faith, and has paid all material federal, state, local and
foreign taxes shown to be due on such returns or claimed to be
due from such entities, other than those (i) currently payable
without penalty or interest or (ii) being contested in good
faith, in either case, for which the Company is liable, and has
established adequate reserves in the Company's financial
statements (in accordance with generally accepted accounting
principles) for such taxes which are not due and payable and
(iii) does not have any material tax deficiency or claims
outstanding, proposed or assessed against it.
(f) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Initial Purchaser in connection
with (i) the issuance by the Company of the Debentures or the
Underlying Stock, (ii) the purchase by the Initial Purchaser of
the Debentures from the Company or (iii) the consummation by the
Company of any of its obligations under this Agreement or the
Indenture.
(g) Each of the Company and the Subsidiaries maintain
liability, casualty and other insurance (subject to customary
deductions and retentions) with responsible insurance companies
against such risk companies engaged in similar businesses as the
Company and the Subsidiaries operate (which may include self-
insurance in comparable form to that maintained by such
responsible companies).
(h) There is no action, suit, proceeding, litigation or
governmental proceeding pending or, to the knowledge of the
Company, threatened against, or involving the properties or
businesses of, the Company or any of the Subsidiaries which
(i) questions the validity of the capital stock of the Company or
any of the Subsidiaries, this Agreement, the Indenture, the
Registration Rights Agreement or of any action taken or to be
taken by the Company or any of the Subsidiaries pursuant to or in
connection with this Agreement, the Indenture or the Registration
Rights Agreement or (ii) would have a Material Adverse Effect.
(i) The Company has full legal right, power and
authority to authorize, issue, deliver and sell the Debentures
and the Underlying Stock upon conversion of the Debentures, to
enter into this Agreement, the Indenture and the Registration
Rights Agreement and to consummate the transactions provided for
in such agreements; and this Agreement has been duly and properly
authorized, executed and delivered by the Company and when the
Company has duly executed and delivered the Registration Rights
Agreement and the Indenture and (assuming the due execution and
delivery therein by the Initial Purchasers) will constitute a
legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity)
and except to the extent that rights to indemnification and
contribution contained in this Agreement may be limited by
federal or state securities laws on public policy relating
thereto. None of the Company's issue and sale of the Debentures
and the Underlying Stock upon the conversion of the Debentures,
the execution or delivery of this Agreement, the Indenture and
the Registration Rights Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated
herein and therein or the conduct by it and the Subsidiaries of
their businesses as described in the Offering Circular or any
amendments or supplements thereto conflicts or will conflict with
or results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute a
default under, or results or will result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any
kind whatsoever upon any property or assets of the Company or any
of the Subsidiaries pursuant to the terms of, (i) the certificate
of incorporation, by-laws or partnership agreement of the Company
or any of the Subsidiaries, (ii) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which it is or may be bound or to
which its properties or assets is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule
or regulation applicable to the Company or any of the
Subsidiaries of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body,
having jurisdiction over the Company or any of the Subsidiaries
or any of their respective activities or properties except, in
the case of clauses (ii) and (iii), such defaults, impositions
and violations that would not have a Material Adverse Effect.
(j) No consent, approval, authorization or order of,
and no filing with, any court, arbitrator, regulatory body,
government agency or other body, domestic or foreign, is required
for the execution, delivery or performance of this Agreement, the
Indenture, the Registration Rights Agreement or the transactions
contemplated hereby or thereby, except such as have been or may
be obtained under the Securities Act or may be required under
state securities or Blue Sky laws.
(k) Subsequent to the respective dates as of which
information is set forth in the Offering Circular, and except as
may otherwise be indicated or contemplated herein or therein,
unless the Company has notified the Initial Purchaser in writing
otherwise, neither the Company nor any of the Subsidiaries has
(i) issued any securities (other than upon exercise of options
outstanding on the date hereof pursuant to the Company's 1981
Incentive Stock Option Plan, 1981 Non-Qualified Stock Option Plan
and 1991 Stock Option Plan or upon conversion of the 8 1/2%
Convertible Subordinated Debentures due August, 1998 (the "1998
Debentures")), or incurred any material liability or obligation,
direct or contingent, for borrowed money not in the ordinary
course of business, (ii) entered into any material transaction
other than in the ordinary course of business or (iii) declared
or paid any dividend or made any other distribution on or in
respect of its capital stock of any class and there has not been
any material change in the capital stock (excluding changes
contemplated by clause (i) hereof) or any Material Adverse Change
in or affecting the general affairs, management, financial
operations, stockholders' equity or results of operation of the
Company or any of the Subsidiaries.
(l) Neither the Company nor any of its Subsidiaries (i)
is in violation of its certificate of incorporation, by-laws or
partnership agreement, as applicable, (ii) is in default in the
performance of any obligation, agreement or condition contained
in any license, contract, indenture, mortgage, installment sale
agreement, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement, purchase
order, agreement or instrument evidencing an obligation for
borrowed money or other material agreement or instrument to which
the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound or to which the
property or assets of the Company or any of the Subsidiaries is
subject or affected or (iii) is in violation in any respect of
any law, ordinance, governmental rule, regulation or court decree
to which it or its property or assets may be subject, except any
violation or default under the foregoing clauses (ii) or (iii) as
would not have a Material Adverse Effect.
(m) The Company believes that each of the Company and
the Subsidiaries is in compliance with all federal, state, local
and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and
wages and hours. There are no pending investigations involving
the Company or any of the Subsidiaries by the U.S. Department of
Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and
regulations. There is no unfair labor practice charge or
complaint against the Company or any of the Subsidiaries pending
before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving the Company or any of the
Subsidiaries. No representation question exists respecting the
employees of the Company or any of the Subsidiaries, and no
collective bargaining agreement or modification thereof is
currently being negotiated by the Company or any of the
Subsidiaries. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of
the Company or any of the Subsidiaries. No material labor
dispute with the employees of the Company or any of the
Subsidiaries exists or, to the knowledge of the Company, is
imminent.
(n) Except as identified on Schedule II attached
hereto, neither the Company nor any of the Subsidiaries
maintains, sponsors or contributes to any program or arrangement
that is an "employee pension benefit plan" an "employee welfare
benefit plan" or a "multi-employer plan" ("ERISA Plans") as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Except as identified on Schedule I attached
hereto, neither the Company nor any of the Subsidiaries maintains
or contributes to, now or at any time previously, a defined
benefit plan as defined in Section 3(35) of ERISA. No ERISA Plan
(or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code which could subject the Company or any
of the Subsidiaries to any material tax penalty on prohibited
transactions and which has not adequately been corrected. No
"accumulated funding deficiency" (as defined in Section 302 of
ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice under
Section 4043 of ERISA has been waived) has occurred with respect
to any employee benefit plan which might reasonably be expected
to have a Material Adverse Effect. Each ERISA Plan is in
compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to such ERISA
Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a) stating that such ERISA Plan
and the attendant trust are qualified thereunder. Neither the
Company nor any of the Subsidiaries has ever completely or
partially withdrawn from a "multi-employer plan" as so defined.
(o) Neither the Company or any of the Subsidiaries, nor
any of its affiliates has taken or will take, directly or
indirectly, any action designed to or which has constituted or
which might be expected to cause or result in, under the Exchange
Act or otherwise, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of
the Debentures or otherwise.
(p) Each of the Company and the Subsidiaries (i) owns
or has the right to use, free and clear of all liens, claims,
encumbrances, pledges, security interests, and other adverse
interests of any kind whatsoever, all patents, trademarks,
service marks, trade names, copyrights, technology, and all
licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be
conducted without, to the best knowledge of the Company and the
Subsidiaries, infringing upon or otherwise acting adversely to
the right or claimed right of any person, corporation or other
entity, (ii) is not obligated or under any liability whatsoever
to make any payments by way of royalties, fees or otherwise to
any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise and (iii) has not received any notice of infringement
of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have
a Material Adverse Effect.
(q) Each of the Company and the Subsidiaries has good
and marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property which are
material to its business, in each case, except as disclosed in
the Offering Circular, free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects and
other restrictions that would have a Material Adverse Effect.
(r) KPMG Peat Marwick LLP are independent certified
public accountants of the Company as required by the Securities
Act and the Rules and Regulations.
(s) The Debentures satisfy the eligibility requirements
of Rule 144A(d)(3) under the Securities Act, and the Debentures
are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages ("Portal") Market. The Common
Stock is listed on the American Stock Exchange.
(t) Other than payments required or allowed by
applicable law of the United States, neither the Company nor any
of the Subsidiaries has, nor to the knowledge of the Company, has
any officer, director or employee of the Company or any of its
Subsidiaries or any other person acting on behalf of the Company
or any of the Subsidiaries, for the benefit of the Company or any
such Subsidiaries at any time during the last five years, (i)
made any unlawful gift or contribution to any candidate for
federal, state, local or foreign political office, or failed to
disclose fully any such gift or contribution in violation of law,
or (ii) made any payment to any federal, state, local or foreign
governmental officer or official, which would be reasonably
likely to subject the Company or any of the Subsidiaries to any
damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). Each of the
Company's and the Subsidiaries' internal accounting controls are
sufficient to cause the Company and the Subsidiaries to comply
with the Foreign Corrupt Practices Securities Act of 1977, as
amended.
(u) Except as set forth in the Offering Circular, no
officer, director or 5% or greater stockholder of the Company or
any of the Subsidiaries, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities, has
or has had, either directly or indirectly, (i) a material
interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed
to be furnished or sold by the Company or any of the Subsidiaries
or (B) purchases from or sells or furnishes to the Company or any
of the Subsidiaries any goods or services or (ii) a material
beneficiary interest in any contract or agreement to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound or affected.
Except as set forth in the Offering Circular or under the heading
"Certain Relationships and Related Transactions" in the Company's
Proxy Statement for the Annual Meeting of Stockholders on August
8, 1995, which is incorporated by reference in the Offering
Circular, there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among
the Company or any of the Subsidiaries and any such officer,
director, 5% or greater stockholder, "affiliate" or "associate."
For the purpose of this subsection (u), interests which may be
excluded from disclosure pursuant to the instructions to items of
Regulation S-K shall be deemed to be per se not material.
(v) The minute books of each of the Company and the
Subsidiaries have been made available to the Initial Purchaser,
contain a complete summary of all meetings and actions of the
directors and stockholders of each of the Company and the
Subsidiaries since the time of their respective incorporation and
reflect all transactions referred to in such minutes accurately
in all respects.
(w) Neither the Company nor any of the Subsidiaries
has been notified or is otherwise aware that it is potentially
liable, or is considered potentially liable, under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, or any similar law ("Environmental
Laws"). To the best of the Company's knowledge, the Company and
the Subsidiaries are in substantial compliance with all
applicable existing Environmental Laws, except for such instances
of non-compliance which would not have a Material Adverse Effect.
The term "Hazardous Material" means (i) any "hazardous substance"
as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (ii) any
"hazardous waste" as defined by the Resource Conservation and
Recovery Act, as amended, (iii) any petroleum or petroleum
product, (iv) any polychlorinated biphenyl and (v) any pollutant
or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulation under or within the
meaning of any other Environmental Law. To the best of the
Company's knowledge, no disposal, release or discharge of
"Hazardous Material" has occurred on, in, at or about any of the
facilities or properties of the Company or any of the
Subsidiaries.
(x) The Company is not an "investment company," a
company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
(y) None of the proceeds of the sale of the Debentures
will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any
other purpose which might cause any of the Debentures to be
considered a "purpose credit" within the meanings of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve
Board.
(z) Neither the Company nor any affiliate (as such
term is defined in Rule 501(b) under the Securities Act) of the
Company has, directly or through any agent, sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect
of, any "security" (as defined in the Securities Act), which is
or will be integrated with the sale of the Debentures in a manner
that would require the registration of the Debentures under the
Securities Act.
(aa) None of the Company, any affiliate (as such term
is defined in Rule 501(b) under the Securities Act) of the
Company and any other person acting on its or their behalf has
engaged, in connection with the offering of the Debentures, in
any form of general solicitation or general advertising within
the meaning of Rule 502(c) under the Securities Act.
(bb) Assuming the accuracy of the Initial Purchaser's
representations in Section 2(c) hereof and its compliance with
the agreements set forth therein, it is not necessary, in
connection with the issuance and sale of the Debentures and the
offer, resale and delivery of the Debentures in the manner
contemplated by this Agreement and the Offering Circular, to
register the Debentures under the Securities Act or to qualify
the Indenture under the Trust Indenture Act.
(cc) Liens (as defined in the Indenture) existing on
the date hereof which secure Senior Indebtedness (as defined in
the Indenture) do not individually or in the aggregate exceed
$1,000,000.
2. Purchase by the Initial Purchaser.
(a) On the basis of the representations, warranties
and agreements contained herein, and subject to the terms and
conditions set forth herein, the Company agrees to issue and sell
to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, the Firm Debentures at a purchase
price equal to 95% of the principal amount thereof.
(b) In addition, on the basis of the representations,
warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company hereby grants
an option to the Initial Purchaser to purchase any or all of the
Option Debentures at a price equal to 95% of the principal amount
thereof plus accrued interest from the Closing Date to the
applicable Option Closing Date. Such option will expire 45 days
after the date hereof, and may be exercised in whole or in part
from time to time only for the purpose of covering over-
allotments which may be made in connection with the offering and
distribution of the Firm Debentures upon notice by the Initial
Purchaser to the Company setting forth the aggregate principal
amount of Option Debentures as to which the Initial Purchaser is
then exercising the option and the time and date of delivery and
payment therefor. Any such time and date of delivery and payment
(an "Option Closing Date") shall be determined by the Initial
Purchaser, but shall not be later than five full business days
after the exercise of such option unless otherwise agreed by the
Company and the Initial Purchaser.
(c) The Initial Purchaser has advised the Company that
it is its intention, as promptly as it deems appropriate after
the Company shall have furnished the Initial Purchaser with
copies of the Offering Circular, to resell the Debentures
pursuant to the procedures and upon the terms set forth in the
Offering Circular, including not to solicit any offer to buy or
offer to sell the Debentures by means of any form of general
solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) or in any manner involving
a public offering within the meaning of Section 4(2) of the
Securities Act. The Initial Purchaser warrants and agrees with
the Company that it has solicited and will solicit offers (the
"Exempt Resales") for Debentures only from, and will offer
Debentures only to, persons that it reasonably believes to be (i)
QIBs in transactions that meet the requirements for an exemption
from the registration requirements of the Securities Act under
Rule 144A or (ii) to a limited number of Institutional Accredited
Investors that execute and deliver a letter containing certain
representations and agreements in the form attached as Annex A of
the Offering Circular. The QIBs and the Institutional Accredited
Investors are referred to herein as "Eligible Purchasers." The
Initial Purchaser represents and warrants that it is an
Institutional Accredited Investor with such knowledge and
experience in financial and business matters as are necessary to
evaluate the merits and risks of an investment in the Debentures,
and is acquiring its interest in the Debentures not with a view
to the distribution or resale thereof, except resales in
compliance with the registration requirements or exemption
provisions of the Securities Act and that neither it, nor anyone
acting on its behalf, will offer the Debentures so as to bring
the issuance and sale of the Debentures within the provisions of
Section 5 of the Securities Act. The Initial Purchaser further
represents and warrants that it is not a pension or welfare plan
(as defined in Section 3 of ERISA) and is not acquiring the
Debentures on behalf of a pension or welfare plan. The Company
acknowledges and agrees that the Initial Purchaser may sell
Debentures to any affiliate of the Initial Purchaser and any such
affiliate may sell Debentures purchased by it to the Initial
Purchaser. The Initial Purchaser agrees that, prior to or
simultaneously with the confirmation of sale by it to any
purchaser of any of the Debentures purchased from the Company
pursuant hereto, the Initial Purchaser shall furnish to that
purchaser a copy of the Offering Circular (and any amendment
thereof or supplement thereto that the Company shall have
furnished to the Initial Purchaser prior to the date of such
confirmation of sale). In addition to the foregoing, the Initial
Purchaser agrees and understands that the Company and, for
purposes of the opinions to be delivered to the Initial Purchaser
pursuant to Sections 5(b) and (c) hereof, counsel to the Company
and to the Initial Purchaser, respectively, may rely upon the
accuracy and truth of the foregoing representations, warranties
and covenants in this Section 2 and the Initial Purchaser hereby
consents to such reliance.
(d) No form of general solicitation or general
advertising (within the meaning of Regulation D under the
Securities Act) has been or will be used by the Initial Purchaser
or any of its representatives in connection with the offer and
sale of any of the Debentures including, but not limited to,
articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general
advertising except pursuant to a registered public offering as
provided in the Registration Rights Agreement.
(e) The Initial Purchaser agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the
Debentures only from, and will offer to sell the Debentures only
to, Eligible Purchasers.
3. Delivery of and Payment for the Debentures.
Delivery of, and payment for, the Firm Debentures shall be made
at 10:00 A.M., New York City time, on September 29, 1995, or at
such other date or time, not later than five full business days
thereafter, as shall be agreed by the Initial Purchaser and the
Company (such date and time being referred to herein as the
"Closing Date"). Delivery of, and payment for, the Firm
Debentures and the Option Debentures shall be made at the offices
of Kelley Drye & Warren, New York, New York, or any such other
place as shall be agreed by the Initial Purchaser and the
Company. On the Closing Date, the Company shall deliver or cause
to be delivered to the Initial Purchaser certificates for the
Firm Debentures against payment to or upon the order of the
Company of the purchase price by wire or book-entry transfer of
immediately available funds. On each Option Closing Date, the
Company shall deliver or cause to be delivered to the Initial
Purchaser certificates for the Option Debentures purchased
thereat against payment to or upon the order of the Company of
the purchase price by wire or book-entry transfer of immediately
available funds. Upon delivery, the Debentures shall be in
global form, in such denominations and registered in such names,
or otherwise, as the Initial Purchaser shall have requested in
writing not less than two full business days prior to the Closing
Date. The Company shall make the certificates for the Debentures
available for inspection by the Initial Purchaser in New York,
New York, not later than one full business day prior to the
Closing Date.
4. Covenants and Agreements of the Company. The
Company covenants and agrees with the Initial Purchaser as
follows:
(a) during the period ending 90 days after the date
hereof to advise the Initial Purchaser promptly and, if
requested, confirm such advice in writing, of the happening of
any event which makes any statement of a material fact made in
the Offering Circular untrue or that requires the making of any
additions to or changes in the Offering Circular (as amended or
supplemented from time to time) in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading; to advise the Initial Purchaser promptly of
any order preventing or suspending the use of the Preliminary
Offering Circular or the Offering Circular, of the suspension of
the qualification of the Debentures for offering or sale in any
jurisdiction and of the initiation or threatening of any
proceeding for any such purpose; and to use its reasonable best
efforts to prevent the issuance of any such order preventing or
suspending the use of the Preliminary Offering Circular or of the
Offering Circular or suspending any such qualification and, if
any such suspension is issued, to use its reasonable best effort
to obtain the lifting thereof at the earliest possible time;
(b) to furnish promptly to the Initial Purchaser and
counsel for the Initial Purchaser, without charge, as many copies
of the Preliminary Offering Circular and the Offering Circular
(and of any amendments or supplements thereto) as may be
reasonably requested; to furnish to the Initial Purchaser on the
date hereof a copy of the independent accountants' report
included in the Offering Circular signed by the accountants
rendering such report; and the Company hereby consents to the use
of the Preliminary Offering Circular and the Offering Circular,
and any amendments and supplements thereto, in connection with
Exempt Resales of the Debentures;
(c) if the delivery of the Offering Circular is
required at any time in connection with the sale of the
Debentures and if at such time any events shall have occurred as
a result of which the Offering Circular as then amended or
supplemented would include an untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made when the Offering Circular is delivered, not
misleading, or if for any other reason it shall be necessary at
such time to amend or supplement the Offering Circular in order
to comply with any law, to notify the Initial Purchaser
immediately thereof, and to promptly prepare and furnish to the
Initial Purchaser an amended Offering Circular or a supplement to
the Offering Circular so that statements in the Offering
Circular, as so amended or supplemented, will not, in light of
the circumstances under which they were made when it is so
delivered, be misleading, or so that the Offering Circular will
comply with applicable law. The Initial Purchaser's delivery of
any such amendment or supplement shall not constitute a waiver of
any of the conditions set forth in Section 5 hereof;
(d) during the five-year period following the Closing
Date, provided any of the Debentures remain outstanding, to
furnish to the Initial Purchaser all public reports and all
reports, documents, information and financial statements
furnished by the Company to the Commission pursuant to the
Indenture or the Exchange Act or any rule or regulation of the
Commission thereunder;
(e) during the three-year period following the Closing
Date, for so long as and at any time that it is not subject to
Section 13 or 15(d) of the Exchange Act, upon request of any
holder of the Debentures, to furnish to such holder, and to any
prospective purchaser or purchasers of the Debentures designated
by such holder, information satisfying the requirements of
subsection (d)(4) of Rule 144(A) under the Securities Act. This
covenant is intended to be for the benefit of the holders from
time to time of the Debentures, and prospective purchasers of the
Debentures designated by such holders;
(f) to use the proceeds from the sale of the
Debentures in the manner described in the Offering Circular under
the caption "Use of Proceeds";
(g) in connection with the offering of the Debentures,
to make its officers, employees, independent accountants and
legal counsel reasonably available upon request by the Initial
Purchaser;
(h) to use its reasonable best efforts to do and
perform all things required to be done and performed under this
Agreement by it that are within its control prior to or after the
Closing Date and to use reasonable efforts to satisfy all
conditions precedent on its part to the delivery of the
Debentures;
(i) except following the effectiveness of the Shelf
Registration Statement, to not authorize or knowingly permit any
person acting on its or their behalf to, solicit any offer to buy
or offer to sell the Debentures by means of any form of general
solicitation or general advertising (as such terms are used in
Regulation D under the Securities Act) or in any manner involving
a public offering within the meaning of Section 4(2) of the
Securities Act;
(j) to not, and to use its reasonable best efforts to
ensure that no affiliate (as such term is defined in Rule 501(b)
under the Securities Act) of the Company will, offer, sell or
solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be
integrated with the sale of the Debentures in a manner that would
require the registration of the Debentures under the Securities
Act;
(k) to not, so long as the Debentures are outstanding,
be or become, or be or become owned by, an open-end investment
company, unit investment trust or face-amount certificate company
that is or is required to be registered under Section 8 of the
Investment Company Act, and will not be or become, or be or
become owned by, a closed-end investment company required to be
registered, but not registered thereunder;
(l) to cooperate with the Initial Purchaser and
counsel for the Initial Purchaser to qualify the Debentures for
offering and sale under the securities laws of such jurisdictions
as the Initial Purchaser may reasonably request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Debentures;
provided, however, that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to file a
general consent to service of process or to subject it to
taxation in any jurisdiction where it is not so qualified or so
subject;
(m) to use its reasonable best efforts to comply with
the Registration Rights Agreement and all agreements set forth in
the representation letters of the Company to The Depository Trust
Company relating to the approval of the Debentures for "book-
entry" transfers;
(n) in connection with the offering, until the Initial
Purchaser shall have notified the Company of the completion of
the resale of the Debentures, to not and use its reasonable best
efforts to not permit any affiliated purchasers (as defined in
Rule 10b-6 under the Exchange Act), either alone or with one or
more other persons, to bid for or purchase, for any account in
which it or any of its affiliated purchasers has a beneficial
interest, any Debentures, or attempt to induce any person to
purchase any Debentures; and to not and use its reasonable best
efforts to not permit any of its affiliated purchasers to make
bids or purchases for the purpose of creating actual, or
apparent, active trading in or of raising the price of the
Debentures;
(o) prior to the Closing Date, to not issue any press
release or other communication directly or indirectly or hold any
press conference with respect to the Company, its condition,
financial or otherwise, or earnings, business affairs or business
prospects, without the prior consent of the Initial Purchaser,
unless in the judgment of the Company and its counsel, and after
notification to the Initial Purchaser, such press release or
communication is required by law;
(p) to not take any action prior to the execution and
delivery of the Indenture which, if taken after such execution
and delivery, would have violated any of the covenants contained
in the Indenture; and
(q) to not take any action prior to the Closing Date
which in the Company's reasonable judgment would require the
Offering Circular to be amended or supplemented pursuant to
Section 4(c) hereof.
(r) to maintain a transfer agent and, if necessary
under the laws of the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the
transfer agent) for the Common Stock.
(s) for a period of five (5) years from the date
hereof, to use its best efforts to maintain the PORTAL (or after
the Shelf Registration Statement, Nasdaq Stock Market listing)
listing of the Debentures), to the extent outstanding, and the
American Stock Exchange (or New York Stock Exchange or Nasdaq
Stock Market) listing of the Common Stock.
5. Payment of Expenses.
(a) The Company hereby agrees to pay all of the
following expenses and fees incident to the performance of the
obligations of the Company under this Agreement, the Indenture
and the Registration Rights Agreement, including, regardless of
whether any sale of the Debentures to the Initial Purchaser is
consummated (subject to paragraph (b) below): (i) the fees and
expenses of accountants and counsel for the Company, (ii) all
costs and expenses incurred in connection with the preparation,
duplication, printing (including mailing and handling charges),
delivery and mailing (including the payment of postage with
respect thereto) of each Preliminary Offering Circular and the
Offering Circular and any amendments and supplements thereto, in
quantities as hereinabove stated, (iii) the printing, engraving,
issuance and delivery of the Debentures, (iv) costs and expenses
of travel, food and lodging of Company personnel in connection
with the "road show," information meetings and presentations, (v)
fees and expenses of the transfer agent and registrar, (vi) fees
and expenses of the Trustee, including the Trustee's counsel, in
connection with the Indenture and the Debentures and (vii) the
fees payable to the NASD and, if any, the American Stock Exchange
incurred in connection with the listing of the Debentures and the
Underlying Stock for trading in the PORTAL Market and the
American Stock Exchange, respectively and (viii) all other costs
and expenses incident to the performance of its obligations
hereunder which are not specifically otherwise provided for in
this Section. In addition, at the Closing the Company will pay
or reimburse up to $100,000 of the Initial Purchaser's reasonable
and accountable out-of-pocket expenses, including but not limited
to legal (including all Blue Sky counsel fees and expenses),
travel, printing, roadshow (excluding lodging and travel expenses
of the Initial Purchaser's personnel in connection with the
roadshow which shall be the obligation of the Initial Purchaser)
expenses, in connection with the offering, purchase and sale of
the Debenture. The Company shall not be responsible for any
promotional or tombstone expenses, if any, related to the
Offering, purchase and sale of the Debentures. It is understood,
however, that except as provided in this Section, Section 7 and
Section 9 hereof or as otherwise agreed, the Initial Purchaser
will pay all of its own costs and expenses, incurred by it in the
performance of this Agreement.
(b) If this Agreement is terminated for any reason, the
Company shall reimburse and indemnify the Initial Purchaser for
its actual accountable out-of-pocket expenses, up to $50,000,
less any amounts already paid pursuant to Section 5(a) hereof.
Such expenses shall be paid by credit against the advance
provided above in Section 5(a).
6. Conditions of the Initial Purchaser's Obligations.
The obligations of the Initial Purchaser hereunder shall be
subject to the continuing accuracy of the representations and
warranties of the Company herein as of the date hereof and as of
the Closing Date and each Option Closing Date, if any, as if they
had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; and the performance by the
Company on and as of the Closing Date and each Option Closing
Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Initial Purchaser shall not have advised the
Company that the Offering Circular, or any supplement or
amendment thereto, contains an untrue statement of fact which is
material, or omits to state a fact which is material and is
required to be stated therein or is necessary to make the
statements, in light of the circumstances under which they were
made, not misleading. No order suspending the sale of the
Securities in any jurisdiction shall have been issued on either
the Closing Date or the relevant Option Closing Date, if any, and
no proceedings for that purpose shall have been instituted or
shall be contemplated.
(b) On or prior to the Closing Date, the Initial
Purchaser shall have received from Kelley Drye & Warren such
opinion or opinions with respect to the organization of the
Company, the validity of the Debentures, the Underlying Stock,
the Offering Circular and other related matters as the Initial
Purchaser may request and Kelley Drye & Warren shall have
received such papers and information as they request to enable it
to pass upon such matters.
(c) At Closing Date, the Initial Purchaser shall have
received the favorable opinion of Skadden, Arps, Slate, Meagher &
Flom, counsel to the Company, dated the Closing Date, addressed
to the Initial Purchaser and in form and substance reasonably
satisfactory to Kelley Drye & Warren, with respect to matters
customarily covered in opinions of counsel in like transactions.
(d) Skadden, Arps, Slate, Meagher & Flom shall state
in the opinion letter contemplated by Section 6(c) that such
counsel has participated in conferences with officers and other
representatives of each of the Company and the Subsidiaries and
representatives of the independent public accountants for the
Company and the Subsidiaries and the Initial Purchaser, at which
conferences the contents of the Offering Circular and related
matters were discussed, and, although such counsel is not passing
upon, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the
Offering Circular and have made no independent check or
verification thereof, on the basis of the foregoing, no facts
have come to the attention of such counsel which has lead them to
believe that the Offering Circular, as of its date contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, except that such counsel
express no opinion or belief with respect to the financial
statements and related notes, the pro forma financial information
and other financial, statistical or accounting data included the
Offering Circular or excluded therefrom);
(e) On or prior to the Closing Date, Kelley Drye &
Warren shall have been furnished such documents, certificates and
opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6 or in order to evidence the
accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company herein
contained.
(f) Prior to the Closing Date: (i) there shall have
been no material adverse change involving a prospective change in
the condition, financial or otherwise, prospects, stockholders'
equity or the business activities of the Company and the
Subsidiaries taken as a whole, whether or not in the ordinary
course of business, from the latest dates as of which such
condition is set forth in the Offering Circular; (ii) there shall
have been no transaction, not in the ordinary course of business,
entered into by the Company or any of the Subsidiaries, from the
latest date as of which the financial condition of the Company
and the Subsidiaries is set forth in the Offering Circular which
is materially adverse to the Company and the Subsidiaries taken
as a whole; (iii) neither the Company nor any of the Subsidiaries
shall be in default under any provision of any instrument
relating to any material outstanding indebtedness; (iv) no
material amount of the assets of the Company or any of the
Subsidiaries shall have been pledged or mortgaged, except as set
forth in the Offering Circular; (v) no action, suit or
proceeding, at law or in equity, shall have been pending or. to
the knowledge of the Company, threatened against the Company or
any of the Subsidiaries, or affecting any of their respective
properties or businesses, before or by any court or federal,
state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may have a
Material Adverse Effect, except as set forth in the Offering
Circular; and (vi) no stop order shall have been issued under the
Securities Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission or any
state regulatory authority.
(g) At the Closing Date, the Initial Purchaser shall
have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief
accounting officer of the Company, in their capacities as such,
dated the Closing Date, to the effect that each of such persons
has carefully examined the Offering Circular, this Agreement and
the Indenture, and that:
i) the representations and warranties of the
Company in this Agreement, the Indenture and the
Registration Rights Agreement are true and correct, as
if made on and as of the Closing Date or such Option
Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and
satisfied all conditions contained in this Agreement,
the Indenture and the Registration Rights Agreement on
its part to be performed or satisfied at or prior to
the Closing Date;
ii) no stop order suspending the qualification or
exemption from qualification of the Debentures shall
have been issued and no proceedings for that purpose
shall have been commenced or, to the knowledge of the
Company, be contemplated;
iii) since the date of the most recent financial
statements included in the Offering Circular, there has
been no material adverse change in the condition,
financial or otherwise business, prospects or results
of operation of the Company and the Subsidiaries, taken
as a whole, except as set forth in the Offering
Circular;
iv) none of the Offering Circular or any such
amendment or supplement includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading; and
v) subsequent to the respective dates as of which
information is given in the Offering Circular: (a)
neither the Company nor any of the Subsidiaries has
incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in
the ordinary course of its business, any material
liabilities or obligations, direct or contingent,
except as disclosed in the Offering Circular; (b)
neither the Company nor any of the Subsidiaries has
paid or declared any dividends or other distributions
on its capital stock; (c) neither the Company nor any
of the Subsidiaries has entered into any material
transactions not in the ordinary course of business,
except as disclosed in the Offering Circular; (d) there
has not been any material change in the capital stock
(other than pursuant to the Company's 1981 Incentive
Stock Option Plan, 1981 Non-Qualified Stock Option Plan
or 1991 Stock Option Plan or upon conversion of the
1998 Debentures); (e) neither the Company nor any of
the Subsidiaries has sustained any material loss or
damage to its property or assets, whether or not
insured; and (f) there is no litigation which is
pending or to the best of the Company's knowledge
threatened against the Company, any of the Subsidiaries
or any affiliated party of any of the foregoing which
would have a Material Adverse Effect and which is
required to be set forth in an amended or supplemented
Offering Circular which has not been set forth.
(h) On or before the date hereof the Initial Purchaser
shall have received a letter, dated such date, addressed to the
Initial Purchaser in form and substance satisfactory in all
respects to the Initial Purchaser and Kelley Drye & Warren, from
KPMG Peat Marwick LLP:
i) confirming that they are independent certified
public accountants with respect to the Company within
the meaning of the Securities Act and the Exchange Act
and the applicable Rules and Regulations;
ii) stating that it is their opinion that the
consolidated financial statements and supporting
schedules of the Company and the Subsidiaries included
in the Offering Circular or incorporated by reference
therein comply as to form in all material respects with
the applicable accounting requirements of the
Securities Act; and
iii) stating that they have compared specific
dollar amounts, numbers of shares, percentages of
revenues and earnings, statements and/or other
financial information pertaining to the Company and the
Subsidiaries set forth in the Offering Circular in each
case to the extent that such amounts, numbers,
percentages, statements and information may be derived
from the general accounting records, including work
sheets, of the Company and/or the Subsidiaries and
excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the
application of specified readings, inquiries and other
appropriate procedures (which procedures need not
constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter
and found them to be in agreement.
(i) At the Closing Date and each Option Closing Date,
if any, the Initial Purchaser shall have received from KPMG Peat
Marwick LLP a letter, dated as of the Closing Date or such Option
Closing Date, as the case may be, to the effect that they
reaffirm that statements made in the letter furnished pursuant to
subsection (h) of this Section 6, except that the specified date
referred to shall be a date not more than five (5) days prior to
the Closing Date or such Option Closing Date, as the case may be,
to the further effect that they have carried out procedures as
specified in clause (iii) of subsection (h) of this Section 6
with respect to certain amounts, percentages and financial
information as specified by the Initial Purchaser and deemed to
be a part of the Offering Circular and have found such amounts,
percentages and financial information to be in agreement with the
records specified in such clause (iii).
(j) On each of the Closing Date and each Option Closing
Date, if any, there shall have been duly tendered to the Initial
Purchaser the appropriate principal amount of Debentures.
(k) The Securities shall have been approved by the
National Association of Securities Dealers, Inc. for trading in
the PORTAL market.
(l) Trading in the Common Stock shall not have been
suspended by the American Stock Exchange at any time after
September 1, 1995.
(m) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i)
trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or the over-the-counter market shall
have been suspended or limited, or minimum prices shall have been
established on either of such exchanges or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in
securities of the Company on any exchange or in the over-the-
counter market shall have been suspended or (ii) any moratorium
on commercial banking activities shall have been declared by
Federal or New York State authorities or (iii) an outbreak or
escalation of hostilities or a declaration by the United States
of a national emergency or war or such a material adverse change
in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in
the United States shall be such) as to make it, in the judgment
of the Initial Purchaser, impracticable or inadvisable to proceed
with the offering or the delivery of the Debentures on the terms
and in the manner contemplated in the Offering Circular.
(n) The Company and the Initial Purchaser shall have
executed and delivered the Registration Rights Agreement on the
date of this Agreement.
(o) The Indenture shall have been duly executed and
delivered by the Company and the Trustee and the Debentures shall
have been duly executed and delivered by the Company and duly
authenticated by the Trustee.
(p) If any event shall have occurred that requires the
Company under Section 4(c) hereof to prepare an amendment or
supplement to the Offering Circular, such amendment or supplement
shall have been prepared, the Initial Purchaser shall have been
given a reasonable opportunity to comment thereon, and copies
thereof delivered to the Initial Purchaser.
(q) There shall not have occurred any invalidation of
Rule 144A under the Securities Act by any court or any withdrawal
or proposed withdrawal of any rule or regulation under the
Securities Act or the Exchange Securities Act by the Commission
or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchaser would materially
impair the ability of the Initial Purchaser to purchase, hold or
effect resales of the Debentures as contemplated hereby.
All opinions, letters, evidence and certificates
mentioned above or elsewhere in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in
form and substance reasonably satisfactory to the Initial
Purchaser.
If any condition to the Initial Purchaser's obligations
hereunder to be fulfilled prior to or at the Closing Date or the
relevant Option Closing Date, as the case may be, is not so
fulfilled, the Initial Purchaser may terminate this Agreement or,
if the Initial Purchaser so elects, it may waive any such
conditions which have not been fulfilled or extend the time for
their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Initial Purchaser (for purposes of this Section 7, "Initial
Purchaser" shall include the officers, directors, partners,
employees and agents, and each person, if any, who controls the
Initial Purchaser ("controlling person") within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions,
proceedings, suits and litigation in respect thereof),
whatsoever, as the same are incurred, to which the Initial
Purchaser or any such controlling person may become subject,
under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise insofar as such losses, claims,
damages, expenses or liabilities arise out of or are based upon
any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Offering Circular or the
Offering Circular (as from time to time amended and supplemented)
or arise out of or are based upon the omission or alleged
omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein in the light
of the circumstances under which they were made, not misleading;
provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage,
expense or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Circular or the Offering
Circular or any such amendment or supplement in reliance upon and
in conformity with Initial Purchaser Information and provided,
further, that the Company shall not be liable to the Initial
Purchaser under the indemnity agreement in this subsection (a)
(i) with respect to any Preliminary Offering Circular to the
extent that any such loss, liability, claim, damage or expense of
the Initial Purchaser arises out of a sale of the Debentures by
such Purchaser to a person to whom there was not sent or given,
at or prior to the written confirmation of such sale, a copy of
the Offering Circular (or of the Offering Circular as then
amended or supplemented) if the Company has previously furnished
sufficient copies thereof to the Initial Purchaser a reasonable
time in advance and the loss, liability, claim, damage or expense
of Purchaser results from an untrue statement or alleged untrue
statement or omission or alleged omission of a material fact
contained in the Preliminary Offering Circular which was
corrected in the Offering Circular (or the Offering Circular as
amended or supplemented) or (ii) to the extent that any such
loss, claim, damage, expense or liability arises out of or is
based upon any action or failure to act by the Initial Purchaser,
that is found in a final judicial determination (or a settlement
tantamount thereto) to constitute bad faith, willful misconduct
or gross negligence on the part of the Initial Purchaser. The
indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or
otherwise.
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company, each of its directors, each of its
officers, and each other person, if any, who controls the Company
within the meaning of the Securities Act, to the same extent as
the foregoing indemnity from the Company to the Initial Purchaser
but only with respect to statements or omissions, if any, made in
any Preliminary Offering Circular or the Offering Circular or any
amendment thereof or supplement thereto, with written information
furnished to the Company with respect to the Initial Purchaser by
the Initial Purchaser expressly for use in such Preliminary
Offering Circular or the Offering Circular or any amendment
thereof or supplement thereto. The Company acknowledges that the
Initial Purchaser Information constitutes the only information
furnished in writing by or on behalf of the Initial Purchaser
expressly for use in any Preliminary Offering Circular or the
Offering Circular.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action,
suit or proceeding, such indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement
thereof (but the failure to notify an indemnifying party shall
not relieve it from any liability which it may have under this
paragraph (a) or (b) of Section 7 unless and to the extent that
it has been prejudiced in a material respect by such failure or
from the forfeiture of substantial rights and defenses). In case
any such action, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or
parties will be entitled to participate therein, and to the
extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party, which
may be the same counsel as counsel to the indemnifying party.
Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any
such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of
such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of
commencement of the action or (iii) such indemnified party or
parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying
parties (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees
and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in
addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any
claim or action effected without its written consent.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes
claim for indemnification pursuant to this Section 7, but it is
judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding
the fact that the express provisions of this Section 7 provide
for indemnification in such case, or (ii) contribution under the
Securities Act may be required, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to
the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions, suits, proceedings or
litigation in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of
the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the
Securities or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements
or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company,
on the one hand, and the Initial Purchaser, on the other, shall
be deemed to be in the same proportion as the total net proceeds
from the offering of the Debentures (before deducting expenses)
bear to the total discounts received by the Initial Purchaser
hereunder, in each case as set forth in the table on the Cover
Page of the Offering Circular. Relative fault shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Initial Purchaser,
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, suits, proceedings or
litigation in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating, preparing or defending any such
action, claim, suit, proceeding or litigation. Notwithstanding
the provisions of this subsection (d), the Initial Purchaser
shall not be required to contribute any amount in excess of the
discount applicable to the Debentures purchased by the Initial
Purchaser hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7, each person, if any, who controls the
Company within the meaning of the Securities Act, each executive
officer of the Company and each director of the Company shall
have the same rights to contribution as the Company, subject in
each case to this subsection (d). Any party entitled to
contribution will, promptly after receipt of notice of
commencement of any action, suit, proceeding or litigation
against such party in respect to which a claim for contribution
may be made against another party or parties under this
subsection (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to
the extent that such party or parties were not adversely affected
by such omission. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive
Delivery. All representations, warranties and agreements
contained in this Agreement or contained in certificates of
officers of the Company submitted pursuant hereto shall be deemed
to be representations, warranties and agreements at the Closing
Date and each Option Closing Date, as the case may be, and the
agreements of the Company and the provisions with respect to the
payment of expenses contained in Sections 5 and 9 and the
respective indemnity agreements contained in Section 7 hereof
shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Initial Purchaser,
the Company, any of the Subsidiaries or any controlling person,
and shall survive termination of this Agreement or the issuance
and delivery of the Debentures to the Initial Purchaser.
9. Termination.
(a) Subject to subsection (b) of this Section 9, the
Initial Purchaser shall have the right to terminate this
Agreement (i) if any domestic or international event or act or
occurrence has disrupted, or in the Initial Purchaser's opinion
will in the immediate future disrupt the financial markets, or
(ii) if any adverse change in the financial markets shall have
occurred or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange or in the over-the-counter market shall
have been suspended, or minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iv) if the United
States shall have become involved in a war or major hostilities,
or there shall have been an escalation in an existing war or
major hostilities, or a national emergency shall have been
declared in the United States; or (v) if a banking moratorium has
been declared by a state or federal authority; or (vi) if a
moratorium in foreign exchange trading has been declared; or
(vii) if the Company or any of the Subsidiaries shall have
sustained a loss material or substantial to the Company or any of
the Subsidiaries by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether
or not such loss shall have been insured, will, in the Initial
Purchaser's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (viii) if there shall have been
such a material adverse change in the general market, political
or economic conditions in the United States or elsewhere, as in
the Initial Purchaser's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the
Debentures.
(b) If this Agreement is terminated by the Initial
Purchaser in accordance with the provisions of Section 9(a) or if
this Agreement shall not be carried out within the time specified
herein, or any extension thereof granted to the Initial
Purchaser, by reason of any failure on the part of the Company to
perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied (including, without
limitation, pursuant to Section 6, 9 or 10 hereof), then the
Company shall promptly reimburse and indemnify the Initial
Purchaser for all of its out-of-pocket expenses, including the
fees and disbursements of counsel for the Initial Purchaser (less
amounts previously paid pursuant to Section 5). If the amount
previously paid pursuant to Section 5(a) above exceeds the
Initial Purchaser's out-of-pocket expenses, the Initial Purchaser
shall refund such excess to the Company. Notwithstanding any
contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including,
without limitation, pursuant to Sections 6, 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way
affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
10. Default by the Company. If the Company shall fail
at the Closing Date or any Option Closing Date, as applicable, to
sell and deliver the number of Securities which it is obligated
to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the
Initial Purchaser may, at its option, by notice from the Initial
Purchaser to the Company, terminate the Initial Purchaser's
obligation to purchase Option Debentures from the Company on such
date) without any liability on the part of any non-defaulting
party other than pursuant to Sections 5, 7 and 9 hereof. No
action taken pursuant to this Section 10 shall relieve the
Company from liability, if any, in respect of such default.
11. Notices. All notices and communications
hereunder, except as herein otherwise specifically provided,
shall be given in writing and shall be deemed to have been duly
given if mailed or transmitted by any standard form of
telecommunication. Notices to the Initial Purchaser shall be
directed to it at Forum Capital Markets L.P., 53 Forest Avenue,
Old Greenwich, Connecticut 06870, Attention: Mr. Keith Hartley,
with a copy to Kelley Drye & Warren, 2 Stamford Plaza, Stamford,
Connecticut 06901, Attention: Jay R. Schifferli, Esq. Notices to
the Company shall be directed to the Company at 5 Sylvan Way,
Parsippany, New Jersey 07054, Attention: President, with a copy
to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, Attention: Mark Kaplan, Esq.
12. Parties. This Agreement shall inure solely to the
benefit of and shall be binding upon the Initial Purchaser, the
Company and the controlling persons, directors and officers
referred to in Section 7 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or
any provisions herein contained. No purchaser of Debentures from
the Initial Purchaser shall be deemed to be a successor by reason
merely of such purchase.
13. Construction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York without giving effect to choice of law or
conflict of laws principles.
14. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be
an original, and all of which taken together shall be deemed to
be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement
constitutes the entire agreement of the parties hereto and
supersedes all prior written or oral agreements, understandings
and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing signed by the
Initial Purchaser and the Company.
If the foregoing correctly sets forth the understanding
between the Initial Purchaser and the Company, please so indicate
in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement among us.
Very truly yours,
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/ Mark S. Newman
-------------------------------
Name: Mark S. Newman
Title: Chief Executive Officer and
President
Confirmed and accepted as of
the date first above written.
FORUM CAPITAL MARKETS L.P.
By: /s/ Michael F. McNulty
----------------------------
Name: Michael F. McNulty
Title: Managing Director
SCHEDULE I
CORPORATE SUBSIDIARIES OF DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Subsidiary
Precision Echo, Inc.
Photronics Corp.
Technology Applications & Service Company
DRS Systems Management Corporation
Ahead Technology, Inc.
OMI Acquisition Corp.
SCHEDULE II
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
BENEFIT PLANS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
CORPORATE HEADQUARTERS & DRS MILITARY SYSTEMS
Diagnostic/Retrieval Systems, Inc. Group Medical/Dental Plan
US Healthcare Patriot V. HMO Plan
Diagnostic/Retrieval Systems, Inc. Group Life Insurance Plan
(includes AD&D)
Diagnostic/Retrieval Systems, Inc. Long Term Disability Plan
DRS Retirement/Savings Plan (401K)
Diagnostic/Retrieval Systems, Inc. Reimbursement Account Plan
(IRC 125)
Short Term Disability Insurance provided by NJ State plan
PRECISION ECHO, INC.
Diagnostic/Retrieval Systems, Inc. Group Medical/Dental Plan
Kaiser Permanente HMO Plan
Diagnostic/Retrieval Systems, Inc. Group Life Insurance Plan
(includes AD&D)
Precision Echo, Inc. Long Term Disability Plan
DRS Retirement/Savings Plan (401K)
Diagnostic/Retrieval Systems, Inc. Reimbursement Account Plan
(IRC 125)
Short Term Disability Insurance provided by CA State plan
PHOTRONICS CORP.
Diagnostic/Retrieval Systems, Inc. Group Medical/Dental Plan
Diagnostic/Retrieval Systems, Inc. Group Life Insurance Plan
(includes AD&D)
Photronics Corp. Short Term Disability Plan
Photronics Corp. Long Term Disability Plan
DRS Retirement/Savings Plan (401K)
Diagnostic/Retrieval Systems, Inc. Reimbursement Account Plan
(IRC 125)
TECHNOLOGY APPLICATIONS & SERVICE CO.
Great West Life PPO Plan (Maryland Office)
Optima Senters Access Health Plan (Virginia Office)
Kaiser Permanente HMO Plan (California Office)
Technology Applications & Service Co. Life Insurance Plan
(includes AD&D)
Technology Applications & Service Co. Short Term Disability Plan
Technology Applications & Service Co. Long Term Disability Plan
DRS Retirement/Savings Plan (401K)
TAS Employee Savings Plan (Predecessor organization's 401K in
termination process)
Flexible Benefits Account Plan
LAUREL TECHNOLOGIES
Blue Cross CPE Plan (Medical)
Laurel Technologies Group Life Insurance Plan
Laurel Technologies Short Term Disability Plan
Laurel Technologies Long Term Disability Plan
DRS Retirement/Savings Plan (401K)
OMI
Prudential HMO Plan
PruCare Plus Plan
Prudential DMO Plan
OMI Group Life Insurance Plan (includes AD&D)
OMI Short Term Disability Plan
OMI Long Term Disability Plan
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.,
Company
and
THE TRUST COMPANY OF NEW JERSEY,
Trustee
INDENTURE
Dated as of September 22, 1995
$25,000,000
9% Senior Subordinated Convertible Debentures Due 2003
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . 1
Section 1.1.Definitions . . . . . . . . . . . . . . . . . 1
Section 1.2.Other Definitions . . . . . . . . . . . . . . 10
Section 1.3.Incorporation by Reference of Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . 11
Section 1.4.Rules of Construction . . . . . . . . . . . . 11
ARTICLE 2. THE DEBENTURES . . . . . . . . . . . . . . . . . 12
Section 2.1.Form and Dating . . . . . . . . . . . . . . . 12
Section 2.2.Execution and Authentication . . . . . . . . 13
Section 2.3.Registrar and Paying Agent . . . . . . . . . 14
Section 2.4.Paying Agent to Hold Money in Trust . . . . . 15
Section 2.5.Holder Lists . . . . . . . . . . . . . . . . 15
Section 2.6.Transfer and Exchange . . . . . . . . . . . . 15
Section 2.7.Replacement Debentures . . . . . . . . . . . 22
Section 2.8.Outstanding Debentures . . . . . . . . . . . 22
Section 2.9.Treasury Debentures . . . . . . . . . . . . . 23
Section 2.10.Temporary Securities . . . . . . . . . . . . 23
Section 2.11.Cancellation . . . . . . . . . . . . . . . . 24
Section 2.12.Defaulted Interest . . . . . . . . . . . . . 24
Section 2.13.Deposit of Moneys . . . . . . . . . . . . . 24
ARTICLE 3. REDEMPTION . . . . . . . . . . . . . . . . . . . . 25
Section 3.1.Notices to Trustee . . . . . . . . . . . . . 25
Section 3.2.Selection of Debentures to be Redeemed . . . 25
Section 3.3.Notice of Redemption . . . . . . . . . . . . 25
Section 3.4.Effect of Notice of Redemption . . . . . . . 26
Section 3.5.Deposit of Redemption Price . . . . . . . . . 26
Section 3.6.Debentures Redeemed in Part . . . . . . . . . 27
ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . 27
Section 4.1.Payment of Debentures . . . . . . . . . . . . 27
Section 4.2.Stay, Extension and Usury Laws . . . . . . . 27
Section 4.3.Continued Existence . . . . . . . . . . . . . 27
Section 4.4.SEC Reports . . . . . . . . . . . . . . . . . 28
Section 4.5.Maintenance of Consolidated Net Worth . . . . 28
Section 4.6.Limitation on Restricted Payments and
Investments . . . . . . . . . . . . . . . . . 30
Section 4.7.Limitation on Sales of Assets and Subsidiary
Stock . . . . . . . . . . . . . . . . . . . . 31
Section 4.8.Taxes . . . . . . . . . . . . . . . . . . . . 31
Section 4.9.Change of Control . . . . . . . . . . . . . . 31
Section 4.10.Limitation on Stock Splits, Consolidations
and Reclassifications . . . . . . . . . . . . 33
Section 4.11.Limitation on Dividend Restrictions
Affecting Subsidiaries . . . . . . . . . . . 33
Section 4.12.Limitation on Preferred Stock . . . . . . . 34
Section 4.13.Limitation on Debt and Senior Indebtedness . 34
Section 4.14.Limitation on Additional Debt After Default 35
Section 4.15.Limitation on Liens . . . . . . . . . . . . 35
Section 4.16.Transactions with Related Persons . . . . . 36
Section 4.17.Limitation of Payments to Affiliates after
Default . . . . . . . . . . . . . . . . . . . 37
Section 4.18.Compliance Certificate . . . . . . . . . . . 37
Section 4.19.Further Assurance to the Trustee . . . . . . 38
ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . 38
Section 5.1.When Company May Merge or Sell Assets . . . . 38
Section 5.2.Successor Substituted . . . . . . . . . . . . 39
ARTICLE 6. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . 39
Section 6.1.Events of Default . . . . . . . . . . . . . . 39
Section 6.2. Acceleration . . . . . . . . . . . . . . . . 40
Section 6.3.Other Remedies . . . . . . . . . . . . . . . 41
Section 6.4.Waiver of Existing and Past Defaults . . . . 41
Section 6.5.Control by Majority . . . . . . . . . . . . . 41
Section 6.6.Limitation on Suits . . . . . . . . . . . . . 42
Section 6.7.Rights of Holders to Receive Payment . . . . 42
Section 6.8.Collection Suit by Trustee . . . . . . . . . 42
Section 6.9.Trustee May File Proofs of Claim . . . . . . 42
Section 6.10.Priorities . . . . . . . . . . . . . . . . . 43
Section 6.11.Undertaking for Costs . . . . . . . . . . . 43
ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . 44
Section 7.1.Duties of Trustee . . . . . . . . . . . . . . 44
Section 7.2.Rights of Trustee . . . . . . . . . . . . . . 45
Section 7.3.Individual Rights of Trustee . . . . . . . . 45
Section 7.4.Trustee's Disclaimer . . . . . . . . . . . . 45
Section 7.5.Notice of Defaults . . . . . . . . . . . . . 45
Section 7.6.Reports by Trustee to Holders . . . . . . . . 46
Section 7.7.Compensation and Indemnity . . . . . . . . . 46
Section 7.8.Replacement of Trustee . . . . . . . . . . . 47
Section 7.9.Successor Trustee by Merger. etc. . . . . . . 48
Section 7.10.Eligibility; Disqualification . . . . . . . 48
Section 7.11.Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . 48
ARTICLE 8. DISCHARGE OF INDENTURE . . . . . . . . . . . . . 48
Section 8.1.Termination of Company's Obligations . . . . 48
Section 8.2.Application of Trust Money . . . . . . . . . 50
Section 8.3.Repayment to Company . . . . . . . . . . . . 50
Section 8.4.Reinstatement . . . . . . . . . . . . . . . . 50
ARTICLE 9. AMENDMENTS . . . . . . . . . . . . . . . . . . . 50
Section 9.1.Without Consent of Holders . . . . . . . . . 50
Section 9.2.With Consent of Holders . . . . . . . . . . . 51
Section 9.3.Compliance with Trust Indenture Act . . . . . 52
Section 9.4.Revocation and Effect of Consents . . . . . . 52
Section 9.5.Notation on or Exchange of Debentures . . . . 53
Section 9.6.Trustee Protected . . . . . . . . . . . . . . 53
ARTICLE 10. CONVERSION . . . . . . . . . . . . . . . . . . . 53
Section 10.1.Conversion Privilege . . . . . . . . . . . . 53
Section 10.2.Conversion Procedure . . . . . . . . . . . . 53
Section 10.3.Cash Payments in Lieu of Fractional Shares . 54
Section 10.4.Adjustment of Conversion Price . . . . . . . 55
Section 10.5.Effect of Reclassification, Consolidation,
Merger or Sale . . . . . . . . . . . . . . . 57
Section 10.6.Taxes on Shares Issued . . . . . . . . . . . 58
Section 10.7.Reservation of Shares; Shares to be Fully
Paid; Compliance with Government
Requirements; Listing of Common Stock . . . 58
Section 10.8.Responsibility of Trustee Requirements . . . 59
Section 10.9.Notice to Holders Prior to Certain Actions . 59
ARTICLE 11. SUBORDINATION . . . . . . . . . . . . . . . . . . 60
Section 11.1.Agreement to Subordinate . . . . . . . . . . 60
Section 11.2Liquidation; Dissolution; Bankruptcy . . . . 60
Section 11.3Company Not to Make Payment with Respect to
Debentures in Certain Circumstances . . . . . 61
Section 11.4Acceleration of Debentures . . . . . . . . . 61
Section 11.5When Distribution Must Be Paid Over . . . . . 61
Section 11.6Notice by Company . . . . . . . . . . . . . . 62
Section 11.7Subrogation . . . . . . . . . . . . . . . . . 62
Section 11.8Relative Rights . . . . . . . . . . . . . . . 62
Section 11.9Subordination May Not be Impaired by Company 62
Section 11.10Distribution of Notice to Representative . . 62
Section 11.11Rights of Trustee and Paying Agent . . . . . 63
Section 11.12Effectuation of Subordination by Trustee . . 64
Section 11.13Trust Moneys Not Subordinated . . . . . . . 64
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 64
Section 12.1.Trust Indenture Act Controls . . . . . . . . 64
Section 12.2.Notices . . . . . . . . . . . . . . . . . . 64
Section 12.3.Communication by Holders with Other Holders 65
Section 12.4.Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . 65
Section 12.5.Statements Required in Certificate or
Opinion of Counsel . . . . . . . . . . . . . 66
Section 12.6.Rules by Trustee and Agents . . . . . . . . 66
Section 12.7.Legal Holidays . . . . . . . . . . . . . . . 66
Section 12.8.No Recourse Against Others . . . . . . . . . 66
Section 12.9.Counterparts . . . . . . . . . . . . . . . . 67
Section 12.10.Governing Law . . . . . . . . . . . . . . . 67
Section 12.11.No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . 67
Section 12.12.Successors . . . . . . . . . . . . . . . . 67
Section 12.13.Severability . . . . . . . . . . . . . . . 67
Section 12.14.Table of Contents, Headings, Etc. . . . . . 67
EXHIBITS
Exhibit A - Form of Debenture . . . . . . . . . . . . . . . . A
Exhibit B - Transfer/ee Letter of Representation . . . . . . . B
CROSS - REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . 7.6; 12.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . 4.2; 12.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 12.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 12.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . 7.5; 12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a) (last sentence) . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
317 (a) (1) . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
N.A. means not applicable.
________________
* This Cross-Reference Table shall not, for any purpose, be
deemed to be part of the Indenture.
INDENTURE dated as of September 22, 1995, between
Diagnostic/Retrieval Systems, Inc., a Delaware corporation (the
"Company"), and The Trust Company of New Jersey, as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the
Company's 9% Senior Subordinated Convertible Debentures due
October 1, 2003 (the "Debentures"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" of any specified Person means Debt of any
other Person existing at the time such other Person merged with
or into or became a Subsidiary of such specified Person,
including Debt incurred in connection with, or in contemplation
of, such other person becoming a Subsidiary of such specified
Person.
"Affiliate" of any specified Person means (i) any other
Person which, directly or indirectly, is in control of, is
controlled by or is under common control with such specified
Person or (ii) any Person who is a director or officer (a) of
such specified Person, (b) of any Subsidiary of such specified
Person or (c) of any Person described in clause (i) above. For
purpose of this definition, control of a person means the power,
directly or indirectly, to direct or cause the direction of the
management and policies of such person whether by contract or
otherwise; and the terms "controlling" or "controlled" have
meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent
or co-registrar or any successor thereto.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or
dispositions) of Capital Stock of a Subsidiary, property or other
asset (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries other
than (i) any disposition by any Subsidiary of the Company to the
Company or by the Company or any Subsidiary of the Company to a
wholly owned Subsidiary of the Company, (ii) a disposition of
property or assets in the ordinary course of business and (iii)
any issuance or sale by the Company of its Capital Stock,
including any disposition by means of a merger, consolidation or
similar transaction.
"Board of Directors" means the Board of Directors of the
Company or any committee of the Board duly authorized to act
under the Indenture.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations
or other equivalents of or interests in the common or preferred
equity (however designated) of such Person, including, without
limitation, partnership interests.
"Capitalized Lease Obligation" means, with respect to any
person for any period, an obligation of such Person to pay rent
or other amounts under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP; and the
amount of such obligation shall be the capitalized amount shown
on the balance sheet of such Person as determined in accordance
with GAAP.
"Change of Control" means the occurrence of any of the
following events: (i) any person (as the term "person" is used
in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes the direct or indirect beneficial owner of shares of the
Company's Capital Stock representing greater than 50% of the
total voting power of all shares of Capital Stock of the Company
entitled to vote in the election of directors under ordinary
circumstances, (ii) the Company sells, transfers or otherwise
disposes of all or substantially all of the assets of the
Company, or (iii) during any period of two consecutive years (or,
in the case this event occurs within the first two years after
the date of issue of the Debentures, such shorter period as shall
have commenced on the date of original issue), Continuing
Directors cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company, or any successor class of
common equity into which the Class A Common Stock may hereafter
be converted.
"Common Stock" as applied to the Capital Stock of any
corporation, means the common equity (however designated) of such
Person, and with respect to the Company, means the Class A Common
Stock and Class B Common Stock, par value $.01 per share, or any
successor class of common equity into which either such class of
common stock may hereafter be converted.
"Company" means Diagnostic/Retrieval Systems, Inc., a
Delaware corporation, until a successor replaces it in accordance
with the applicable provisions of this Indenture and thereafter
"Company" shall mean such successor.
"Consolidated Net Income" means, for any fiscal period, the
Net Income or loss of the Company and its Subsidiaries as the
same would appear on a consolidated statement of earnings of the
Company for such fiscal period prepared in accordance with GAAP,
provided that (i) any extraordinary gain (but not loss) and any
gain (but not loss) on sales of assets outside the ordinary
course of business, in each case together with any related
provisions for taxes, realized during such period shall be
excluded, (ii) the results of operations of any person acquired
in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded, (iii) Net Income
attributable to any Person other than a Subsidiary that is at
least 50% owned by the Company shall be included only to the
extent of the amount of cash dividends or distributions actually
paid to the Company or a Subsidiary of the Company during such
period, (iv) any extraordinary charge resulting from the
repurchase of the Debentures shall be excluded and (v) the
cumulative effect of a change in accounting principles based upon
the implementation of a change required by the Financial
Accounting Standards Board shall be excluded.
"Consolidated Net Worth" means, for any fiscal period, the
net stockholders' equity of the Company and its Subsidiaries as
the same would appear on the consolidated balance sheet of the
Company as at the end of such fiscal period prepared in
accordance with GAAP.
"Continuing Directors" means members of the Board of
Directors of the Company who (i) are members of the Board of
Directors on the date hereof or (ii) were nominated for election
or elected to the Board of Directors with the affirmative vote of
a majority of the Continuing Directors who were members of the
Board of Directors at the time of such nomination or election.
"Conversion Agent" means the Trustee or any successor entity
thereto.
"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in
case no such sale takes place on such date, the average of the
closing bid and asked prices, regular way, in either case as
reported for consolidated transactions on the New York Stock
Exchange or, if the security is not listed or admitted to trading
on the New York Stock Exchange, as reported for consolidated
transactions with respect to securities listed on the principal
national securities exchange on which such security is listed or
admitted to trading or, if the security is not listed or admitted
to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if the
security is not quoted by any such organization, the average of
the closing bid and asked prices furnished by a New York Stock
Exchange member firm selected by the Company. "Current Market
Price" means, when used with respect to any Property other than a
security as of any date, the market value of such Property on
such date as determined by the Board of Directors of the Company
in good faith, which shall be entitled to rely for such purposes
on the advice of any firm of investment bankers or appraisers
having familiarity with such Property.
"Debt" with respect to any Person as of any date means and
includes (without duplication) (i) the principal of and premium,
if any, in respect of indebtedness of such Person, contingent or
otherwise, for borrowed money, including, without limitation, all
interest, fees and expenses owed with respect thereto (whether or
not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments, or representing the
deferred and unpaid balance of the purchase price of any property
or interest therein or services, if and to the extent such
indebtedness would appear as a liability (other than a liability
for accounts payable and accrued expenses incurred in the
ordinary course of business) upon a balance sheet of such Person
prepared on a consolidated basis in accordance with GAAP, (ii)
all obligations issued or contracted for as payment in
consideration of the purchase by such Person of Capital Stock or
substantially all of the assets of another Person or as a result
of a merger or a consolidation (other than any earn-outs or
installment payments), (iii) all Capitalized Lease Obligations of
such Person, (iv) all obligations of such Person in respect of
letters of credit or similar instruments or reimbursement of
letters of credit or similar instruments (whether or not such
items would appear on the balance sheet of such Person), (v) all
net obligations of such Person in respect of interest rate
protection and foreign currency hedging arrangements, (vi) all
guarantees by such Person of items that would constitute Debt
under this definition (whether or not such items would appear on
such balance sheet), and (vii) the amount of all obligations of
such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock, but only to the extent such
obligations arise on or prior to January 1, 2004; provided,
however, that Debt issued at a discount from par shall be treated
as if issued at par. The amount of Debt of any person at any
date shall be the outstanding balance on such date of all
unconditional obligations as described above and the maximum
determinable liability, upon the occurrence of the liability
giving rise to the obligation, of any contingent obligations
referred to in clauses (i), (iv), (vi) and (vii) above at such
date.
"Debt to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (i) (a) the aggregate principal
amount of all outstanding Debt of the Company and its
Subsidiaries as of such date on a consolidated basis plus (b) the
aggregate par or stated value of all outstanding Preferred Stock
of the Company and its Subsidiaries as reflected on the Company's
most recent consolidated balance sheet prepared in accordance
with GAAP (excluding any such Preferred Stock held by the Company
or a wholly owned Subsidiary of the Company) or, if greater with
respect to any class of Capital Stock which is Disqualified
Stock, the aggregate redemption amount thereof as reflected on
the Company's most recent consolidated balance sheet (excluding
any such Disqualified Stock held by the Company or a wholly owned
Subsidiary of the Company) to (ii) Operating Cash Flow of the
Company and its Subsidiaries on a consolidated basis for the four
most recent full fiscal quarters ending immediately prior to such
date, determined on a pro forma basis as set forth in Section
4.13.
"Debentures Custodian" means, with respect to the Debentures
issued in global form, initially, the Trustee and any successor
entity thereto or such other Person as appointed by the Company
from time to time in accordance with the provisions of this
Indenture.
"Default" means any event which is, or with the passage of
time or the giving of notice or both would be, an Event of
Default.
"Depositary" means, with respect to the Debentures issued in
global form, the Person specified in Section 2.3 as the
Depositary with respect to the Debentures, until a successor
shall have been appointed and become such pursuant to the
applicable provisions of this Indenture, and, thereafter
"Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock which, by its
terms or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof or mandatorily (except to the extent that such
exchange or conversion right cannot be exercised or such
mandatory conversion cannot occur prior to January 1, 2004), is,
or upon the happening of an event or the passage of time would
be, (a) required to be redeemed or repurchased by the Company or
any of its Subsidiaries, including at the option of the holder,
in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due
prior to January 1, 2004 or (b) exchangeable or convertible into
debt securities of the Company or any of its Subsidiaries at the
option of the holder thereof or mandatorily, except to the extent
that such exchange or conversion right cannot be exercised or
such mandatory conversion cannot occur on or prior to January 1,
2004.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any
interpretations or regulations that have been proposed but that
have not become effective.
"Gross Agreement" means the Employment, Non-Competition and
Termination Agreement between the Company and David E. Gross,
dated as of July 20, 1994.
"Holder" means a Person in whose name a Debenture is
registered on the Register.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Independent Directors" means directors that (i) are not 20%
or greater stockholders of the Company or the designee of any
such stockholder, (ii) are not officers or employees of the
Company, any of its Subsidiaries or of a stockholder referred to
above in clause (i), (iii) are not Related Persons and (iv) do
not have relationships that, in the opinion of the Board of
Directors, would interfere with their exercise of independent
judgment in carrying out the responsibilities of the directors.
"Interest Payment Date" means April 1 and October 1 of each
year, commencing April 1, 1996.
"Investment" means any loan or advance to any Person, any
acquisition of any interest in any other Person (including (i)
with respect to a corporation, any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate
stock, including any Preferred Stock and any securities
convertible or exchangeable for any of the foregoing, bonds,
notes, debentures, loans or other securities or Debt of such
other Person and (ii) with respect to a partnership or similar
person, any and all units, interests, rights to purchase,
warrants, options, participations or other equivalents of or
other partnership interests in (however designated) such Person
and any securities convertible or exchangeable for any of the
foregoing), any capital contribution to any other person, or any
other investment in any other Person, other than (a) advances to
officers and employees in the ordinary course of business, (b)
creation of receivables in the ordinary course of business and
(c) negotiable instruments endorsed for collection in the
ordinary course of business.
"Legal Holiday" means a Saturday, Sunday or any day on which
banking institutions in the state in which the principal
corporate trust office of the Trustee are required or authorized
by law or other governmental action to be closed.
"Lien" means any mortgage, lien, pledge, charge, security
interest or other encumbrance of any nature whatsoever (including
any conditional sale or other title retention agreement, any
lease in the nature thereof and any agreement to give any
security interest).
"Net Income" of any Person means the net income (or loss) of
such person, determined in accordance with GAAP, excluding,
however, from the determination of Net Income any extraordinary
gain (but not loss) and any gain (but not loss) realized upon the
sale or other disposition (including, without limitation,
dispositions pursuant to sale-leaseback transactions) of any real
property or equipment of such Person, which is not sold or
otherwise disposed of in the ordinary course of business, or of
any Capital Stock of a Subsidiary of such Person.
"Newman Agreement" means the employment, non-competition and
retirement agreement between the Company and Leonard Newman,
pursuant to which Mr. Newman is expected to receive certain
compensation from the Company for consulting services and a non-
compete arrangement. In addition pursuant to such agreement, Mr.
Newman will receive certain retirement benefits.
"1998 Debentures" means the 8 1/2% Convertible Subordinated
Debentures of the Company due August 1, 1998.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer,
any Assistant Treasurer, the Controller, the Secretary, any
Assistant Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed by two
Officers, one of whom must be the Chairman of the Board, the
President, the Treasurer or a Vice-President of the Company, that
meets the requirements of Sections 12.4 and 12.5 hereof.
"Operating Cash Flow" means, with respect to the Company and
its Subsidiaries for any period, the Consolidated Net Income of
the Company and its Subsidiaries for such period, plus (i)
extraordinary net losses and net losses on sales of assets other
than in the ordinary course of business during such period, to
the extent such losses were deducted in computing Consolidated
Net Income, plus (ii) provision for taxes based on income or
profits, to the extent such provision for taxes was included in
computing such Consolidated Net Income, and any provision for
taxes utilized in computing the net losses under clause (i)
hereof, plus (iii) to the extent deducted in calculating
Consolidated Net Income, Total Interest Expense of the Company
and its Subsidiaries for such period, plus (iv) depreciation,
amortization and all other non-cash charges, to the extent such
depreciation, amortization and other non-cash charges (excluding
any such non-cash charges to the extent that they require an
accrual of or reserve for cash charges for any future periods)
were deducted in calculating such Consolidated Net Income
(including amortization of goodwill and other intangibles).
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee that meets
the requirements of Sections 12.4 and 12.5 hereof. The counsel
may be an employee of or counsel to the Company or the Trustee.
"Permitted Debt" means (i) Debt evidenced by the Debentures
in an aggregate principal amount not to exceed $25 million, (ii)
Debt owed by the Company to any wholly owned Subsidiary of the
Company or (iii) Debt owed by any wholly owned Subsidiary of the
Company to the Company or any other wholly owned Subsidiary of
the Company, (iv) Debt owed to Leonard Newman pursuant to the
Newman Agreement, (v) Capitalized Lease Obligations not in excess
of an aggregate of $2 million at any one time outstanding, plus
any Capitalized Lease Obligations from an acquisition outstanding
on the date of such acquisition, (vi) performance bonds or
letters of credit incurred in the ordinary course of business or
in connection with government contracts, (vii) deferred income
taxes as defined in accordance with GAAP, (viii) Debt
constituting inter-company payables or receivables between or
among the Company and its Subsidiaries incurred in the ordinary
course of business or (ix) Refinancing Debt.
"Permitted Investments" means (i) Investments in the Company
or in a Subsidiary of the Company; (ii) Investments by the
Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (a) such Person becomes or is a wholly
owned Subsidiary of the Company or the Subsidiary making such
Investment or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company, the
Subsidiary making such Investment or a wholly owned Subsidiary of
either the Company or such Subsidiary making such Investment
(provided that any subsequent issuance or transfer of any
interests or other transaction which results in any such wholly
owned Subsidiary ceasing to be a wholly owned Subsidiary of the
Company, the Subsidiary making such Investment or another wholly
owned Subsidiary of either the Company or such Subsidiary making
such Investment or any subsequent transfer of such Permitted
Investment (other than to the Company, the Subsidiary making such
Investment or another wholly owned Subsidiary of either the
Company or such Subsidiary making such Investment) shall be
deemed for the purposes hereof to constitute the making of a new
Investment by the maker thereof and therefore subject to a new
determination of whether such Investment qualifies as a Permitted
Investment); (iii) U.S. Government Obligations maturing within
one year of the date of acquisition thereof; (iv) certificates of
deposit maturing within one year of the date of acquisition
thereof issued by a bank or trust company that is organized under
the laws of the United States or any state thereof having
capital, surplus and undivided profits aggregating in excess of
$100,000,000; (v) repurchase agreements with respect to U.S.
Government Obligations; and (vi) Investments in commercial paper
rated at least A1 or the equivalent thereof by Standard & Poor's
Corporation or P1 or the equivalent thereof by Moody's Investor
Services, Inc. and maturing not more than 90 days from the date
of the acquisition thereof.
"Permitted Liens" means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet
delinquent or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (ii) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other Liens imposed by law and arising in the
ordinary course of business and with respect to amounts that, to
the extent applicable, either (a) are not yet delinquent by more
than 30 days or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have
been established or other provisions have been made in accordance
with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security; (iv) judgment or other similar
Liens arising in connection with court proceedings, provided that
(a) the execution or enforcement of each such Lien is effectively
stayed within 30 days after entry of such judgment (or such
judgment has been discharged within such 30 day period), the
claims secured thereby are being contested in good faith by
appropriate proceedings timely commenced and diligently
prosecuted and the aggregate amount of the claims secured thereby
does not exceed $1,000,000 at any time or (b) the payment of
which is covered in full by insurance and the insurance company
has not denied or contested coverage thereof; (v) Liens existing
on property or assets of any entity at the time it becomes a
Subsidiary of the Company or existing on property or assets at
the time of the acquisition thereof by the Company or any of its
Subsidiaries, which Liens were not created or assumed in
contemplation of, or in connection with, such entity becoming a
Subsidiary of the Company or such acquisition, as the case may
be, and which attach only to such property or assets, provided
that the Debt secured by such Liens is not thereafter increased;
(vi) Liens incurred in connection with Capitalized Lease
Obligations otherwise permitted under this Indenture; (vii) Liens
securing Refinancing Debt, provided that such Liens only extend
to the property or assets securing the Debt being refinanced,
such Refinanced Debt was previously secured by similar Liens on
such property or assets and the Debt or other obligations secured
by such Liens is not increased; (viii) Liens securing the advance
of progress payments or deposits made by the United States or any
foreign government or any instrumentality thereof or any prime
contractor for any such government or instrumentality and
received by the Company in the ordinary course of its business;
(ix) the Lien created by the Master Security Agreement between
General Electric Capital Corporation and OMI Acquisition
Corporation dated as of August 28, 1995; and (x) any other Liens
existing on the date of the Indenture.
"Person" means any individual, corporation, partnership,
association, trust or any other entity or organization, including
a government or political subdivision or any agency or
instrumentality thereof.
"Preferred Stock" means, with respect to any Person, Capital
Stock of such Person of any class or classes (however designated)
which is preferred as to the payments of dividends or
distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
Person, over any other class of the Capital Stock of such Person.
"Principal" of a debt security means the principal of the
security plus the premium, if any, on the security.
"Property" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person
whether or not included on the most recent consolidated balance
sheet of such Person in accordance with GAAP.
"Qualified Stock" means Capital Stock of the Company that is
not Disqualified Stock.
"Quoted Price" of the Common Stock means the last reported
sales price of the Common Stock as reported by NASDAQ, National
Market System, or if the Common Stock is listed on a securities
exchange, the last reported sales price of the Common Stock on
such exchange which shall be for consolidated trading if
applicable to such exchange or if neither so reported or listed,
the last reported bid price of the Common Stock.
"Refinancing Debt" means Debt that refunds, refinances or
extends any Debentures, or other Debt existing on the date hereof
or hereafter incurred by the Company or its Subsidiaries pursuant
to the terms of this Indenture, but only to the extent that (i)
the Refinancing Debt is subordinated to the Debentures to the
same extent as the Debt being refunded, refinanced or extended,
if at all, (ii) the Refinancing Debt is scheduled to mature
either (a) no earlier than the Debt being refunded, refinanced or
extended, or (b) after the maturity date of the Debentures, (iii)
the portion, if any, of the Refinancing Debt that is scheduled to
mature on or prior to the maturity date of the Debentures has a
Weighted Average Life to Maturity at the time such Refinancing
Debt is incurred that is equal to or greater than the Weighted
Average Life to Maturity of the portion of the Debt being
refunded, refinanced or extended that is scheduled to mature on
or prior to the maturity date of the Debentures, (iv) such
Refinancing Debt is in an aggregate principal amount that is
equal to or less than the aggregate principal amount then
outstanding under the Debt being refunded, refinanced or
extended, plus customary fees and expenses associated with
refinancing and (v) such Refinancing Debt is incurred by the same
Person that initially incurred the Debt being refunded,
refinanced or extended, except that (a) the Company may incur
Refinancing Debt to refund, refinance or extend Debt of any
Subsidiary of the Company, and (b) any Subsidiary of the Company
may incur Refinancing Debt to refund, refinance or extend Debt of
any other wholly owned Subsidiary of the Company.
"Related Person" means an individual related to an officer,
director or employee of the Company or any of its Affiliates
which relation is by blood, marriage or adoption and not more
remote than first cousin.
"Representative" means the indenture trustee or other
trustee, agent or representative for an issue of Senior
Indebtedness.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Senior Indebtedness" means the principal of and premium, if
any, and interest on (a) the Debt of the Company or any of its
Subsidiaries which is outstanding on the date of this Indenture
and has been provided by a bank that is not an Affiliate of the
Company or by any state or local government or agency thereof,
(b) any Debt hereafter incurred by the Company or any of its
Subsidiaries which expressly states that it is senior in right of
payment to the Debentures and is provided by a bank that is not
an Affiliate of the Company, (c) any Debt, whether outstanding on
the date of this Indenture or hereafter incurred, which evidences
the obligation of the Company or any of its Subsidiaries to
refund any progress payments or deposits to the United States or
any foreign government or any instrumentality thereof or any
prime contractor for any such government or instrumentality and
(d) amendments, renewals, extensions, modifications and
refundings of any such Debt, whether any such Debt described in
clause (a), (b) or (c) is outstanding on the date of this
Indenture or hereafter created, incurred or assumed, unless, in
any case, the instrument creating or evidencing any such Debt
pursuant to which the same is outstanding provides that such Debt
is not superior in right of payment to the Debentures.
"Subsidiary" of any Person means a corporation or other
entity a majority of whose Capital Stock with voting power, under
ordinary circumstances, entitling holders of such Capital Stock
to elect the board of directors or other governing body, is at
the time, directly or indirectly, owned by such Person and/or a
Subsidiary or Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939 (U.S. Code SECTION
77aaa-77bbbb) as in effect on the date of execution of this
Indenture; provided, however, that in the event the TIA is
amended after such date, "TIA" means, to the extent required by
any such amendments, to the TIA as so amended.
"Total Interest Expense" means, for any period, the interest
expense of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP,
whether paid or accrued (including amortization of original issue
discount, non-cash interest payments and the interest component
of capital leases, but excluding amortization of debt and
Preferred Stock issuance costs).
"Transfer Restricted Securities" means Debentures that bear
or are required to bear the legend set forth in Section 2.6(g)
hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter "Trustee" shall mean
such successor.
"Trust Officer" means any officer or corporate trust officer
or assistant corporate trust officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.
"U.S. Government Obligations" means non-callable (i) direct
obligations (or certificates representing an ownership interest
in such obligations) of the United States for which its full
faith and credit are pledged and (ii) obligations of a person
controlled or supervised by, and acting as an agency or
instrumentality of, the United States, the payment of which is
unconditionally guaranteed as a full faith and credit obligation
of the United States.
"Weighted Average Life to Maturity" means, when applied to
any Debt or Preferred Stock or portions thereof (if applicable)
at any date, the number of years obtained by dividing (i) the
then outstanding principal amount or liquidation amount of such
Debt or Preferred Stock or portions thereof (if applicable) into
(ii) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
Section 1.2. Other Definitions.
Term Defined in Section
"Agent Members" . . . . . . . . . . . . . . . . . . . . 2.1
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . 6.1
"Change of Control Date" . . . . . . . . . . . . . . . . 4.9
"Change of Control Offer" . . . . . . . . . . . . . . . 4.9
"Change of Control Notice" . . . . . . . . . . . . . . . 4.9
"Change of Control Payment" . . . . . . . . . . . . . . 4.9
"Change of Control Payment Date" . . . . . . . . . . . . 4.9
"Conversion Price" . . . . . . . . . . . . . . . . . . 10.1
"Custodian" . . . . . . . . . . . . . . . . . . . . . . 6.1
"Deficiency Date" . . . . . . . . . . . . . . . . . . . 4.5
"Deficiency Offer" . . . . . . . . . . . . . . . . . . . 4.5
"Deficiency Notice" . . . . . . . . . . . . . . . . . . 4.5
"Deficiency Payment Date" . . . . . . . . . . . . . . . 4.5
"Deficiency Repurchase Amount" . . . . . . . . . . . . . 4.5
"Definitive Securities" . . . . . . . . . . . . . . . . 2.1
"Event of Default" . . . . . . . . . . . . . . . . . . . 6.1
"Global Security" . . . . . . . . . . . . . . . . . . . 2.1
"Incur" . . . . . . . . . . . . . . . . . . . . . . . 4.13
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . 2.3
"Purchase Agreement" . . . . . . . . . . . . . . . . . . 2.1
"Reference Period" . . . . . . . . . . . . . . . . . . 4.13
"Register" . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payment" . . . . . . . . . . . . . . . . . . 4.6
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . 2.1
Section 1.3. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the
TIA, which are incorporated by reference in and made part of this
Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Debentures;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means
the Trustee;
"obligor" on the Debentures means the Company and any
successor obligor upon the Debentures.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined
by SEC rule under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular; and
(5) provisions apply to successive events and
transactions.
(6) references to sections of or rules under the
Securities Act shall be deemed to include
substitute, replacement or successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE DEBENTURES
Section 2.1. Form and Dating.
The Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A
which is hereby incorporated in and expressly made a part of this
Indenture. The Debentures may have notations, legends or
endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to
the Company). Each Debenture shall be dated the date of its
authentication. The terms of the Debentures set forth in Exhibit
A are part of the terms of this Indenture. The Debentures are
general unsecured obligations of the Company limited to $25
million in aggregate principal amount, subject to Section 2.7.
(a) Global Securities. The Debentures are being offered
and sold by the Company pursuant to a Purchase Agreement, dated
concurrently herewith, between the Company and Forum Capital
Markets L.P. (the "Purchase Agreement").
Debentures offered and sold to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
reliance on Rule 144A under the Securities Act ("Rule 144A") as
provided in the Purchase Agreement, shall be issued initially in
the form of one or more permanent global securities in
definitive, fully registered form without interest coupons and
with the Global Securities Legend and, unless removed in
accordance with Section 2.6(g) hereof, the Restricted Securities
Legend set forth in Exhibit A hereto (each, a "Global Security"),
which shall be deposited on behalf of the purchasers of the
Debentures represented thereby with the Trustee, at its Jersey
City, New Jersey office, as custodian for the Depositary, and
registered in the name of the Depositary or a nominee of the
Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount
of the Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee and
the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to any Global Security deposited with or on behalf of the
Depositary.
The Company shall execute and the Trustee shall, in
accordance with this Section 2.1(b), authenticate and deliver
initially one or more Global Securities that (i) shall be
registered in the name of the Depositary for such Global Security
or Global Securities or the nominee of the Depositary and (ii)
shall be delivered by the Trustee to the Depositary or pursuant
to the Depositary's instructions or held by the Trustee as
custodian for the Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect
to any Global Security held on their behalf by the Depositary or
by the Trustee as the custodian of the Depositary or under such
Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or
impair, as between the Depositary and its Agent Members, the
operation of customary practices of the Depositary governing the
exercise of the rights of a holder of a beneficial interest in
any Global Security.
(c) Certificated Securities. Except as provided in Section
2.10, owners of beneficial interests in Global Securities will
not be entitled to receive physical delivery of certificated
Debentures. Debentures offered and sold to Persons who are not
"qualified institutional buyers" shall be issued certificated
Debentures in definitive, fully registered form without interest
coupons, with the Restricted Securities Legend and, if such
Person is an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act), the
Institutional Accredited Investor Legend, but without the
Schedule of Exchanges of Global Security for Definitive
Securities, set forth in Exhibit A hereto ("Definitive
Securities"); provided, however, that upon transfer of such
Definitive Securities to a "qualified institutional buyer," such
Definitive Securities will, unless the Global Security has
previously been exchanged, be exchanged for an interest in a
Global Security pursuant to the provisions of Section 2.6 hereof.
After a transfer of any Debentures during the period of the
effectiveness of a registration statement under the Securities
Act with respect to the Debentures, all requirements pertaining
to legends on such Debentures will cease to apply, the
requirements requiring any such Debentures issued to certain
Holders be issued in global form will cease to apply, and a
certificated Debenture without legends will be available to the
transferee of the Holder of such Debentures upon exchange of such
transferring Holder's certificated Debentures or directions to
transfer such Holder's interest in the Global Security, as
applicable.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Debentures for the Company by
manual or facsimile signature. The Company's seal shall be
reproduced on the Debentures and may be in facsimile form.
If an Officer whose signature is on a Debenture no longer
holds that office at the time such Debenture is authenticated,
such Debenture shall nevertheless be valid.
A Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be
conclusive evidence that the Debenture has been authenticated
under this Indenture.
The Trustee shall authenticate Debentures for original issue
up to the aggregate principal amount stated in Paragraph 4 of the
Debentures, upon a written order of the Company signed by an
Officer to a Trust Officer directing the Trustee to authenticate
the Debentures and certifying that all conditions precedent to
the issuance of the Debentures contained herein have been
complied with. The aggregate principal amount of Debentures
outstanding at any time may not exceed such amount, except as
provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent reasonably
acceptable to and at the expense of the Company to authenticate
Debentures. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent
to deal with the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency where
Debentures may be presented for registration of transfer or for
exchange (the "Registrar") and an office or agency where
Debentures may be presented for payment (the "Paying Agent"). The
Registrar shall keep a register of the Debentures (the
"Register") and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this
Indenture. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar. If the Company fails to appoint or
maintain itself or another entity as Registrar or Paying Agent,
the Trustee shall act as such.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to
this Indenture, which shall incorporate the terms of the TIA.
The agreement shall implement the provisions of this Indenture
that relate to such agent. The Company shall notify the Trustee
of the name and address of any such agent. If the Company fails
to maintain a Registrar or Paying Agent, the Trustee shall act as
such and shall be entitled to appropriate compensation therefor
pursuant to Section 7.7. The Company or any of its wholly owned
Subsidiaries may act as Paying Agent, Registrar, co-registrar or
transfer agent.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Security.
The Company initially appoints the Trustee to act as
Registrar and Paying Agent with respect to the Global Security.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent will hold in
trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal or interest on the
Debentures, and will notify the Trustee of any default by the
Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee and account for any money
disbursed by it. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and account for
any money disbursed by it. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary of the
Company) shall have no further liability for the money delivered
to the Trustee. If the Company or a Subsidiary of the Company
acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings
relating to the Company, the Trustee shall serve as Paying Agent
for the Debentures.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of
the names and addresses of Holders and shall otherwise comply
with TIA SECTION312(a). If the Trustee is not the Registrar, the
Company shall furnish to the Trustee at least three Business Days
before each Interest Payment Date and, at such other times as the
Trustee may request in writing, within five Business Days after
such request a list in such form and as of such date as the
Trustee may reasonably require, and which the Trustee may
conclusively rely upon, of the names and addresses of Holders,
and the Company shall otherwise comply with TIA SECTION 312(a).
Section 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Registrar with the
request:
(x) to register the transfer of the Definitive
Securities; or
(y) to exchange such Definitive Securities for an
equal principal amount of Definitive
Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met;
provided, however, that the Definitive Securities presented or
surrendered for register of transfer or exchange:
i) shall be duly endorsed or accompanied by a
written instruction of transfer in form and
substance satisfactory to the Registrar duly
executed by the Holder thereof or by his or
her attorney, duly authorized in writing; and
ii) in the case of Transfer Restricted Securities
that are Definitive Securities, shall be
accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a
Holder for registration in the name of
such Holder, without transfer, a
certification from such Holder to that
effect (in the form set forth on the
reverse of the Debentures); or
(B) if such Transfer Restricted Security is
being transferred to the Company or a
"qualified institutional buyer" (as
defined in Rule 144A) in accordance with
Rule 144A, a certification to that
effect (in the form set forth on the
reverse of the Debentures); or
(C) if such Transfer Restricted Securities
are being transferred (w) pursuant to an
exemption from registration in
accordance with Rule 144 or Regulation S
under the Securities Act; or (x) to an
institutional "accredited investor"
within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act
that is acquiring the security for its
own account, or for the account of such
an institutional accredited investor, in
each case in a minimum principal amount
of Debentures of $250,000 for investment
purposes and not with a view to, or for
offer or sale in connection with, any
distribution in violation of the
Securities Act; or (y) in reliance on
another exemption from the registration
requirements of the Securities Act: (i)
a certification to that effect (in the
form set forth on the reverse of the
Debentures), (ii) if the Company,
Trustee or Registrar so requests, an
Opinion of Counsel reasonably acceptable
to the Company, Trustee and Registrar to
the effect that such transfer is in
compliance with the Securities Act and
(iii) in the case of clause (x), a
signed letter in substantially the form
of Exhibit B hereto.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security
may not be exchanged for a beneficial interest in a Global
Security except upon satisfaction of the requirements set forth
below. Upon receipt by the Trustee of a Definitive Security,
duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Trustee, together with:
i) if such Definitive Security is a Transfer
Restricted Security, certification, substantially
in the form of Exhibit B hereto, that such
Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in
Rule 144A) in accordance with Rule 144A; and
ii) whether or not such Definitive Security is a
Transfer Restricted Security, written instructions
directing the Trustee to make, or to direct the
Debentures Custodian to make, an endorsement on
the Global Security to reflect an increase in the
aggregate principal amount of the Debentures
represented by the Global Security,
then the Trustee shall cancel such Definitive Security in
accordance with Section 2.11 hereof and cause, or direct the
Debentures Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and
the Debentures Custodian, the aggregate principal amount of
Debentures represented by the Global Security to be increased
accordingly. If no Global Security is then outstanding, the
Company shall issue and the Trustee shall authenticate a new
Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Security. The transfer
and exchange of a Global Security or beneficial interests therein
shall be effected through the Depositary in accordance with this
Indenture (including the restrictions on transfer set forth
herein) and the procedures of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Security
for a Definitive Security.
i) Any Person having a beneficial interest in a
Global Security that is being exchanged or
transferred pursuant to an effective registration
statement under the Securities Act or pursuant to
clause (A), (B) or (C) below may upon request, and
if accompanied by the information specified below,
exchange such beneficial interest for a Definitive
Security of the same aggregate principal amount.
Upon receipt by the Trustee of written
instructions or such other form of instructions as
is customary for the Depositary, from the
Depositary, or its nominee on behalf of any Person
having a beneficial interest in a Global Security,
and upon receipt by the Trustee of a written order
or such other form of instructions, and, in the
case of a Transfer Restricted Security only, the
following additional information and documents
(all of which may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification from such Person to that effect
(in the form set forth on the reverse of the
Debentures) or
(B) if such beneficial interest is being
transferred to a "qualified institutional
buyer" (as defined in Rule 144A) in
accordance with Rule 144A, a certification to
that effect from the transferor (in the form
set forth on the reverse of the Debentures);
or
(C) if such beneficial interest is being
transferred (w) pursuant to an exemption from
registration in accordance with Rule 144 or
Regulation S under the Securities Act; or (x)
to an institutional "accredited investor"
within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act that is
acquiring the security for its own account,
or for the account of such an institutional
accredited investor, in each case in a
minimum principal amount of Debentures of
$250,000 for investment purposes and not with
a view to, or for offer or sale in connection
with, any distribution in violation of the
Debentures; or (y) in reliance on another
exemption from the registration requirements
of the Securities Act: (i) a certification to
that effect from the transferee or transferor
(in the form set forth on the reverse of the
Debentures), (ii) if the Company, Trustee or
Registrar so requests, an Opinion of Counsel
from the transferee or transferor reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer is
in compliance with the Securities Act, and
(iii) in the case of clause (x), a signed
letter in substantially the form of Exhibit B
hereto,
then the Trustee or the Debentures Custodian, at
the direction of the Trustee, will cause, in
accordance with the standing instructions and
procedures existing between the Depositary and the
Debentures Custodian, the aggregate principal
amount of the Global Security to be reduced on its
books and records and, following such reduction,
the Company will execute and, upon receipt of an
authentication order in the form of an Officers'
Certificate in accordance with Section 2.2 hereof,
the Trustee will authenticate and deliver to the
transferee a Definitive Security in the
appropriate principal amount.
ii) Definitive Debentures issued in exchange for a
beneficial interest in a Global Security pursuant
to this Section 2.6(d) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from the
Agent Members or otherwise, shall instruct the
Trustee. The Trustee shall deliver such
Definitive Securities to the Persons in whose
names such Debentures are so registered.
(e) Restrictions on Transfer and Exchange of Global
Security. Notwithstanding any other provisions of this Indenture
(other than the provisions set forth in Section 2.6(f)), a Global
Security may not be transferred as a whole or in part except by
the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
i) the Depositary notifies the Company that the
Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a
successor Depositary for the Global Securities is
not appointed by the Company within 90 days after
delivery of such notice; or
ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the
issuance of Definitive Securities under this
Indenture,
then the Company will execute, and the Trustee, upon receipt of
an Officers' Certificate, in accordance with Section 2.2 hereof,
requesting the authentication and delivery of Definitive
Securities, will authenticate and deliver Definitive Securities,
in an aggregate principal amount equal to the principal amount of
the Global Securities, in exchange for such Global Securities.
(g) Legends.
i) Except as permitted by the following paragraph
(ii), each Debenture certificate evidencing the
Global Securities and the Definitive Securities
(and all Debentures issued in exchange therefor or
in substitution thereof) shall bear a legend in
substantially the following form:
"THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS DEBENTURE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. EACH
PURCHASER OF THIS DEBENTURE IS HEREBY NOTIFIED THAT THE
SELLER OF THIS DEBENTURE MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
"THE HOLDER OF THIS DEBENTURE AGREES FOR THE BENEFIT OF
THE COMPANY THAT (A) THIS DEBENTURE MAY BE OFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (IV)
TO THE COMPANY OR (V) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, IN EACH OF CASES (I) THROUGH (V) IN
ACCORDANCE WITH ANY APPLICABLE FEDERAL OR STATE
SECURITIES LAWS AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THIS DEBENTURE FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted
Security represented by a Global Security)
pursuant to Rule 144 under the Securities Act or
an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Security that does not bear
the legends set forth above and rescind any
restriction on the transfer of such Transfer
Restricted Security; and
(B) any such Transfer Restricted Security
represented by a Global Security shall not be
subject to the provisions set forth in (i)
above (such sales or transfers being subject
only to the provisions of Section 2.6(e));
provided, however, that with respect to any
request for an exchange of a Transfer
Restricted Security that is represented by a
Global Security for a Definitive Security
that does not bear a legend, which request is
made in reliance upon Rule 144 under the
Securities Act, the Holder thereof shall
certify in writing to the Registrar that such
request is being made pursuant to Rule 144
under the Securities Act (such certification
to be in the form set forth on the reverse of
the Debentures).
(h) Cancellation and/or Adjustment of Global Security. At
such time as all beneficial interests in a Global Security have
either been exchanged for Definitive Securities, redeemed,
repurchased or cancelled, such Global Security shall be returned
to or retained and cancelled by the Trustee in accordance with
Section 2.11. At any time prior to such cancellation, if any
beneficial interest in a Global Security is exchanged for
Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Debentures represented by such Global
Security shall be reduced accordingly and an endorsement shall be
made on such Global Security, by the Trustee or the Debentures
Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
Definitive Securities.
i) To permit registrations of transfers and
exchanges, the Company shall execute and the
Trustee shall authenticate Definitive Securities
and a Global Security at the Registrar's request.
(ii) No service charge shall be made for any
registration of transfer or exchange, but the
Company may require payment of a sum sufficient to
cover any transfer tax, assessments or similar
governmental charge payable in connection
therewith.
(iii) The Registrar or co-registrar shall not be
required to register the transfer of or
exchange of (a) any Definitive Security
selected for redemption in whole or in part
pursuant to Article 3, except the unredeemed
portion of any Definitive Security being
redeemed in part, or (b) any Debenture during
the 15 day period preceding the mailing of a
notice of redemption or an offer to
repurchase or redeem Debentures or the 15 day
period preceding an Interest Payment Date.
(iv) Prior to the due presentation for registration of
transfer of any Debenture, the Company, the
Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the Person in
whose name a Debenture is registered as the
absolute owner of such Debenture for the purpose
of receiving payment of principal of and interest
on such Debenture and for all other purposes
whatsoever, whether or not such Debenture is
overdue, and none of the Company, the Trustee, the
Paying Agent, the Registrar or any co-registrar
shall be affected by notice to the contrary.
(v) All Debentures issued upon any transfer or
exchange pursuant to the terms of this Indenture
shall evidence the same debt and shall be entitled
to the same benefits under this Indenture as the
Debentures surrendered upon such transfer or
exchange.
(j) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or
obligation to any beneficial owner of a Global
Security, a member of, or a participant in the
Depositary or other Person with respect to the
accuracy of the records of the Depositary or its
nominee or of any participant or member thereof,
with respect to any ownership interest in the
Debentures or with respect to the delivery to any
participant, member, beneficial owner or other
Person (other than the Depositary) or any notice
(including any notice of redemption) or the
payment of any amount, under or with respect to
such Debentures. All notices and communications
to be given to the Holders and all payments to be
made to Holders under the Debentures shall be
given or made only to or upon the order of the
registered Holders (which shall be the Depositary
or its nominee in the case of a Global Security).
The rights of beneficial owners in any Global
Security shall be exercised only through the
Depositary subject to the applicable rules and
procedures of the Depositary. The Trustee may
rely and shall be fully protected in relying upon
information furnished by the Depositary with
respect to its members, participants and any
beneficial owners.
(ii) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under
this Indenture or under applicable law with
respect to any transfer of any interest in any
Debenture (including any transfers between or
among the Agent Members or beneficial owners in
any Global Security) other than to require
delivery of such certificates and other
documentation or evidence as are expressly
required by, and to do so if and when expressly
required by, the terms of this Indenture, and to
examine the same to determine substantial
compliance as to form with the express
requirements hereof.
Section 2.7. Replacement Debentures.
If any mutilated Debenture is surrendered to the Trustee,
the Registrar or Debentures Custodian, or if the Holder of a
Debenture claims that such Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee, upon
the written order of the Company signed by an Officer, shall
authenticate a replacement Debenture if the Trustee's
requirements are met. If required by the Trustee or the Company,
an indemnity bond shall be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to
protect the Company, the Trustee, any Agent and any
authenticating agent from any loss which any of them may suffer
if a Debenture is replaced. The Company may charge the Holder
for its expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of
the Company and shall be entitled to all benefits of this
Indenture equally and proportionately with all other Debentures
duly issued hereunder.
Section 2.8. Outstanding Debentures.
The Debentures outstanding at any time are all the
Debentures authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation, those
reductions in the interest in a Global Security effected by the
Trustee hereunder, and those described in this Section 2.8 as not
outstanding. Except as set forth in Section 2.9 hereof, a
Debenture does not cease to be outstanding because the Company or
an Affiliate holds the Debenture.
If a Debenture is replaced pursuant to Section 2.7 hereof,
it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Debenture is held by a bona
fide purchaser.
If the principal amount of any Debenture is considered paid
under Section 4.1 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of
the Company or an Affiliate of any thereof) segregates and holds
interest, in accordance with this Indenture, on a redemption date
or maturity date money sufficient to pay Debentures payable on
that date, and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on
and after that date such Debentures shall be deemed to be no
longer outstanding and shall cease to accrue interest.
Section 2.9. Treasury Debentures.
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, waiver or
consent, Debentures owned by the Company, or by any Affiliate of
the Company shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent,
only Debentures as to which a Trust Officer of the Trustee knows
are so owned shall be so disregarded.
Section 2.10. Temporary Securities.
(a) Until Definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary
Debentures upon a written order of the Company signed by an
Officer and delivered or cause to be delivered to a Trust
Officer. Temporary Debentures shall be substantially in the form
of Definitive Securities but may have variations that the Company
considers appropriate for temporary Debentures. Without
unreasonable delay, the Company shall prepare and the Trustee
shall authenticate, upon receipt of a written order of the
Company signed by two Officers which shall specify the amount of
the temporary Debentures to be authenticated and the date on
which the temporary Debentures are to be authenticated,
Definitive Securities in exchange for temporary Debentures.
(b) A Global Security deposited with the Depositary or with
the Trustee as custodian for the Depositary pursuant to Section
2.1 shall be transferred to the beneficial owners thereof only if
such transfer complies with Section 2.6 and (i) the Depositary
notifies the Company that it is unwilling or unable to continue
as Depositary for such Global Security or if at any time such
Depositary ceases to be a "clearing agency" registered under the
Exchange Act and a successor depositary is not appointed by the
Company within 90 days after such notice or (ii) an Event of
Default has occurred and is continuing.
(c) Any Global Security that is transferable to the
beneficial owners thereof pursuant to this Section 2.10 shall be
surrendered by the Depositary to the Trustee located in Jersey
City, New Jersey, to be so transferred, in whole or from time to
time in part, without charge, and the Trustee shall authenticate
and deliver, upon such transfer of each portion of such Global
Security, an equal aggregate principal amount of Initial Notes of
authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and
any integral multiple thereof and registered in such names as the
Depository shall direct. Any Debenture delivered in exchange for
an interest in the Global Security shall, except as otherwise
provided by Section 2.6(b) bear the restricted securities legend
set forth in Exhibit A hereto.
(d) Subject to the provisions of Section 2.10(c), the
registered Holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and
Persons that may hold interests through Agent Members, to take
any action which a Holder is entitled to take under this
Indenture or the Debentures.
(e) In the event of the occurrence of either of the events
specified in Section 2.10(b), the Company will promptly make
available to the Trustee, at the Company's expense, a reasonable
supply of certificated Debentures in definitive, fully registered
form without interest coupons.
Section 2.11. Cancellation.
The Company at any time may deliver Debentures to the
Trustee for cancellation. The Registrar and Paying Agent shall
forward to the Trustee any Debentures surrendered to them for
registration of transfer, exchange or payment. The Trustee and
no one else shall cancel all Debentures surrendered for
registration of transfer, exchange, payment, replacement or
cancellation and certification of their destruction (subject to
the record retention requirements of the Exchange Act) shall be
delivered to the Company unless, by a written order, signed by an
Officer, the Company shall direct that cancelled Debentures be
returned to it. The Company may not issue new Debentures to
replace Debentures that it has paid or that have been delivered
to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Debentures, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company shall pay the defaulted interest to
the Persons who are Holders on a subsequent special record date.
The Company shall fix or cause to be fixed (or upon the Company's
failure to do so the Trustee shall fix) any such special record
date and payment date to the reasonable satisfaction of the
Trustee, which specified record date shall not be less than 10
days prior to the payment date for such defaulted interest, and
shall promptly mail or cause to be mailed to each Holder a notice
that states the special record date, the payment date and the
amount of defaulted interest to be paid. The Company shall
notify the Trustee in writing of the amount of defaulted interest
proposed to be paid and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid
in respect of such defaulted interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of
the proposed payment such money when deposited to be held in
trust for the benefit of the Person entitled to such defaulted
interest as in this subsection provided.
Section 2.13. Deposit of Moneys.
Prior to 10:00 a.m. New York City time on each Interest
Payment Date and the maturity date, the Company shall have
deposited with the Paying Agent in immediately available funds
money sufficient to make cash payments, if any, due on such
Interest Payment Date or maturity date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to
the Holders on such Interest Payment Date or maturity date, as
the case may be.
ARTICLE 3.
REDEMPTION
Section 3.1. Notices to Trustee.
If the Company elects to redeem Debentures pursuant to the
optional redemption provisions of paragraph 5 of the Debentures,
it shall notify the Trustee of the redemption date, the principal
amount of Debentures to be redeemed and the redemption price at
least 15 days prior to mailing any notice of redemption to the
Holders (unless the Trustee consents to a shorter period). Such
notice shall be accompanied by an Officers' Certificate from the
Company to the effect that such redemption will comply with the
conditions herein.
The Company shall give notice to the Holders of any
redemption pursuant to this Article 3 at least 30 days but not
more than 60 days before the redemption date. If fewer than all
the Debentures are to be redeemed, the record date relating to
such redemption shall be selected by the Company and given to the
Trustee, which record date shall be not less than 15 days after
the date of notice to the Trustee.
Section 3.2. Selection of Debentures to be Redeemed.
If less than all the Debentures are to be redeemed, the
Trustee shall select the Debentures to be redeemed in compliance
with the requirements of the principal national securities
exchange, if any, on which the Debentures are quoted or listed
or, if the Debentures are not listed, on a pro rata basis, by lot
or by such other method that complies with applicable legal
requirements and that the Trustee considers fair and appropriate.
The Trustee shall make the selection not more than 60 days and
not less than 30 days before the redemption date from Debentures
outstanding and not previously called for redemption. The Trustee
may select for redemption portions of the principal amount of
Debentures that have denominations larger than $1,000.
Debentures and portions of them it selects shall be in amounts of
$1,000 or integral multiples of $1,000. Provisions of this
Indenture that apply to Debentures called for redemption also
apply to portions of Debentures called for redemption. The
Trustee shall notify the Company promptly of the Debentures or
portions of Debentures to be called for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a
redemption date, the Company shall mail a notice of redemption by
first class mail to each Holder whose Debentures are to be
redeemed.
The notice shall identify the Debentures to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Debenture is being redeemed in part, the
portion of the principal amount of such Debenture to be
redeemed and that, after the redemption date, upon surrender
of such Debenture, a new Debenture or Debentures in
principal amount equal to the unredeemed portion will be
issued;
(d) the Conversion Price (as defined in the
Debenture);
(e) the name and address of the Paying Agent and
Conversion Agent;
(f) that Debentures called for redemption may be
converted at any time before the close of business on the
day preceding the redemption date, in accordance with
Article 10;
(g) that Holders who want to convert Debentures must
satisfy the requirements in paragraph 8 of the Debentures;
(h) that unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from
making such payment pursuant to the terms of this Indenture,
Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price; and
(i) that interest on Debentures called for redemption
ceases to accrue on and after the redemption date.
At the Company's request, the Trustee shall give notice of
redemption in the Company's name and at its expense. In such
event, the Company shall provide the Trustee with the information
required by this Section 3.3.
Section 3.4. Effect of Notice of Redemption.
Notice of redemption shall be deemed to be given when mailed
to each Holder at its last registered address, whether or not the
Holder receives such notice. Once notice of redemption is
mailed, Debentures called for redemption become due and payable
on the redemption date at the redemption price set forth in the
Debentures. A notice of redemption may not be conditional. Upon
surrender to the Trustee or Paying Agent, such Debentures called
for redemption shall be paid at the redemption price, plus
accrued but unpaid interest thereon to the redemption date. If
the redemption date is after an Interest Payment Date but prior
to the next succeeding regular interest payment record date,
interest with respect to any Debenture converted after delivery
of the related notice of redemption shall be paid to the Holder
so converting for the period from the last Interest Payment Date
to the date of such conversion. If the redemption date is after
a regular record date and on or prior to the related Interest
Payment Date, the accrued interest shall be payable to Holders of
record on such record date.
Section 3.5. Deposit of Redemption Price.
On or before 10:00 am. New York City time on any redemption
date, the Company shall deposit with the Trustee or with the
Paying Agent available funds sufficient to pay the redemption
price of and accrued interest (if payable under the Debentures)
on all Debentures to be redeemed on that date other than
Debentures or portions of Debentures called for redemption which
prior thereto have been delivered by the Company to the Trustee
for cancellation or have been converted. The Trustee or the
Paying Agent shall return to the Company any money not required
for that purpose.
Section 3.6. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the
Holder at the expense of the Company a new Debenture equal in
principal amount to the unredeemed portion of the Debenture
surrendered.
ARTICLE 4.
COVENANTS
Section 4.1. Payment of Debentures.
The Company shall pay the principal of and interest on the
Debentures on the dates and in the manner provided in the
Debentures or pursuant to this Indenture. Principal and interest
shall be considered paid on the date due if the Paying Agent
(other than the Company or a Subsidiary of the Company) on that
date holds money in accordance with this Indenture designated for
and sufficient to pay in cash all principal and interest then due
and the Paying Agent is not prohibited from paying such money to
Holders on that date pursuant to the terms of this Indenture.
To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any
Bankruptcy Law) on (i) overdue principal at the rate borne by the
Debentures and (ii) overdue installments of interest at the same
rate.
Section 4.2. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent it
may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law
has been enacted.
Section 4.3. Continued Existence.
Subject to Article 5 hereof, the Company will do or cause to
be done all things necessary to preserve and keep in full force
and effect its existence as a corporation and will refrain from
taking any action that would cause its existence as a corporation
to cease, including without limitation any action that would
result in its liquidation, winding up or dissolution.
Section 4.4. SEC Reports.
The Company shall file with the SEC annual reports and
information, documents and other reports which the Company is
required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. Within 15 days after each such filing, the
Company shall deliver copies of the materials so filed to the
Trustee and the Holders (at their addresses as set forth in the
Register) or cause the Trustee to deliver copies of such
materials to the Holders at the Company's expense. The Company
also shall comply with the other provisions of TIA SECTION 314(a). The
Company shall timely comply with its reporting and filing
obligations under the applicable federal securities laws.
Section 4.5. Maintenance of Consolidated Net Worth.
(a) The Company is required to maintain a Consolidated Net
Worth of at least $18 million. If the Company's Consolidated Net
Worth is less than $18 million at the end of any fiscal quarter,
the Company shall furnish to the Trustee an Officer's Certificate
within 45 days after the end of such fiscal quarter (90 days
after the end of any fiscal year) notifying the Trustee that the
Company's Consolidated Net Worth has declined below $18 million.
If, at any time or from time to time, the Company's Consolidated
Net Worth at the end of each of any such two consecutive fiscal
quarters (the last day of the second fiscal quarter being
referred to as a "Deficiency Date") is less than $18 million,
then the Company shall, in each such event, no later than 50 days
after each Deficiency Date (100 days if such Deficiency Date is
also the end of the Company's fiscal year), mail to the Trustee
and each Holder at such Holder's last address as it appears on
the Debenture Register a notice (the "Deficiency Notice") of the
occurrence of such deficiency, which shall include an offer by
the Company (the"Deficiency Offer") to repurchase up to 10% of
the aggregate principal amount of Debentures originally issued
(or such lesser amount as may be outstanding at the time of the
Deficiency Notice) (the "Deficiency Repurchase Amount") at a
repurchase price equal to 100% of the principal amount of the
Debentures repurchased plus accrued but unpaid interest, if any,
to the date of purchase as described below. The failure to
maintain a Consolidated Net Worth of at least $18 million as of
the end of any fiscal quarter will not be counted towards the
making of more than one Deficiency Offer.
(b) The Deficiency Notice shall state:
(i) that a net worth deficiency has occurred,
referencing the applicable paragraph of the Debentures;
(ii) that the Company is offering to repurchase the
Deficiency Repurchase Amount;
(iii) the repurchase price;
(iv) the expiration date of the Deficiency Offer,
which shall be no earlier than 30 days nor later than
45 days after the date such notice is mailed;
(v) the date such purchase shall be effected, which
shall be no later than 20 days after expiration date of
the Deficiency Offer (the "Deficiency Payment Date");
(vi) that Debentures not accepted for payment pursuant
to the Deficiency Offer shall continue to accrue
interest;
(vii) that, unless the Company defaults in payment of
the Deficiency Repurchase Amount, all Debentures
accepted for payment pursuant to the Deficiency Offer
shall cease to accrue interest after the Deficiency
Payment Date;
(viii) that if any Debenture is repurchased in part, a
new Debenture or Debentures in principal amount equal
to the unrepurchased portion will be issued;
(ix) the Conversion Price;
(x) the name and address of the Paying Agent and
Conversion Agent;
(xi) that Debentures to be repurchased must be
surrendered to the Paying Agent to collect the
repurchase price; and
(xii) any other information required by applicable law
to be included therein and any other procedures that a
Holder must follow to have Debentures repurchased in
such Deficiency Offer.
(c) The Deficiency Offer shall remain open until the close
of business on the last day of the Deficiency Offer. If the
Deficiency Payment Date is on or after an interest payment record
date and on or before the related Interest Payment Date, accrued
interest through such Interest Payment Date will be paid to each
Person in whose name a Debenture repurchased in the Deficiency
Offer is registered at the close of business on such record date,
and no additional interest will be payable to Holders who tender
Debentures pursuant to such Deficiency Offer. The Company will
comply with all applicable securities laws and regulations in
connection with each Deficiency Offer.
(d) On or before each Deficiency Payment Date, the Company
shall, to the extent lawful, purchase the Deficiency Repurchase
Amount of Debentures or, if less than the Deficiency Repurchase
Amount has been delivered for repurchase, all Debentures
delivered for repurchase in response to the Deficiency Offer. If
the aggregate principal amount of Debentures delivered for
repurchase exceeds the Deficiency Repurchase Amount, the Company
will purchase the Debentures delivered to it pro rata (in $1,000
increments only) among the Debentures delivered based on the
relative principal amount of Debentures owned by the Holders
delivering Debentures for repurchase. The Company may credit
against the principal amount of Debentures to be repurchased in
any Deficiency Offer 100% of the principal amount (excluding
premium) of Debentures acquired by the Company subsequent to the
Deficiency Date and prior to the related Deficiency Payment Date
through purchase (otherwise than pursuant to this provision or a
Change of Control Offer), optional redemption, conversion or
exchange and surrendered for cancellation. In addition, on or
before such Deficiency Payment Date, the Company shall:
(i) if the Company appoints a Depositary or Paying
Agent, deposit with such Depositary or Paying Agent
money sufficient to pay the repurchase price of all
Debentures or portions thereof so accepted;
(ii) deliver or cause the Depositary or Paying Agent to
deliver an Officers' Certificate stating such
Debentures or portion thereof accepted for payment by
the Company in accordance with the terms of this
Section 4.5.
(e) Not later than two Business Days prior to the
Deficiency Payment Date, the Company shall provide the Trustee
with written notice of whether the Company elects to credit any
Debentures against its obligation to repurchase Debentures as
provided above and shall set forth the amount of such credit and
the basis therefor (including identification of any previously
cancelled Debentures not theretofore credited). Such notice
shall be accompanied by any Debentures required to be delivered
to the Trustee for cancellation, as provided above, in order to
be credited against the Company's obligation to purchase
Debentures hereunder.
(f) The Depositary, the Paying Agent or the Company, as the
case may be, shall promptly (but in any case not later than five
Business Days after the Deficiency Payment Date) mail or deliver
to each tendering Holder an amount equal to the purchase price of
the Debentures tendered by such Holder and accepted by the
Company for purchase, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Debenture equal in
principal amount to any unpurchased portion of the Debenture
surrendered. Any Debentures not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof.
Section 4.6. Limitation on Restricted Payments and Investments.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any
distribution or dividend on or in respect of any class of its
Capital Stock (except dividends or distributions payable by
wholly owned Subsidiaries of the Company and dividends or
distributions payable in Qualified Stock of the Company or in
options, warrants or other rights to purchase Qualified Stock of
the Company); (ii) purchase, repurchase, prepay, redeem, defease
or otherwise acquire or retire for value (other than in Qualified
Stock of the Company or in options, warrants or other rights to
purchase Qualified Stock of the Company) any Capital Stock in the
Company or any of its Subsidiaries (other than a wholly owned
Subsidiary of the Company); (iii) make or permit any Subsidiary
to make an Investment (other than Permitted Investments) in any
of its or their Affiliates or any Related Person, or any payment
on a guaranty of any obligation of any of its or their Affiliates
or any Related Person (other than (a) of any wholly owned
Subsidiary or (b) of any other Subsidiary in an amount equal to
the amount of the obligation with respect to which such guaranty
relates multiplied by the fraction whose numerator is the
ownership percentage of such Subsidiary by the Company and its
wholly owned Subsidiaries and whose denominator is 100%); or (iv)
repay, prepay, redeem, defease, retire or refinance, prior to
scheduled maturity or scheduled sinking fund payment, any other
Debt which is pari passu with, or subordinate to, the Debentures
(other than (x) by the payment of Qualified Stock of the Company
or of options, warrants or other rights to purchase Qualified
Stock of the Company or (y) of up to $10.0 million aggregate
principal amount of the 1998 Debentures), except, in the case of
this clause (iv), if the proceeds used for such repayment,
prepayment, redemption, defeasance, retirement or refinancing are
generated from the issuance of Refinancing Debt (any such
declaration, payment, distribution, purchase, repurchase,
prepayment, redemption, defeasance or other acquisition or
retirement or Investment referred to in clauses (i) through (iv)
above being hereinafter referred to as a "Restricted Payment");
unless at the time of and after giving effect to a proposed
Restricted Payment (the value of any such payment, if other than
cash, as determined by the Board of Directors, including the
affirmative vote of the Independent Directors, whose
determination shall be conclusive and evidenced by a board
resolution) (a) no Event of Default (and no event that, after
notice or lapse of time, or both, would become an Event of
Default) shall have occurred and be continuing and (b) the
Company could incur an additional $1.00 of Debt pursuant to the
provisions of Section 4.13.
Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by this
Section 4.6 were computed, which calculations may be based upon
the Company's latest available financial statements.
Section 4.7. Limitation on Sales of Assets and Subsidiary
Stock.
The Company shall not, and shall not permit any of its
Subsidiaries to, make any Asset Disposition having a fair market
value or resulting in gross proceeds to the Company or any such
Subsidiary in excess of $1 million in any single transaction or
series of related transactions or $5 million in the aggregate
over the life of the Debentures, unless the Company or any such
Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as
determined by the Board of Directors of the Company and evidenced
by a board resolution) of the interests and assets subject to
such Asset Disposition.
Section 4.8. Taxes.
The Company shall, and shall cause each of its Subsidiaries
to, pay or discharge prior to delinquency all taxes, assessments
and governmental levies, except as contested in good faith and by
appropriate proceedings.
Section 4.9. Change of Control.
(a) In the event of a Change of Control, the time of such
Change of Control being referred to as the "Change of Control
Date," then the Company shall give written notice (the "Change of
Control Notice") to the Holders in writing of such occurrence and
shall make an offer to purchase (as the same may be extended in
accordance with applicable law, the "Change of Control Offer")
all then outstanding Debentures at a purchase price equal to 100%
of the principal amount thereof plus accrued and unpaid interest
thereon to the Change of Control Payment Date, if any. The
Change of Control Offer shall be mailed by the Company not more
than 30 days following any Change of Control Date, unless the
Company has previously mailed a notice of optional redemption by
the Company of all of the Debentures, to each Holder at such
Holder's last registered address by first class mail with a copy
to the Trustee and the Paying Agent and shall set forth:
(i) that a Change of Control has occurred and that the
Company is offering to repurchase all of such Holder's
Debentures;
(ii) the circumstances and relevant facts regarding
such Change of Control (including, but not limited to,
information with respect to pro forma income, cash flow
and capitalization of the Company after giving effect
to such Change of Control);
(iii) the repurchase price (the "Change of Control
Payment");
(iv) the expiration date of the Change of Control
Offer, which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed;
(v) the date such purchase shall be effected, which
shall be no later than 30 days after expiration date of
the Change of Control Offer (the "Change of Control
Payment Date");
(vi) that any Debentures not accepted for payment
pursuant to the Change of Control Offer shall continue
to accrue interest;
(vii) that, unless the Company defaults in the payment
of the Change of Control Payment, all Debentures
accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change
of Control Payment Date;
(viii) the Conversion Price;
(ix) the name and address of the Paying Agent and
Conversion Agent;
(x) that Debentures must be surrendered to the Paying
Agent to collect the repurchase price; and
(xi) any other information required by applicable law
to be included therein and any other procedures that a
Holder must follow in order to have such Debentures
repurchased.
(b) The Change of Control Offer shall remain open until the
close of business on the last day of the Change of Control Offer.
If the Change of Control Payment Date is on or after an interest
payment record date and on or before the related Interest Payment
Date, accrued interest through such Interest Payment Date will be
paid to each Person in whose name a Debenture repurchased in the
Change of Control Offer is registered at the close of business on
such record date, and no additional interest will be payable to
Holders who tender Debentures pursuant to the Change of Control
Offer.
(c) In the event that the Company is required to make a
Change of Control Offer, the Company will comply with any
applicable securities laws and regulations, including, to the
extent applicable, Section 14(e), Rule 14e-1 and any other tender
offer rules under the Exchange Act which may then be applicable
in connection with any offer by the Company to purchase
Debentures at the option of the Holders thereof.
(d) On the Change of Control Payment Date, the Company
shall, to the extent lawful:
(i) accept for payment Debentures or portions thereof
tendered pursuant to the Change of Control Notice,
(ii) deposit with the Paying Agent in immediately
available funds an amount equal to the Change of
Control Payment in respect of all Debentures or
portions thereof so accepted, and
(iii) deliver or cause to be delivered to the Trustee
the Debentures so accepted together with an Officers'
Certificate stating the Debentures or portions thereof
tendered to the Company.
(e) The Paying Agent shall promptly mail to each Holder of
Debentures so accepted payment in an amount equal to the purchase
price for the Debentures, and the Trustee shall promptly
authenticate and mail to each Holder a new Debenture equal in
principal amount to any unpurchased portion of the Debentures
surrendered by such Holder, if any; provided, that each such new
Debenture shall be in principal amount of $1,000 or an integral
multiple thereof. The Company shall publicly announce the
results of any redemptions by Holders pursuant to this Section
4.9 on or as soon as practicable after the Change of Control
Payment Date.
Section 4.10. Limitation on Stock Splits, Consolidations and
Reclassifications.
The Company shall not effect a stock split, consolidation or
reclassification of any class of its Capital Stock unless (a) an
equivalent stock split, consolidation or reclassification is
simultaneously made with respect to each other class of Capital
Stock of the Company and all securities exchangeable or
exercisable for or convertible into any Capital Stock of the
Company, and (b) after such stock split, consolidation or
reclassification all of the relative voting, dividend and other
rights and preferences of each class of Capital Stock of the
Company are identical to those in effect immediately preceding
such stock split, consolidation or reclassification.
Notwithstanding the foregoing, the Company may combine its Class
A Common Stock and Class B Common Stock into a single class of
Common Stock, such that the holder of each share of Class A
Common Stock or Class B Common Stock outstanding immediately
prior to such combination shall, from and after such combination,
be entitled to the same voting, dividend, liquidation and other
rights and preferences with respect to such share as every other
holder of Class A Common Stock or Class B Common Stock.
Section 4.11. Limitation on Dividend Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction of any kind on
the ability of any Subsidiary of the Company to (a) pay to the
Company dividends or make to the Company any other distribution
on its Capital Stock, (b) pay any Debt owed to the Company or any
of the Company's Subsidiaries, (c) make loans or advances to the
Company or any of the Company's Subsidiaries or (d) transfer any
of its property or assets to the Company or any of the Company's
Subsidiaries, other than such encumbrances or restrictions
existing or created under or by reason of (i) applicable law,
(ii) this Indenture, (iii) covenants or restrictions contained in
any instrument governing Debt of the Company or any of its
Subsidiaries existing on the date of this Indenture, (iv)
customary provisions restricting subletting, assignment and
transfer of any lease governing a leasehold interest of the
Company or any of its Subsidiaries or in any license or other
agreement entered into in the ordinary course of business, (v)
any agreement governing Debt of a Person acquired by the Company
or any of its Subsidiaries in existence at the time of such
acquisition (but not created in contemplation thereof), which
encumbrances or restrictions are not applicable to any Person, or
the property or assets of any Person, other than the Person, or
the property or assets of the Person so acquired, (vi) any
restriction with respect to a Subsidiary imposed pursuant to an
agreement entered into in accordance with the terms of this
Indenture for the sale or disposition of Capital Stock or
property or assets of such Subsidiary, pending the closing of
such sale or disposition, (vii) with respect to any Subsidiary,
the terms of any contract with the United States or any foreign
government or any instrumentality thereof or any prime contractor
for any such contract pertaining to retention of funds by such
Subsidiary equivalent to any progress payments or deposits made
pursuant to such contract, or (viii) any Refinancing Debt;
provided, however that the encumbrances or restrictions contained
in the agreements governing any such Refinancing Debt shall be no
more restrictive than the encumbrances or restrictions set forth
in the agreements governing the Debt being refinanced as in
effect on the date of this Indenture.
Section 4.12. Limitation on Preferred Stock.
The Company shall not, and shall not permit any of its
Subsidiaries to, issue any shares of Disqualified Stock.
Section 4.13. Limitation on Debt and Senior Indebtedness.
The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or directly or indirectly
guarantee or in any other manner become directly or indirectly
liable for ("incur") any Debt (including Acquired Debt) or Senior
Indebtedness other than Permitted Debt; provided, however that
the Company and, subject to the other limitations set forth
herein, its Subsidiaries may incur Debt or Senior Indebtedness if
the Debt to Operating Cash Flow Ratio of the Company and its
Subsidiaries at the time of incurrence of such Debt, after giving
pro forma effect thereto, is 6.5:1 or less; provided that any
such Debt incurred by the Company that is not Senior Indebtedness
shall have a Weighted Average Life to Maturity longer than the
Weighted Average Life to Maturity of the Debentures.
Notwithstanding the foregoing, at any time the Debt to Operating
Cash Flow Ratio of the Company exceeds 6.5:1, the Company will be
permitted to incur additional Senior Indebtedness pursuant to
lines of credit for working capital of up to $5 million.
A calculation of the Debt to Operating Cash Flow Ratio as
required by this Section 4.13 shall be made, in each case, for
the period of four full consecutive fiscal quarters next
preceding the date on which Debt is proposed to be incurred
("Reference Period"). In addition, for purposes of the pro forma
calculations required to be made above, (i) (x) the amount of
Debt to be incurred (plus all other Debt previously incurred
during such Reference Period) and the amount (valued at its
liquidation value and including any accrued but unpaid dividends)
of Disqualified Stock to be issued (plus all other Disqualified
Stock previously issued during such Reference Period) will be
presumed to have been incurred or issued on the first day of such
Reference Period and (y) the amount of any Debt redeemed,
refinanced or repurchased with the proceeds of the Debt referred
to in clause (x) will be presumed to have been redeemed,
refinanced or repurchased on the first day of such Reference
Period, (ii) if any Asset Disposition occurred during such
Reference Period, the calculations included in the computation of
the Debt to Operating Cash Flow Ratio shall be adjusted to give
effect to such Asset Disposition on a pro forma basis as if such
Asset Disposition had occurred on the first day of such Reference
Period, (iii) if an acquisition of a business or entity occurred
during such Reference Period, the calculations included in the
computation of the Debt to Operating Cash Flow Ratio will be
adjusted to give effect to such acquisition on a pro forma basis
as if such acquisition had occurred on the first day of such
Reference Period and (iv) if such new Debt is being incurred in
connection with an acquisition, no pro forma effect will be given
to the negative operating cash flow or losses attributable to the
assets or business so acquired.
The Company shall not issue or incur any Debt (other than
Senior Indebtedness or Capitalized Lease Obligations) unless such
Debt (other than Senior Indebtedness or Capitalized Lease
Obligations) shall be subordinate in right of payment to the
Debentures at least to the same extent that the Debentures are
subordinate to Senior Indebtedness. The Company shall not permit
any of its Subsidiaries to issue or incur any Debt (other than
Senior Indebtedness or Capitalized Lease Obligations) unless such
Debt (other than Senior Indebtedness or Capitalized Lease
Obligations) shall provide that such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) shall be
subordinate in right of payment to distributions and dividends
from such Subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures to at
least the same extent that the Debentures are subordinate to
Senior Indebtedness.
Section 4.14. Limitation on Additional Debt After Default.
The Company shall not, and shall not permit any of its
Subsidiaries to, incur any additional Debt (other than Permitted
Debt) or Senior Indebtedness following the occurrence of an Event
of Default unless such Event of Default (and all other Events of
Default then pending) is cured or waived.
Section 4.15. Limitation on Liens.
The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to create, incur, assume or
permit to exist any Lien (other than Permitted Liens) upon or
with respect to any of the Property of the Company or any such
Subsidiary, whether owned on the date of this Indenture or
hereafter acquired, or on any income or profits therefrom, to
secure any Debt which is pari passu with or subordinate in right
of payment to the Debentures.
Section 4.16. Transactions with Related Persons.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets,
property or services) with (a) any beneficial owner of 20% or
more of the outstanding voting securities of the Company
(determined in accordance with Section 13(d) of the Exchange Act)
at the time of such transaction, (b) any officer, director or
employee of the Company, of any of its Subsidiaries or of any
such beneficial owner of 20% or more of the outstanding voting
securities of the Company as described in clause (a) above or (c)
any Related Person unless such transaction or series of related
transactions (i) involves an amount of $250,000 or less or (ii)
(A) is on terms that are no less favorable to the Company or any
such Subsidiary, as the case may be, than would be available in a
comparable transaction with an unrelated third party and (B) (x)
if such transaction or series of related transactions involve
aggregate payments in excess of $400,000, the Company delivers an
officers' certificate to the Trustee certifying that such
transaction complies with clause (ii)(A) above and such
transaction or series of transactions is approved by a majority
of the Board of Directors of the Company including the approval
of each of the Independent Directors or (y) if such transaction
or series of related transactions involve aggregate payments in
excess of $1.5 million, the Company obtains an opinion as to the
fairness to the Company or such Subsidiary from a financial point
of view issued by an investment banking firm, appraisal firm or
accounting firm, in each case of national standing.
Notwithstanding the foregoing, this provision will not apply
to (i) any transaction entered into between the Company and
Subsidiaries of the Company (but excluding transactions with any
Subsidiary of which more than 20% of the outstanding voting
securities (determined in accordance with Section 13(d) under the
Exchange Act) are beneficially owned by Persons who are (a)
officers, directors or employees of the Company, of any of its
Subsidiaries or of any beneficial owner of 20% or more of the
outstanding voting securities (determined in accordance with
Section 13(d) under the Exchange Act) of the Company at the time
of such transaction, (b) a beneficial owner of 20% or more of the
outstanding voting securities (determined in accordance with
Section 13(d) under the Exchange Act) of the Company or (c)
Related Persons), (ii) the payment of compensation and provision
of benefits to officers and employees of the Company and loans
and advances to such officers and employees in the ordinary
course of business, or any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise
(including the grant of stock options or similar rights to
officers, employees and directors of the Company or any
Subsidiary) pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans or other
benefit plans approved by the Independent Directors, (iii) the
Newman Agreement and the Gross Agreement and (iv) transactions
with any Person who is a director of the Company or any of its
Subsidiaries and who is not (a) the beneficial owner of 20% or
more of the outstanding voting securities of the Company
(determined in accordance with Section 13(d) under the Exchange
Act) or (b) an officer or employee of the Company, of any of its
Subsidiaries or of any such beneficial owner of 20% or more of
the outstanding voting securities of the Company (determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction.
Section 4.17. Limitation of Payments to Affiliates after
Default.
The Company shall not enter into any transaction with any
Person who is an officer or director of the Company, or of any of
its Subsidiaries or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified in the
last sentence of this Section 4.17) unless it is provided that
the Company's monetary obligations with respect thereto are
subordinate in right of payment to the Debentures at least to the
same extent as the Debentures are subordinate to Senior
Indebtedness. The Company shall not permit any of its
Subsidiaries to enter into any transaction with any Person who is
an officer or director of the Company, or of any of its
Subsidiaries or of any beneficial owner of 20% or more of the
outstanding voting securities of the Company (determined in
accordance with Section 13(d) under the Exchange Act) at the time
of such transaction (but excluding the Persons identified in the
last sentence of this Section 4.17) unless it is provided that
such Subsidiary's monetary obligations with respect thereto are
subordinate in right of payment to distributions and dividends
from such Subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures at least
to the same extent that the Debentures are subordinate to Senior
Indebtedness. Notwithstanding the foregoing, such limitation
shall not apply to (i) the regular compensation payable to any
Person who is an employee of the Company, (ii) payments made
pursuant to any pension or other plan made available to employees
(including officers) of the Company and either existing on the
date of the Indenture or thereafter approved by the Independent
Directors, (iii) payments pursuant to the Newman Agreement or the
Gross Agreement or (iv) any payment made to a director of the
Company or of any of its Subsidiaries who is not (a) the
beneficial owner of 20% or more of the outstanding voting
securities of the Company (determined in accordance with Section
13(d) under the Exchange Act) or (b) an officer or employee of
the Company, of any of its Subsidiaries or of any such beneficial
owner of 20% or more of the outstanding voting securities of the
Company (determined in accordance with Section 13(d) under the
Exchange Act) at the time of such transaction.
Section 4.18. Compliance Certificate.
The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers'
Certificate stating that a review of the activities of the
Company and its Subsidiaries during the preceding fiscal year has
been made under the supervision of the signing Officers with a
view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Events of Default shall
have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company
is taking or proposes to take with respect thereto), and that, to
the best of his or her knowledge, no event has occurred and
remains in existence by reason of which payments on account of
the principal of or interest, if any, on the Debentures are
prohibited.
The Company shall, so long as any of the Debentures are
outstanding, deliver to the Trustee, within five Business Days
after becoming aware of (i) any Default, Event of Default or
default in the performance of any covenant, agreement or
condition in this Indenture or (ii) any event of default under
any other instrument of Debt to which Section 6.1(d) applies, an
Officers' Certificate specifying such Default, Event of Default
or default, describing its status and what action the Company is
taking or proposes to take with respect thereto.
So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the
year-end financial statements shall be accompanied by a written
statement of the Company's independent public accountants (who
shall be a firm of established national reputation) that in
making the examination necessary for certification of such
financial statements, nothing has come to their attention that
would lead them to believe that the Company has violated any
provisions of Section 4.5(a), 4.6, 4.7, 4.11 or 4.13, or if any
such violation has occurred, specifying the nature and, if known,
the period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any
Person for any failure to obtain knowledge of any such violation.
Section 4.19. Further Assurance to the Trustee.
The Company shall, upon request of the Trustee, execute and
deliver such further instruments and do such further acts as may
be reasonably necessary or proper to carry out more effectively
the provisions of this Indenture.
ARTICLE 5.
SUCCESSORS
Section 5.1. When Company May Merge or Sell Assets
The Company shall not consolidate or merge with or into, or
sell, lease, convey or otherwise dispose of all or substantially
all of its assets to, any Person, without the consent of each
Holder, unless:
(a) the Company is the continuing corporation or the Person
formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, lease, conveyance or
other disposition of assets shall have been made, is organized
and existing under the laws of the United States, any state
thereof or the District of Columbia and such Person (if other
than the Company) assumes by supplemental indenture executed and
delivered to the Trustee and in a form reasonably satisfactory to
the Trustee, all the obligations of the Company under the
Debentures and this Indenture including, without limitation,
conversion rights in accordance with Article 11 hereof;
(b) immediately after giving effect to the transaction no
Event of Default, and no event which, after notice or lapse of
time, or both, would become an Event of Default, shall have
occurred and be continuing;
(c) immediately after giving effect to such transaction,
the Debentures and this Indenture will be a valid and enforceable
obligation of the Company or such successor; and
(d) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that such proposed transaction and such supplemental indenture
comply with the applicable provisions of this Indenture.
Section 5.2. Successor Substituted.
Upon any consolidation or merger, or any sale, lease,
conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1, the
Person formed by such consolidation or into or with which the
Company is merged or to which such sale, lease, conveyance or
other disposition is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person
has been named as the Company herein; provided, however that the
predecessor Company in the case of a sale, lease, conveyance or
other disposition shall not be released from the obligation to
pay the principal of and interest on the Debentures.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
The following shall constitute an "Event of Default":
(a) failure to pay principal of or premium, if any, on
any Debenture when due and payable at maturity, upon redemption,
upon a Change of Control Offer, Net Worth Deficiency Offer or
otherwise, whether or not such payment is prohibited by the
subordination provisions of this Indenture;
(b) failure to pay any interest on any Debenture when
due and payable, which failure continues for 30 days, whether or
not such payment is prohibited by the subordination provisions of
this Indenture;
(c) failure to perform the other covenants of the
Company in this Indenture, which failure continues for 60 days
after written notice as provided in this Indenture;
(d) a default occurs (after giving effect to any
applicable grace periods or any extension of any maturity date)
in the payment when due of principal of and/or acceleration of,
any indebtedness for money borrowed by the Company or any of its
Subsidiaries in excess of $1 million, individually or in the
aggregate, if such indebtedness is not discharged, or such
acceleration is not annulled, within 10 days after written notice
as provided in this Indenture;
(e) the Company pursuant to or within the meaning of
any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a
Custodian of it or for all or substantially all of it
or for all or substantially all of its property, and
such Custodian is not discharged within 30 days,
(iv) makes a general assignment for the benefit of
its creditors, or
(v) generally is unable to pay its debts as the
same become due;
(f) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any
Subsidiary of the Company in an involuntary case,
(ii) appoints a Custodian of the Company or any
Subsidiary of the Company or for all or substantially
all of its property, or
(iii) orders the liquidation of the Company or
any Subsidiary of the Company,
and, in each case, the order or decree remains unstayed and in
effect for 60 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
A Default under clause (c) (other than a Default under
Section 5.1, which Default shall be an Event of Default with the
notice but without the passage of time specified in this Section
6.1) or (d) shall not be an Event of Default until the Trustee
notifies the Company or the Holders of at least 25% in principal
amount of the then outstanding Debentures notify the Company and
the Trustee of the Default and the Company does not cure the
Default under such clause (c) within 60 days after receipt of the
notice, or under clause (d) within 10 days after receipt of the
notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default
specified in clauses (e) and (f) of Section 6.1) occurs and is
continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the then outstanding
Debentures by notice to the Company and the Trustee, may declare
the unpaid principal of and accrued interest on all the
Debentures to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately. If
an Event of Default specified in clause (e) or (f) of Section 6.1
occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part
of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Debentures by written
notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration. No such
recision shall affect any subsequent Default or impair any right
consequent thereto.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of
principal or interest on the Debentures or to enforce the
performance of any provision of the Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Debentures or does not produce any of them in
the proceeding. A delay or omission by the Trustee or any Holder
in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.4. Waiver of Existing and Past Defaults.
The Holders of a majority in principal amount of the then
outstanding Debentures by written notice to the Trustee may waive
an existing Default or Event of Default and its consequences,
except (i) a continuing Default or Event of Default in the
payment of the principal of, or the interest on, any Debenture or
(ii) a Default or Event of Default in respect of a provision that
under Section 9.2 cannot be amended without the consent of each
Holder affected. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be
deemed to have been cured for every purpose of this Indenture;
but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
The Holders of a majority in principal amount of the then
outstanding Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with
applicable law or this Indenture, that the Trustee determines is
unduly prejudicial to the rights of other Holders or would
involve the Trustee in personal liability; provided, however,
that the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
In the event the Trustee takes any action or follows any
direction pursuant to this Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole
discretion against any loss or expense caused by taking such
action or following such direction.
Section 6.6. Limitation on Suits.
A Holder may pursue a remedy with respect to this Indenture
or the Debentures only if:
(a) the Holder gives to the Trustee notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of
the then outstanding Debentures make a request to the
Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee
indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of
indemnity; and
(e) during such 60-day period the Holders of a
majority in principal amount of the then outstanding
Debentures do not give the Trustee a direction inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another
Holder.
Section 6.7. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Debenture to receive payment of
principal and interest on the Debenture, on or after the
respective due dates expressed in the Debenture, or to bring suit
for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the
consent of the Holder.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Debenture to bring suit for the
enforcement of the right to convert the Debenture shall not be
impaired or affected without the consent of the Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a) or (b)
occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company
for the whole amount of principal and interest remaining unpaid
on the Debentures and interest on overdue principal and interest,
and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have
the claims of the Trustee and the Holders allowed in any judicial
proceedings relative to the Company, its creditors or its
property. Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Debentures or the rights
of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article
6, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section
6.8 or 7.7;
Second: to holders of Senior Indebtedness to the extent
required by Article 11;
Third: to Holders for amounts due and unpaid on the
Debentures for principal and interest,
ratably, without preference or priority of
any kind, according to the amounts due and
payable on the Debentures for principal and
interest, respectively; and
Fourth: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders.
At least 15 days before the record date, the Company shall
mail to the Trustee and each Holder (at such Holder's address as
it appears on the Register, a notice that states the record date,
the payment date and amount to be paid.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action
taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.7,
or a suit by Holders of more than 10% in principal amount of the
then outstanding Debentures.
ARTICLE 7.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that
are specifically set forth in this Indenture or the TIA and
no others.
(ii) In the absence of negligence, misconduct or bad
faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they
conform to the requirements of this Indenture, but the
Trustee need not verify the contents thereof.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its
own misconduct, except that:
(i) This paragraph does not limit the effect of
paragraph (b) of this Section.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts.
(iii) The Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to
Section 6.5.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to the provisions of the TIA,
paragraphs (a), (b), (c) and (e) of this Section 7.1 and Section
7.2.
(e) The Trustee may refuse to perform any duty or exercise
any right or power unless it receives indemnity satisfactory to
it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing
with the Company. Money held in trust by the Trustee need not be
segregated from other funds held in trust except to the extent
required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter
stated in the document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or
matters to the extent reasonably deemed necessary by it, and if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled upon reasonable notice, to
examine the books and records and premises of the Company,
personally or by agent, authorized representative or attorney.
(b) Before the Trustee acts or refrains from acting
pursuant to the terms of the Indenture or otherwise, it may
require an Officers' Certificate or an Opinion of Counsel, or
both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any Agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized
or within its rights or powers.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Securities and may otherwise deal
with the Company or any Affiliate of the Company with the same
rights it would have if it were not Trustee. Any Agent may do
the same with like rights. However, the Trustee is subject to
and must comply with Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Debentures, it shall not be
accountable for the Company's use of the proceeds from the
Debentures, and it shall not be responsible for any statement of
the Company in the Indenture or any statement in the Debentures
other than its authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing
and if it is actually known to the Trustee, the Trustee shall
mail to each Holder a notice of the Default or Event of Default
within 90 days after it occurs, unless such Default or Event of
Default shall have been cured or waived. Except in the case of a
Default or Event of Default in payment on any Debenture under
Section 6.1(a) or (b), the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the best interests
of Holders. The second sentence of this Section 7.5 shall be in
lieu of the proviso to Section 315(b) of the TIA, which proviso
is hereby expressly excluded from this Indenture, as permitted by
the TIA.
Section 7.6. Reports by Trustee to Holders.
Within 60 days after each July 1, commencing July 1, 1996,
the Trustee shall mail to Holders, at the Company's expense, a
brief report dated as of such reporting date that complies with
TIA SECTION 313(a) (but if no event described in TIA SECTION 313(a)
has occurred within the twelve months preceding the reporting date,
no report need be transmitted). The Trustee also shall comply
with TIA SECTION 313(b)(2) to the extent applicable. The Trustee
shall also transmit by mail all reports as required by TIA SECTION
313(c).
A copy of each report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange or market on
which the Debentures are listed or quoted. The Company shall
notify the Trustee when the Debentures are listed on any stock
exchange or quoted on any market.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee (in its capacities as
Trustee, Debentures Custodian, Conversion Agent, Paying Agent and
Registrar) from time to time such compensation as may be agreed
in writing between the Company and the Trustee for its services
hereunder. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses
may include the reasonable compensation and out-of-pocket
expenses of the Trustee's Agents and counsel, except such
disbursements, advances and expenses as may be attributable to
its negligence, misconduct or bad faith.
The Company shall indemnify and hold harmless the Trustee
(in its capacities as Trustee, Paying Agent and Registrar)
against any claim, demand, expense (including reasonable
attorney's fees and expenses), loss or liability incurred by it
in connection with the administration of this trust and the
performance of its duties hereunder, except as set forth in the
next paragraph. The Trustee shall notify the Company promptly of
any claim for which it may seek indemnity. The Company shall
defend the claim and the Trustee shall cooperate in the defense.
In the event that a conflict of interest or conflict of defenses
would arise in connection with representation of the Company and
the Trustee by the same counsel, the Trustee may have separate
counsel and the Company shall pay the reasonable fees and
expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through
misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section
7.7, the Trustee shall have a lien prior to the Debentures on all
money or property held or collected by the Trustee, except that
held in trust to pay principal and interest on particular
Debentures.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.1(e) or (f) occurs,
the expenses and the compensation for the services are intended
to constitute expenses of administration under any Bankruptcy
Law.
The Company's payment obligations pursuant to this Section
7.7 shall survive the discharge of this Indenture.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor
Trustee's acceptance of appointment as provided in this Section
7.8.
The Trustee may resign by so notifying the Company in
writing at least 30 days prior to the date of the proposed
resignation; provided, however, that no such resignation shall be
effective until a successor Trustee has accepted its appointment
pursuant to this Section 7.8. The Holders of a majority in
principal amount of the then outstanding Debentures may remove
the Trustee by so notifying the Trustee and the Company. The
Company shall remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent
or an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall
promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Debentures may appoint a
successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee is not appointed or does not take
office within 60 days after the retiring Trustee resigns or is
removed, the retiring Trustee, the Company or the Holders of at
least 10% in principal amount of the then outstanding Debentures
may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company.
Thereupon the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor
Trustee, subject to the lien provided for in Section 7.7.
Notwithstanding the replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 hereof
shall continue for the benefit of the retiring trustee with
respect to expenses and liabilities incurred by it prior to such
replacement.
Section 7.9. Successor Trustee by Merger. etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This indenture shall always have a Trustee who satisfies the
requirements of TIA SECTIONSECTION 310(a)(1) and 310(a)(2). The Trustee
shall always have a combined capital and surplus as stated in its
most recent published annual report of condition of at least $150
million. The Trustee shall comply with TIA SECTION 310(b), including
the optional provision permitted by the second sentence of TIA SECTION
310(b)(9). The provisions of TIA SECTION 310 shall apply to the
Company, as obligor of the Debentures.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA SECTION 311(a), excluding any
creditor relationship listed in TIA SECTION 311(b). A Trustee who has
resigned or been removed shall be subject to TIA SECTION 311(a) to the
extent indicated therein. The provisions of TIA SECTION 311 shall
apply to the Company, as obligor of the Debentures.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.1. Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except
that the Company's obligations under Section 7.7 and 8.3 shall
survive) when all outstanding Debentures theretofore
authenticated and issued (other than destroyed, lost or stolen
Debentures which have been replaced or paid) have been delivered
to the Trustee for cancellation and the Company has paid all sums
payable hereunder. In addition, the Company shall be discharged
from all of its obligations under Section 2.13 and Sections 4.3
through 4.19 while the Debentures remain outstanding if all
outstanding Debentures will become due and payable at their
scheduled maturity within one year and the following conditions
have been satisfied:
(a) the Company has deposited, or caused to be deposited,
irrevocably with the Trustee as trust funds specifically pledged
as security for, and dedicated solely for, such purpose, (i)
money in an amount, (ii) non-callable U.S. Government Obligations
which through the payment of principal, premium, if any, and
interest in accordance with their terms (without the reinvestment
of such interest or principal) will provide not later than one
day before the due date of any payment money in an amount, or
(iii) a combination thereof, sufficient with respect to clauses
(ii) and (iii) in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee at or prior to the
time of such deposit, to pay the principal of, premium, if any,
and discharge each installment of interest on the outstanding
Debentures, together with all other amounts payable by the
Company under this Indenture.
(b) no Default or Event of Default with respect to the
Debentures has occurred and is continuing on the date of such
deposit or shall occur as a result of such deposit or at any time
during the period ending on the 91st day after the date of such
deposit, as evidenced to the Trustee by an Officer's Certificate
delivered to the Trustee concurrently with such deposit.
(c) such defeasance does not result in a breach or
violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is
bound, and is not prohibited by Article 11, as evidenced to the
Trustee by an Officers' Certificate delivered to the Trustee
concurrently with such deposit,
(d) the Company has delivered to the Trustee a private
Internal Revenue Service ruling or an opinion of counsel that
Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same
amount, in the same manner, and at the same times, as would have
been the case if such deposit, defeasance and discharge had not
occurred,
(e) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the deposit shall not result in the
Company, the Trustee or the trust being deemed to be an
"investment company" under the Investment Company Act of 1940, as
amended,
(f) 91 days pass after the deposit is made and during such
91 day period no event of Default specified in Section 6.1(e) or
(f) shall occur and be continuing at the end of such period, and
(g) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the discharge of such provisions
of the Indenture have been complied with. Notwithstanding the
foregoing, the Company's obligations to pay principal, premium,
if any, and interest on the Debentures shall continue until the
Internal Revenue Service ruling or Opinion of Counsel referred to
in clause (d) above is provided.
If the Company exercises such option to discharge such
provisions of the Indenture, payment of the Debentures may not be
accelerated because of an event of default specified in Sections
6.1(c) with respect to the failure to perform any of the
covenants set forth in Section 2.13 and Section 4.3 through 4.19,
or Section 6.1(d).
After a deposit made pursuant to this Section 8.1, the
Trustee upon request shall acknowledge in writing the discharge
of the Company's obligations specified above under this
Indenture.
Section 8.2. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.1. It shall
apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal and interest on the
Debentures. Money and securities so held in trust are not
subject to Article 11.
Section 8.3. Repayment to Company.
Subject to Section 7.7, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess money
or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company
upon written request by the Company any money held by them for
the payment of principal or interest that remains unclaimed for
one year after the date upon which such payment shall have become
due; provided, however that the Company shall have first caused
notice of such payment to the Company to be mailed to each Holder
entitled thereto no less than 30 days prior to such payment.
After payment to the Company, Holders entitled to the money must
look to the Company for payment as general creditors unless an
applicable abandoned property law designates another Person.
Section 8.4. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money
in accordance with Section 8.2 by reason of any order or judgment
of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations
under this Indenture and the Debentures shall be revived and
reinstated as though no deposit had occurred pursuant to Section
8.1 until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.2; provided,
however that if the Company makes any payment of interest on or
principal of any Debenture following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the
Holders of such Debentures to receive such payment from the money
held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS
Section 9.1. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the
Debentures without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
provided that such amendment does not in the opinion of the
Trustee adversely affect the rights of any Holder;
(b) to comply with Section 5.1;
(c) to provide for uncertificated Debentures in
addition to or in lieu of certificated Debentures;
(d) to make any change that does not adversely affect
the legal rights hereunder of any Holder; or
(e) to comply with requirements of the SEC in order to
effect or maintain the qualification of this Indenture under
the TIA;
provided, however, that, in each case, the Company has delivered
to the Trustee an Opinion of Counsel and an Officers'
Certificate, each stating that such amendment complies with the
provisions of this Section 9.1.
Section 9.2. With Consent of Holders.
Subject to the provisions of Sections 6.4 and 6.7, the
Company and the Trustee may amend or modify this Indenture or the
Debentures with the written consent of the Holders of at least a
majority in principal amount of the then outstanding Debentures,
and the Holders of a majority in principal amount of the
Debentures then outstanding may waive compliance in a particular
instance by the Company with any provision of this Indenture or
the Debentures; provided, however, that, without the consent of
each Holder affected, an amendment, modification or waiver under
this Section 9.2 may not (with respect to any Debentures held by
a non-consenting Holder):
(a) change the stated maturity of, or any installment
of interest on, any Debenture;
(b) reduce the principal amount of any Debenture or
reduce the rate or extend the time of payment of interest on
any Debenture;
(c) increase the conversion price (other than in
connection with a reverse stock split as provided in this
Indenture);
(d) change the place or currency of payment of
principal of, or premium or repurchase price, if any, or
interest on, any Debenture;
(e) impair the right to institute suit for the
enforcement of any payment on or with respect to any
Debenture;
(f) adversely affect the right to exchange or convert
Debentures;
(g) reduce the percentage of the aggregate principal
amount of outstanding Debentures, the consent of the Holders
of which is necessary to modify or amend this Indenture;
(h) reduce the percentage of the aggregate principal
amount of outstanding Debentures, the consent of the Holders
of which is necessary for waiver of compliance with certain
provisions of this Indenture or for waiver of certain
defaults;
(i) modify the provisions of this Indenture with
respect to the subordination of the Debentures in a manner
adverse to the Holders;
(j) modify the provisions of this Indenture with
respect to the right to require the Company to repurchase
Debentures in a manner adverse to the Holders; or
(k) modify the provisions of this Indenture with
respect to the vote necessary to amend this Section 9.2.
To secure a consent of the Holders under this Section 9.2,
it shall not be necessary for the Holders to approve the
particular form of any proposed amendment or waiver, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9.2 becomes
effective, the Company shall mail to Holders a notice briefly
describing the amendment or waiver. Any failure of the Company to
mail such notices, or any defect therein, shall not, however, in
any way, impair or affect the validity of any such amendment or
waiver.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Debentures shall be
set forth in a supplemental indenture that complies with the TIA
as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplemental indenture or waiver becomes
effective, a consent to it by a Holder of a Debenture is a
continuing consent by such Holder and every subsequent Holder of
a Debenture or portion of a Debenture that evidences the same
debt as such consenting Holder's Debenture, even if notation of
the consent is not made on any Debenture. However, prior to
becoming effective, any such Holder or subsequent Holder may
revoke the consent as to its Debentures or a portion thereof if
the Trustee receives written notice of revocation before the
consent of Holders of the requisite aggregate principal amount of
Debentures has been obtained and not revoked.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to
consent to any amendment or waiver. If a record date is fixed,
then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any
consent previously given, whether or not such Persons continue to
be Holders after such record date. No consent shall be valid or
effective for more than 90 days after such record date unless
consents from Holders of the principal amount of Debentures
required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day
period.
After an amendment or waiver becomes effective it shall bind
every Holder, unless it is of the type described in any of
clauses (a) through (k) of Section 9.2. In such case, the
amendment or waiver shall bind each Holder of a Debenture who has
consented to it and every subsequent Holder of a Debenture that
evidences the same debt as the consenting Holder's Debenture.
Section 9.5. Notation on or Exchange of Debentures.
The Trustee (in accordance with the written direction of the
Company) may (at the Company's expense) place an appropriate
notation about an amendment, supplement or waiver on any
Debenture thereafter authenticated. The Company in exchange for
all Debentures may issue and the Trustee shall authenticate new
Debentures that reflect the amendment or waiver. Failure to make
the appropriate notation or issue a new Debenture shall not
affect the validity and effect of such amendment, supplement or
waiver.
Section 9.6. Trustee Protected.
The Trustee shall sign all supplemental indentures, except
that the Trustee need not sign any supplemental indenture that
adversely affects its rights. In signing or refusing to sign
such supplemental Indenture, the Trustee shall be entitled to
receive an Officer's Certificate and Opinion of Counsel to the
effect that such supplemental Indenture is authorized or
permitted by this Indenture and will be valid and binding on the
Company in accordance with its terms.
ARTICLE 10.
CONVERSION
Section 10.1. Conversion Privilege.
Each Holder may, at such Holder's option, at any time prior
to the close of business of October 1, 2003, unless earlier
redeemed or repurchased, convert such Holder's Debentures, in
whole or in part (in denominations of $1,000 or multiples
thereof), at 100% of the principal amount so converted, into
fully paid and non-assessable shares of the Company's Class A
Common Stock at a conversion price per share equal to $8.85, as
such conversion price may be adjusted from time to time in
accordance with Section 10.4 (the "Conversion Price").
Section 10.2. Conversion Procedure.
To convert a Debenture, a Holder must (1) complete and sign
the notice on the reverse of the Debenture, (2) surrender such
Debenture to the Conversion Agent, (3) furnish appropriate
endorsements and transfer documents if required by the Registrar
or Conversion Agent and (4) pay any transfer or similar tax if
required by Section 10.6. The Company's delivery to the Holder
of a fixed number of shares of Class A Common Stock (and any cash
in lieu of fractional shares of Class A Common Stock into which
such Debenture is converted) shall be deemed to satisfy the
Company's obligation to pay the principal amount of such
Debenture and, subject to the provisions of Section 3.4, unless
such Debenture is converted after a record date and prior to the
related Interest Payment Date, all accrued interest that has not
previously been paid. If such Debenture is converted after a
record date and prior to the related Interest Payment Date, the
interest installment on such Debenture scheduled to be paid on
such Interest Payment Date shall be payable on such Interest
Payment Date to the Holder of record at the close of business on
such record date through such Interest Payment Date.
As promptly as practicable after the surrender of such
Debenture in compliance with this Section 10.2, the Company shall
issue and deliver at such office or agency to such Holder, or on
such Holder's written order, a certificate or certificates for
the number of full shares of Class A Common Stock issuable upon
the conversion of such Debenture or portion thereof in accordance
with the provisions of this Article 10 and a check or cash in
respect of any fractional interest in respect of a share of Class
A Common Stock arising upon such conversion, as provided in
Section 10.3. In case any Debenture of a denomination greater
than $1,000 shall be surrendered for partial conversion, subject
to Article 2, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of the Debenture so
surrendered, without charge to such Holder, a new Debenture or
Debentures in authorized denominations in an aggregate principal
amount equal to the unconverted portion of the surrendered
Debenture.
Each conversion shall be deemed to have been effected on the
date on which such Debenture shall have been surrendered in
compliance with this Section 10.2, and the Person in whose name
any certificate or certificates for shares of Class A Common
Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares
represented thereby; provided, however, that any such surrender
on any date when the stock transfer books of the Company shall be
closed shall constitute the Person in whose name the certificates
are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in
effect on the date upon which such Debenture shall have been
surrendered.
If the last day on which a Debenture may be converted is a
Legal Holiday in a place where a Conversion Agent is located, the
Debenture may be surrendered to that Conversion Agent on the next
succeeding day that is not a Legal Holiday.
Provisions of this Indenture that apply to conversion of all
of a Debenture also apply to conversion of a portion of such
Debenture.
Section 10.3. Cash Payments in Lieu of Fractional Shares.
No fractional shares of Class A Common Stock or scrip
representing fractional shares shall be issued upon conversion of
Debentures. If more than one Debenture shall be surrendered for
conversion at one time by the same Holder, the number of full
shares which shall be issuable upon conversion shall be computed
on the basis of the aggregate principal amount of the Debentures
(or specified portions thereof to the extent permitted hereby) so
surrendered. If any fractional share of Class A Common Stock
would be issuable upon the conversion of any Debenture or
Debentures, the Company shall make an adjustment therefor in cash
at the Current Market Price of the Class A Common Stock as of the
close of business on the Business Day prior to such conversion.
Section 10.4. Adjustment of Conversion Price.
(a) In the event that the Company shall (i) pay a dividend
or other distribution, in shares of its Class A Common Stock, on
any class of Capital Stock of the Company or any Subsidiary which
is not wholly owned by the Company, (ii) subdivide its
outstanding Class A Common Stock into a greater number of shares
or (iii) combine its outstanding Class A Common Stock into a
smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder of
any Debenture thereafter surrendered for conversion shall be
entitled to receive the number of shares of Class A Common Stock
of the Company that such Holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such Debenture been converted immediately
prior to the happening of such event. An adjustment made
pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in
the case of subdivision or combination.
(b) In the event that the Company shall issue or distribute
Capital Stock or issue rights, warrants or options entitling the
holder thereof to subscribe for or purchase Capital Stock at a
price per share less than the Current Market Price per share on
the date of issuance or distribution (provided that the issuance
of Capital Stock upon the exercise of warrants or options will
not cause an adjustment in the Conversion Price if no such
adjustment would have been required at the time such warrant or
option was issued), then at the earliest of (i) the date the
Company shall enter into a firm contract for such issuance or
distribution, (ii) the record date for the determination of
stockholders entitled to receive any such rights, warrants or
options, if applicable, or (iii) the date of actual issuance or
distribution of any such Capital Stock or rights, warrants or
options, the Conversion Price in effect immediately prior to such
earliest date shall be adjusted so that the Conversion Price
shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such earliest date by:
(x) if such Capital Stock is Class A Common Stock, the
fraction whose numerator shall be the number of shares of
Class A Common Stock outstanding on such date plus the
number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such
Current Market Price (such amount, with respect to any such
rights, warrants or options, determined by multiplying the
total number of shares subject thereto by the exercise price
of such rights, warrants or options and dividing the product
so obtained by the Current Market Price), and of which the
denominator shall be the number of shares of Class A Common
Stock outstanding on such date plus the number of additional
shares of Class A Common Stock to be issued or distributed
or receivable upon exercise of any such warrant, right or
option; or
(y) if such Capital Stock is other than Class A Common
Stock, the fraction whose numerator shall be the Current
Market Price per share of Class A Common Stock on such date
minus an amount equal to (A) the sum of (I) the Current
Market Price per share of such class of Capital Stock
multiplied by the number of shares of such class of Capital
Stock to be so issued minus (II) the offering price per
share of such Capital Stock multiplied by the number of
shares of such class of Capital Stock to be so issued (B)
divided by the number of shares of Class A Common Stock
outstanding on such date and whose denominator is the
Current Market Price of the Class A Common Stock on such
date.
Such adjustment shall be made successively whenever any such
Capital Stock, rights, warrants or options are issued or
distributed at a price below the Current Market Price therefor as
in effect on the date of issuance or distribution. In
determining whether any rights, warrants or options entitle the
holders to subscribe for or purchase shares of Capital Stock at
less than such Current Market Price, and in determining the
aggregate offering price of shares of Capital Stock so issued or
distributed, there shall be taken into account any consideration
received by the Company for such Capital Stock, rights, warrants
or options, the value of such consideration, if other than cash,
to be determined by the Board of Directors, whose determination
shall be conclusive and described in a certificate filed with the
Trustee. If any right, warrant or option to purchase Capital
Stock, the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this subsection (b), shall expire
and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed to the Conversion
Price which would have been in effect had the adjustment of the
Conversion Price made upon the issuance of such right, warrant or
option been made on the basis of offering for subscription or
purchase only that number of shares of Capital Stock actually
purchased upon the actual exercise of such right, warrant or
option.
(c) In the event that the Company shall pay as a dividend
or other distribution to holders of any class of its Capital
Stock generally or to holders of any class of Capital Stock of
any Subsidiary which is not wholly owned by the Company evidences
of indebtedness or assets (including, without limitation, shares
of Capital Stock, cash or other securities, but excluding
dividends, rights, warrants, options and distributions for which
adjustment is made as described in subsections (a) and (b) above
and further excluding cash dividends paid out of cumulative
retained earnings of the Company arising after the date hereof
and determined in accordance with GAAP), then in each such case
the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of such distribution by a
fraction of which the numerator shall be the Current Market Price
per share of Class A Common Stock on the record date mentioned
below less the fair market value on such record date (as
determined by the Board of Directors, whose determination shall
be conclusive and described in a certificate filed with the
Trustee) of the portion of the Capital Stock or assets or
evidences of indebtedness so distributed or of such rights or
warrants attributable to one share of Class A Common Stock (the
amount so attributable equaling the aggregate fair market value
of such indebtedness or assets, as so determined by the Board of
Directors, divided by the number of shares of Class A Common
Stock outstanding on such record date), and the denominator shall
be the Current Market Price of the Class A Common Stock on such
record date. Such adjustment shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such distribution, except as provided in
subsection (f) below.
(d) Notwithstanding anything contained herein to the
contrary, no adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of
at least 1% in the Conversion Price then in effect; provided,
however, that any adjustments which by reason of this subsection
(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All
calculations under this Article 10 shall be made by the Company
and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be and the Trustee shall be
entitled to rely thereon. Anything in this Section 10.4 to the
contrary notwithstanding, the Company shall be entitled to make
such reductions in the Conversion Price, in addition to those
required by this Section 10.4, as it in its discretion shall
determine to be advisable in order that any stock dividends,
subdivision of shares, distribution of rights to purchase stock
or securities, or a distribution of securities convertible into
or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable. Except as provided in this
Article 10, no adjustment in the Conversion Price will be made
for the issuance of Common Stock or any securities convertible
into or exchangeable for Common Stock, or carrying the right to
purchase any of the foregoing. In addition, no adjustment in the
Conversion Price shall be made in the event of the issuance of
Common Stock upon the exercise of the Company's outstanding stock
options under the 1981 Incentive Stock Option Plan, 1981 Non-
Qualified Stock Option Plan and 1991 Stock Option Plan, unless
the exercise price thereof is changed after the date hereof
(other than solely by operation of anti-dilution provisions
thereof), or the issuance of Common Stock upon the conversion of
currently outstanding 1998 Debentures, unless the conversion
price thereof is changed after the date hereof (other than solely
by operation of the anti-dilution provisions thereof).
(e) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and
any conversion agent other than the Trustee an Officers'
Certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which such adjustment becomes
effective and shall mail or cause to be mailed such notice to
each Holder at his last address appearing on the Debenture
Register.
(f) In any case in which this Section 10.4 provides that an
adjustment shall become effective immediately after a record date
for an event, the Company may defer until the occurrence of such
event (i) issuing to the Holder of any Debenture converted after
such record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above
the Common Stock issuable upon such conversion before giving
effect to such adjustments and (ii) paying to such Holder any
amount in cash in lieu of any fraction pursuant to Section 10.3
hereof.
Section 10.5. Effect of Reclassification, Consolidation, Merger
or Sale.
In the event of (i) any reclassification or change of
outstanding shares of Class A Common Stock (other than a change
in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or
combination), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which holders
of Class A Common Stock shall be entitled to receive securities
or other Property (including cash) with respect to or in exchange
for such Class A Common Stock or (iii) any sale or conveyance of
the Property of the Company as, or substantially as, an entirety
to any other corporation as a result of which holders of Class A
Common Stock shall be entitled to receive securities or other
Property (including cash) with respect to or in exchange for such
Class A Common Stock, then the Company or the successor or
purchasing corporation, as the case may be, shall enter into a
supplemental indenture providing that each Debenture shall be
convertible into the kind and amount of securities or other
Property (including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance by
a holder of a number of shares of Class A Common Stock issuable
upon conversion of such Debentures immediately prior to such
reclassification, change, consolidation, merger, combination,
sale or conveyance. Such supplemental indenture shall provide
for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 10.
The Company shall cause notice of the execution of such
supplemental indenture to be mailed to each Holder, at his
address appearing on the Register.
The above provisions of this Section 10.5 shall similarly
apply to successive reclassification, changes, consolidations,
mergers, combinations, sales and conveyances.
Section 10.6. Taxes on Shares Issued.
The issuance of stock certificates on conversions of
Debentures shall be made without charge to the converting Holder
for any tax in respect of the issuance thereof. The Company
shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and
delivery of a stock certificate in any name other than that of
the Holder of any Debenture converted, and the Company shall not
be required to issue or deliver any such stock certificate unless
and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax
has been paid.
Section 10.7. Reservation of Shares; Shares to be Fully Paid;
Compliance with Government Requirements; Listing
of Common Stock.
The Company shall reserve, out of its authorized but
unissued Class A Common Stock or its Class A Common Stock held in
treasury, sufficient shares of Class A Common Stock to provide
for the conversion of the Debentures that are outstanding from
time to time.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any,
of the shares of Class A Common Stock issuable upon conversion of
the Debentures, the Company will take all corporate action which
may, in the opinion of its counsel, be necessary in order that
the Company may validly and legally issue shares of Class A
Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Class A Common
Stock which may be issued upon conversion of Debentures will upon
issuance be fully paid and nonassessable by the Company and free
from all taxes, liens and charges with respect to the issue
thereof.
The Company covenants that if any shares of Class A Common
Stock to be provided for the purpose of conversion of Debentures
hereunder require registration with or approval of any
governmental authority under any applicable federal or state law
(excluding federal or state securities laws) before such shares
may be validly issued upon conversion, the Company will in good
faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
The Company further covenants that if at any time Class A
Common Stock shall be listed on the American Stock Exchange or
any other national securities exchange or on the Nasdaq Stock
Market the Company will, if permitted by the rules of such
exchange or market, list and keep listed so long as the Class A
Common Stock shall be so listed on such exchange or market, all
Class A Common Stock issuable upon conversion of the Debentures.
Section 10.8. Responsibility of Trustee Requirements.
The Trustee and any other Conversion Agent shall not at any
time be under any duty or responsibility to any Holder to
determine whether any fact exists which may require any
adjustment of the Conversion Price or other adjustment or with
respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed,
in making the same. The Trustee and any other Conversion Agent
shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Class A Common Stock, or
of any securities or other Property, which may at any time be
issued or delivered upon the conversion of any Debenture; and
neither the Trustee nor any other Conversion Agent makes any
representations with respect thereto. Subject to the provisions
of Section 8.1 hereof, neither the Trustee nor any Conversion
Agent shall be responsible for any failure of the Company to
issue, transfer or deliver any shares of Class A Common Stock or
stock certificates or other securities or other Property
(including cash) upon the surrender of any Debenture for the
purpose of conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in this
Article 10. Without limiting the generality of the foregoing,
neither the Trustee nor any Conversion Agent shall be under any
responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to
Section 10.5 hereof relating either to the kind or amount of
securities or other Property (including cash) receivable by
Holders upon the conversion of their Debentures after any event
referred to in Section 10.5 hereof or to any adjustment to be
made with respect thereto, but, subject to the provisions of
Section 8.1 hereof, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in
relying upon, the Officers' Certificate (which the Company shall
be obligated to file with the Trustee prior to the execution of
any such supplemental indenture) with respect thereto.
Section 10.9. Notice to Holders Prior to Certain Actions.
In the event that:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of
retained earnings); or
(b) the Company shall authorize the granting to the holders
of its Common Stock generally of rights or warrants to subscribe
for or purchase any shares of any class of its Capital Stock or
any other rights or warrants; or
(c) of any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par
value to no par value, or from no par value to par value), or of
any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all
of the assets of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall file or cause to be
filed with the Trustee and to be mailed to each Holder at his
address appearing on the Register, as promptly as possible but in
any event at least 15 days prior to the applicable date
hereinafter specified, a notice prepared by the Company stating
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to
become effective or occurring and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other Property
deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure
to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
ARTICLE 11.
SUBORDINATION
Section 11.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Debenture
agrees, that the indebtedness evidenced by the Debentures is
subordinated in right of payment, to the extent and in the manner
provided in this Article 11, to the prior payment in full of all
Senior Indebtedness, and that the subordination is for the
benefit of the holders of Senior Indebtedness. The Debentures
are senior in right of payment to the Company's 1998 Debentures.
All provisions of this Article 11 shall be subject to Section
11.13.
Section 11.2 Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution to creditors of the Company
in a liquidation, dissolution or winding up of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(a) holders of Senior Indebtedness shall be entitled
to receive payment in full of all Senior Indebtedness before
Holders shall be entitled to receive any payments of
principal of or premium, if any, or interest on the
Debentures; and
(b) until the Senior Indebtedness is paid in full, any
distribution to which Holders would be entitled but for this
Article 11 shall be made to holders of Senior Indebtedness
as their interests may appear, except that Holders may
receive securities that are subordinated to Senior
Indebtedness to at least the same extent as the Debentures;
provided that no such default will prevent any payment on,
or in respect of, the Debentures for more than 120 days
unless the maturity of such Senior Indebtedness has been
accelerated.
A distribution may consist of cash, securities or other
property.
Section 11.3 Company Not to Make Payment with Respect to
Debentures in Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all principal thereof,
premium, if any, and interest thereon and any other amounts owing
in respect thereof shall first be paid in full, or such payment
duly provided for in cash or in a manner satisfactory to the
holders of such Senior Indebtedness before any payment is made on
account of the principal of or premium, if any, or interest on
the Debentures or to acquire any of the Debentures.
(b) Upon the happening of an event of default (or if any
event of default would result upon any payment upon or with
respect to Debentures) with respect to any Senior Indebtedness as
such event of default is defined therein or in the instrument
under which it is outstanding, permitting holders to accelerate
the maturity thereof, and, if the default is other than default
in payment of the principal of, premium, if any, or interest on
or any other amount owing in respect of such Senior Indebtedness,
upon written notice thereof given to the Company and the Trustee
by the holders of Senior Indebtedness or their Representative,
then, unless (i) such an event of default shall have been cured
or waived or shall have ceased to exist or (ii) the Company and
the Trustee receive written notice from the Representatives of
the Senior Indebtedness with respect to which such event of
default relates approving payment on the Debentures, no payment
shall be made by the Company with respect to the principal of or
premium, if any, or interest on the Debentures or to acquire any
of the Debentures; provided that no such default will prevent any
payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been
accelerated. Not more than one such 120 day delay may be made in
any consecutive 360 day period, irrespective of the number of
defaults with respect to Senior Indebtedness during such period.
Section 11.4 Acceleration of Debentures.
If payment of the Debentures is accelerated because of an
Event of Default, the Company shall promptly notify holders of
Senior Indebtedness of the acceleration.
Section 11.5 When Distribution Must Be Paid Over.
If a distribution is made to Holders that, because of this
Article 11, should not have been made to them, the Holders who
receive the distribution shall hold it in trust for holders of
Senior Indebtedness and pay it over to them as their interests
may appear.
Section 11.6 Notice by Company.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a
payment of principal of or premium, if any, or interest on the
Debentures to violate this Article 11.
Section 11.7 Subrogation.
After all Senior Indebtedness is paid in full and until the
Debentures are paid in full, Holders shall be subrogated to the
rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the Holders have been applied
to the payment of Senior Indebtedness. A distribution made under
this Article 11 to holders of Senior Indebtedness which otherwise
would have been made to Holders is not, as between the Company
and Holders, a payment by the Company on Senior Indebtedness.
Section 11.8 Relative Rights.
This Article 11 defines the relative rights of Holders and
holders of Senior Indebtedness. Nothing in this Indenture shall:
(a) impair, as between the Company and Holders, the
obligation of the Company, which is absolute and
unconditional, to pay principal of and premium, if any, and
interest on the Debentures in accordance with their terms;
(b) affect the relative rights of Holders and
creditors of the Company, other than holders of Senior
Indebtedness; or
(c) prevent the Trustee or any Holder from exercising
its available remedies upon a Default, subject to the rights
of holders of Senior Indebtedness to receive distributions
otherwise payable to Holders.
If the Company fails because of this Article 11 to pay
principal of or premium, if any, or interest on a Debenture on
the date, such failure shall nevertheless be deemed a Default.
Nothing in this Article 11 shall have any effect on the right of
the Holders or the Trustee to accelerate the maturity of the
Debentures.
Section 11.9 Subordination May Not be Impaired by Company.
No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Debentures
shall be impaired by any act or failure to act by the Company or
by its failure to comply with the terms of this Indenture.
Section 11.10 Distribution of Notice to Representative.
Whenever a distribution is to be made or a notice given to
holders of Senior Indebtedness, the distribution may be made and
the notice given to their Representative, if any.
Section 11.11 Rights of Trustee and Paying Agent.
Notwithstanding any provisions of this Indenture to the
contrary, the Trustee and any Paying Agent may continue to make
payments on the Debentures and shall not at any time be charged
with knowledge of the existence of any facts which would prohibit
the making of such payments until it receives written notice
(received by a Trust Officer, in the case of the Trustee)
reasonably satisfactory to it that payments may not be made under
this Article 11 and, prior to the receipt of any such notice, the
Trustee, subject to the provisions of Article 7, and any agent
shall be entitled to assume conclusively that no such facts
exist. The Company, an Agent, a Representative or a holder of
Senior Indebtedness may give the notice. If an issue of Senior
Indebtedness has a Representative, only the Representative (or
any Representative, if more than one) may give the notice with
respect to such Senior Indebtedness.
The Trustee shall be entitled to rely on the delivery to it
of a written notice by a Person representing himself to be a
holder of Senior Indebtedness (or a Representative) to establish
that such notice has been given by a holder of Senior
Indebtedness (or a Representative), and shall be entitled to rely
on any written notice by a Person representing himself to be a
holder of Senior Indebtedness to the effect that such issue of
Senior Indebtedness has no Representative.
Any deposit of moneys by the Company with the Trustee or any
Paying Agent (whether or not in trust) for the payment of the
principal of or premium, if any, or interest on, or payment on
account of a Change of Control or Net Worth Deficiency, if any,
of, any Debentures shall be subject to the provisions of this
Article 11, except that if, at least three business days prior to
the date on which by the terms of this Indenture any such moneys
may become payable for any purpose (including without limitation,
the payment of principal of or premium, if any, or interest on
any Debenture), the Trustee shall not have received with respect
to such moneys the notice provided for in this Section 11.11,
then the Trustee shall have full power and authority to receive
such moneys and to apply the same to the purpose for which they
were received and shall not be affected by any notice to the
contrary which may be received by it within three business days
prior to or on or after such date. This Section 11.11 shall be
construed solely for the benefit of the Trustee and Paying Agent
and shall not otherwise affect the rights of holders of Senior
Indebtedness. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate
in any payment or distribution pursuant to this Article 11, the
Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of the
Senior Indebtedness held by such Person, the extent to which such
person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under
this Article 11, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive payment.
The Trustee shall not be deemed to owe any fiduciary duty to
holders of Senior Indebtedness by virtue of the provisions of
this Article 11. The Trustee's responsibilities to the holders
of Senior Indebtedness are limited to those set forth in this
Article 11 and no implied covenants or obligations shall be read
into this Indenture. The Trustee shall not become liable to
holders of Senior Indebtedness if it makes a payment prohibited
by this Article 11 in good faith.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights.
Section 11.12 Effectuation of Subordination by Trustee.
Each Holder of Debentures, by acceptance thereof, authorizes
and directs the Trustee on his behalf to take such action as may
be necessary or appropriate to effectuate the subordination
provided in this Article 11 and appoints the Trustee his
attorney-in-fact for any and all such purposes.
Section 11.13 Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government
Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Debentures shall not
be subordinated to the prior payment of any Senior Indebtedness
or subject to the restrictions set forth in this Article 11, and
none of the Holders shall be obligated to pay over any such
amount to the Company or any holder of Senior Indebtedness of the
Company or any other creditor of the Company.
ARTICLE 12.
MISCELLANEOUS
Section 12.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included
in this Indenture by the TIA, the required provision shall
control.
Section 12.2. Notices.
Any notice or communication by the Company or the Trustee to
the other is duly given if in writing and delivered in person or
mailed by first-class mail (registered or certified, return
receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery addressed as follows:
if to the Company:
5 Sylvan Way
Parsippany, New Jersey 07054
Fax No. (201) 898-4730
Attention: President
if to the Trustee:
35 Journal Square
Jersey City, New Jersey 07306
Fax. No. (201) 420-2928
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next
day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt
requested, or by overnight air courier guaranteeing next day
delivery to its address shown on the register kept by the
Registrar. Any notice or communication shall also be so mailed
to any Person described in TIA SECTION 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency with
respect to other Holders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
If the Company mails a notice or communication to Holders,
it shall mail a copy to the Trustee and each Agent at the same
time.
All other notices or communications shall be in writing.
Section 12.3. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA SECTION 312(b) with other
Holders with respect to their rights under this Indenture or the
Debentures. The Company, the Trustee, the Registrar and anyone
else shall have the protection of TIA SECTION 312(c).
Section 12.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the
Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed
action have been complied with; and
(b) at the Trustee's reasonable request, an Opinion of
Counsel stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
Section 12.5. Statements Required in Certificate or Opinion of
Counsel.
Each Officers' Certificate or Opinion of Counsel with
respect to compliance with a condition or covenant provided for
in this Indenture shall include:
(a) a statement that the individual making such
Officers' Certificate or Opinion of Counsel has read such
covenant or condition;
(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such Officers' Certificate or
Opinion of Counsel are based;
(c) a statement that, in the opinion of such
individual, he or she has made such examination or
investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion
of such individual, such condition or covenant has been
complied with; provided, however, that, with respect to
certain matters of fact not involving any legal conclusion,
an Opinion of Counsel may, upon the consent of the parties
relying on such opinion, rely on an Officers' Certificate or
certificates of public officials.
Section 12.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a
meeting of Holders. The Registrar, Paying Agent or Conversion
Agent may make reasonable rules and set reasonable requirements
for its functions.
Section 12.7. Legal Holidays.
If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding Business
Day that is not a Legal Holiday, and no interest shall accrue for
the intervening period.
Section 12.8. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of
the Company shall not have any liability for any obligations of
the Company under the Debentures or the Indenture or for any
claim based on, in respect of or by reason of such obligations or
their creation including with respect to any certificates
delivered thereunder or hereunder. Each Holder by accepting a
Debenture waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the
Debentures.
Section 12.9. Counterparts.
This Indenture may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 12.10. Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS
INDENTURE AND THE DEBENTURES, WITHOUT REGARD TO THE CONFLICT OF
LAWS PROVISIONS THEREOF.
Section 12.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or a Subsidiary
of the Company. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
Section 12.12. Successors.
All agreements of the Company in this Indenture and the
Debentures shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 12.13. Severability.
In case any provision of this Indenture or in the Debentures
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
Section 12.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings
of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a
part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be executed as of the day and year first above
written.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/ Mark S. Newman
----------------------------
Name: Mark S. Newman
Title: Chief Executive Officer
and President
Attest: /s/ Nancy R. Pitek
---------------------
Name: Nancy R. Pitek
THE TRUST COMPANY OF NEW JERSEY
By: /s/ Roger T. Bernhammer
-----------------------------
Name: Roger T. Bernhammer
Title: Vice President
Attest: /s/ Robert F. Baker
---------------------
Name: Robert F. Baker
Dated: September 29, 1995
EXHIBIT A
[Face of Debenture]
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
__% SENIOR SUBORDINATED CONVERTIBLE DEBENTURE DUE 2003
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS DEBENTURE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION. EACH PURCHASER OF THIS DEBENTURE
IS HEREBY NOTIFIED THAT THE SELLER OF THIS DEBENTURE MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS DEBENTURE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS DEBENTURE MAY BE OFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED, ONLY (I) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (IV) TO THE COMPANY OR (V) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (V) IN
ACCORDANCE WITH ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.
[Institutional Accredited Investor Legend]
IN CONNECTION WITH ANY TRANSFER OF THIS DEBENTURE, THE
HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH
CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS.
CUSIP No. 252456AB4
No._________ $_____________
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC., a Delaware corporation,
promises to pay to
or registered assigns, the principal sum of
Dollars on October
1, 2003.
Interest Payment Dates: April 1 and October 1, commencing
April 1, 1996.
Record Dates: March 15 and September 15.
Reference is made to the further provisions of this
Debenture set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Dated: DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By:
Officer of the Company
(SEAL)
Attest:
By:
Secretary
Authentication:
This is one of the Debentures referred to
in the within-mentioned Indenture:
THE TRUST COMPANY OF NEW JERSEY,
as Trustee
By:
Authorized Signature
Dated:
[Reverse Side]
Capitalized terms used herein without definition shall have
the meaning ascribed to them in the Indenture, dated as of
September 22, 1995 (the "Indenture"), as amended from time to
time, between Diagnostic/Retrieval Systems, Inc. (the "Company")
and The Trust Company of New Jersey, as trustee (the "Trustee").
1. Interest.
(a) The Company shall pay interest on the outstanding
principal amount of this Debenture at the rate of 9% per annum
from September 29, 1995 until maturity. The Company will pay
interest semi-annually on April 1 and October 1 of each year, or
if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the
Debentures will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from
September 29, 1995; provided, however, that if there is no
existing Default in the payment of interest, and if this
Debenture is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment
Date; provided further, however, that the first Interest Payment
Date shall be April 1, 1996. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
(b) To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any
Bankruptcy Law) on (i) overdue principal, premium, if any, at the
rate borne by the Debentures; and (ii) overdue installments of
interest at the same rate.
2. Method of Payment. The Company will pay interest
(except defaulted interest) on the Debentures to the Persons who
are registered Holders at the close of business on the March 15
or September 15 next preceding the applicable Interest Payment
Date, even if such Debentures are cancelled after such record
date and on or before such Interest Payment Date. Defaulted
interest shall be paid to Holders as of a special record date
established for purposes of determining the Holders entitled
thereto. The Debentures will be payable as to principal and
interest at the office or agency of the Company maintained for
such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made
by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire
transfer of immediately available funds will be required with
respect to principal of and interest on the Global Security.
Such payment shall be in currency of the United States of America
as at the time of payment is legal tender for payment of public
and private debts.
3. Paying Agent, Registrar and Conversion Agent.
Initially, the Trustee will act as Paying Agent, Registrar and
Conversion Agent. The Company may change any Paying Agent,
Registrar or Conversion Agent without notice to any Holder. The
Company or any of its subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Debentures under the
Indenture. The terms of the Debentures include those stated in
the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code SECTION
77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. The Debentures are subject to all such terms, and
Holders are referred to the Indenture and the TIA for a statement
of such terms. The Debentures are general unsecured obligations
of the Company limited to $25 million in aggregate principal
amount, subject to Section 2.7 of the Indenture.
5. Optional Redemption by the Company. The Debentures
will not be subject to redemption at the option of the Company
prior to October 1, 1998, except as described in this paragraph
5. On or after October 1, 1998, the Debentures will be
redeemable at any time prior to maturity at the option of the
Company, in whole or in part from time to time, upon not less
than 30 days' nor more than 60 days' prior notice to the Holders
at the redemption prices (expressed as percentages of principal
amount) set forth below:
After October 1, Percentage
1998 105.00%
1999 103.75
2000 102.50
2001 101.25
In each case together with accrued but unpaid interest, if any,
to the redemption date.
6. Mandatory Redemption. Except as set forth in paragraph
7 below, the Company shall not be required to make mandatory
redemption payments with respect to the Debentures.
7. Redemption at the Option of Holder.
(a) Upon a Change of Control, the Company shall offer to
repurchase all or any part of the Debentures (at each Holder's
option) at a repurchase price equal to 100% of the aggregate
principal amount thereof, plus accrued but unpaid interest, if
any, to the date of repurchase. Within 30 days after a Change of
Control, the Company shall mail a notice to each Holder setting
forth the procedures governing the Change of Control Offer as
required by the Indenture. A Holder may tender or refrain from
tendering all or any portion of such Holder's Debentures, at such
Holder's discretion, by completing the form entitled "Option of
Holder to Elect Repurchase" below and delivering such form,
together with the Debentures with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the
Company, to the Trustee. Any partial tender of Debentures must
be in an integral multiple of $1,000.
(b) If, at any time or from time to time, the Company's
Consolidated Net Worth at the end of each of any two consecutive
fiscal quarters (the last day of the second fiscal quarter being
referred to as a "Deficiency Date") is less than $18 million,
then the Company shall offer to repurchase up to 10% of the
aggregate principal amount of Debentures originally issued (or
such lesser amount as may be outstanding at the time notice of
such deficiency is sent) (the "Deficiency Repurchase Amount") at
a repurchase price equal to 100% of the principal amount of the
Debentures to be repurchased, plus accrued but unpaid interest to
the date of repurchase. The failure to have a Consolidated Net
Worth of at least $18 million at the end of any fiscal quarter
shall not be counted towards more than one Deficiency Offer.
Within 50 days after each Deficiency Date (100 days if a
Deficiency Date is also the end of the Company's fiscal year),
the Company shall mail a notice to each Holder setting forth the
procedures governing the Deficiency Offer as required by the
Indenture. A Holder of Debentures may tender or refrain from
tendering all or any portion of such Holder's Debentures at such
Holder's discretion by completing the form entitled "Option of
Holder to Elect Repurchase" below and delivering such form,
together with the Debentures with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the
Company, to the Trustee prior to the expiration of the Deficiency
Offer. Any partial tender of Debentures must be in an integral
multiple of $1,000. If the aggregate principal amount of
Debentures delivered for repurchase pursuant to any Deficiency
Offer exceeds the Deficiency Repurchase Amount, the Debentures to
be repurchased shall be selected pro rata (in $1,000 increments)
based on the relative principal amounts of Debentures owned by
the Holders delivering Debentures for repurchase.
The Company may credit against the principal amount of
Debentures to be repurchased in any Deficiency Offer 100% of the
principal amount (excluding premium) of Debentures acquired by
the Company subsequent to a Deficiency Date and prior to the
related Deficiency Repurchase Date through purchase (other than
pursuant to the provisions contained in this paragraph 7),
optional redemption, conversion or exchange and surrendered for
cancellation.
8. Conversion.
(a) Subject to the provisions of the Indenture, the Holder
hereof may, at such Holder's option, at any time prior to the
close of business on October 1, 2003, unless earlier redeemed or
repurchased, convert this Debenture, in whole or in part (in
denominations of $1,000 or multiples thereof), at 100% of the
principal amount hereof so converted, into shares of Class A
Common Stock of the Company, par value $.01 per share, at a
conversion price per share of $8.85, subject to adjustment as
provided in the Indenture.
To convert a Debenture, a Holder must (i) complete and sign
the conversion notice below, (ii) surrender the Debenture to the
Conversion Agent, (iii) furnish appropriate endorsements and
transfer documents if required by the Registrar or Conversion
Agent and (iv) pay any transfer or similar tax if required by the
Indenture. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided
in the Indenture, in respect of any fraction of a share which
would otherwise be issuable upon surrender of any Debenture for
conversion. A Holder is not entitled to any rights of a holder
of Common Stock until such Holder has converted its Debentures
into Common Stock as provided in the Indenture.
9. Subordination. The Debentures are subordinated to
Senior Indebtedness. To the extent provided in the Indenture,
Senior Indebtedness must be paid before the Debentures may be
paid. The Company agrees, and each Holder by accepting a
Debenture agrees, to the subordination provisions contained in
the Indenture and authorizes the Trustee to give effect to such
provisions, and each Holder appoints the Trustee its attorney-in-
fact for any and all such purposes.
10. Denominations, Transfer, Exchange. The Debentures are
in registered form without coupons in denominations of $1,000 and
integral multiples of $1,000. A Holder may transfer or exchange
Debentures as provided in the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need
not exchange or register the transfer of any Definitive Security
(or portion thereof selected for redemption). Also, it need not
exchange or register the transfer of any Debentures during the 15
day period preceding the mailing of a notice of redemption or an
offer to repurchase Debentures or the 15 day period preceding an
Interest Payment Date.
11. Persons Deemed Owners. The registered Holder of a
Debenture may be treated as its owner for all purposes.
12. Amendments and Waivers. Subject to certain exceptions,
the Indenture or the Debentures may be amended with the consent
of the Holders of at least a majority in principal amount of the
Debentures then outstanding, and any existing Default (except a
payment default) may be waived with the consent of the Holders of
at least a majority in principal amount of the Debentures then
outstanding. Without the consent of any Holder, the Company and
the Trustee may amend or supplement the Indenture or the
Debentures to (i) cure any ambiguity, defect or inconsistency,
provided that such amendment does not in the opinion of the
Trustee adversely affect the rights of any Holder, (ii) provide
for uncertificated Debentures in addition to or in lieu of
certificated Debentures, (iii) comply with Section 5.1 of the
Indenture, (iv) make any change that does not adversely affect
the legal rights of any Holder, or (v) comply with requirements
of the SEC in order to effect or maintain the qualification of
the Indenture under the TIA.
13. Defaults and Remedies. Events of Default include: (a)
failure to pay principal of or premium, if any, on any Debenture
when due and payable at maturity, upon redemption, upon a Change
of Control Offer, Deficiency Offer or otherwise, whether or not
such payment is prohibited by the subordination provisions of the
Indenture; (b) failure to pay any interest on any Debenture when
due and payable, which failure continues for 30 days, whether or
not such payment is prohibited by the subordination provisions of
the Indenture; (c) failure to perform the other covenants of the
Company in the Indenture, which failure continues for 60 days
after written notice as provided in the Indenture; (d) a default
occurs (after giving effect to any applicable grace periods or
any extension of any maturity date) in the payment when due of
principal of and or acceleration of, any indebtedness for money
borrowed by the Company or any of its Subsidiaries in excess of
$1,000,000, individually or in the aggregate, if such
indebtedness is not discharged, or such acceleration is not
annulled, within 10 days after written notice as provided in the
Indenture; and (e) certain events of bankruptcy, insolvency or
reorganization of the Company or any Subsidiary. If an Event of
Default shall occur and be continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then
outstanding Debentures may accelerate the maturity of all
Debentures, except that in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all
outstanding Debentures shall immediately so accelerate. The
Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Debentures at the request or
direction of any of the Holders. Subject to certain limitations,
the Holders of a majority in aggregate principal amount of the
outstanding Debentures will have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power
conferred on the Trustee. The Company must furnish an annual
compliance certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee, in its
individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee; provided, however, that if
the Trustee acquires any conflicting interest as described in the
TIA, it must eliminate such conflict or resign.
15. No Recourse Against Others. A director, officer,
employee, incorporator or stockholder, of the Company, as such,
shall not have any liability for any obligations of the Company
under the Debentures or the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of
the consideration for the issuance of the Debentures.
16. Authentication. This Debenture shall not be valid
until authenticated by the manual signature of the Trustee or an
authenticating agent.
17. Abbreviations. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (=tenants
in common), TEN ENT (=tenants by the entireties), JT TEN (=joint
tenants with right of survivorship and not as tenants in common),
CUST (=Custodian), and U/G/M/A (=Uniform Gifts to Minors Act).
18. Additional Rights of Holders of Transfer Restricted
Securities. In addition to the rights provided to Holders of
Debentures under the Indenture, Holders of Transfer Restricted
Securities shall have all the rights set forth in the
Registration Rights Agreement.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
5 Sylvan Way
Parsippany, NJ 07054
Attn: President
SCHEDULE OF EXCHANGES OF GLOBAL SECURITY
FOR DEFINITIVE SECURITIES
The following exchanges of this Global Security for
Definitive Securities have been made:
Amount of Principal Signature
decrease in Amount of Amount of of
Principal increase in this Global authorized
Amount of Principal Security officer of
Date of this Global Amount of following Trustee or
Exchange Security this Global such Debentures
Security decrease or Custodian
increase
FORM OF ELECTION TO CONVERT
I (we) hereby irrevocably exercise the option to convert
this Debenture, or the portion below designated, into shares of
Common Stock of Diagnostic/Retrieval Systems, Inc. in accordance
with the terms of the Indenture referred to in this Debenture,
and direct that the shares issuable and deliverable upon
conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned
registered Holder hereof, unless a different name has been
indicated in the assignment below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Portion of this Debenture
to be converted (if partial
conversion, $1,000 or an
integral multiple thereof): $
If shares of Common Stock are to be issued and registered
otherwise than to the registered Holder named above, please print
the name and address, including zip code, and social security or
other taxpayer identification number of the person to whom such
Common Stock is to be issued.
Your Name:
(exactly as your name appears
on the face of this Debenture)
By:
Title:
Date:
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or
(we) assign and transfer this Debenture to
(Insert assignee's social security or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent
to transfer this Debenture on the books of the Company. The
agent may substitute another to act for him.
Date:
Your Name:
(exactly as your name appears
on the face of this Debenture)
By:
Title:
Date:
Signature Guaranteed:
By:
(Bank or trust company having an office or
correspondent in the United States or a broker or
dealer which is a member of a registered securities
exchange or the National Association of Securities
Dealers, Inc.)
In connection with any transfer or exchange of any of the
Debentures evidenced by this certificate occurring prior to the
date that is three years after the later of the date of original
issuance of such Debentures and the last date, if any, on which
such Debentures were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Debentures are being:
CHECK ONE BOX BELOW:
( ) (1) acquired for the undersigned's own account, without
transfer (in satisfaction of Section 2.6(a)(ii)(A) or
Section 2.6(d)(i)(A) of the Indenture; or
( ) (2) transferred to the Company; or
( ) (3) transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
( ) (4) transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
( ) (5) transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act of 1933), that has furnished to the
Company and the Trustee a signed letter containing
certain representations and agreements (the form of
which letter appears as Exhibit C to the Indenture); or
( ) (6) transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Debentures evidenced by this certificate in
the name of any person other than the registered holder thereof;
provided, however, that if box (4), (5) or (6) is checked, the
Company, Trustee or Registrar may require, prior to registering
any such transfer of the Debentures, in their sole discretion,
such legal opinions, certifications and other information as the
Company, Trustee or Registrar has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration requirements
of the Securities Act of 1933, including but not limited to the
exemption provided by Rule 144 under such Act.
Your Name:
(exactly as your name appears
on the face of this Debenture)
By:
Title:
Date:
Signature Guaranteed:
By:
(Bank or trust company having an office or
correspondent in the United States or a broker or
dealer which is a member of a registered securities
exchange or the National Association of Securities
Dealers, Inc.)
OPTION OF HOLDER TO ELECT REPURCHASE
1. If you want to elect to have all or any part of this
Debenture repurchased by the Company pursuant to Article IV of
the Indenture (in connection with a Change of Control Offer or
Deficiency Offer), state the amount you elect to have repurchased
(if all, write "ALL"): $ .
Your Name:
(exactly as your name appears on the face
of this Debenture)
By:
Title:
Date:
Signature Guaranteed:
By:
(Bank or trust company having an office or
correspondent in the United States or a broker or
dealer which is a member of a registered securities
exchange or the National Association of Securities
Dealers, Inc.)
EXHIBIT B
TRANSFEREE LETTER OF REPRESENTATION
Diagnostic/Retrieval Systems, Inc.
c/o The Trust Company of New Jersey
35 Journal Square
Jersey City, New Jersey 07396
Dear Sirs:
This Certificate is delivered to request a transfer of $
principal amount of the 9% Senior Subordinated Convertible
Debentures due 2003 (the "Debentures") of Diagnostic/Retrieval
Systems, Inc. (the "Company").
Upon transfer, the Debentures would be registered in the
name of the new beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
The undersigned represents and warrant to you that:
1. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act of 1933, as amended (the "Securities Act")) purchasing for
our own account or for the account of such an institutional
"accredited investor," and we are acquiring the Debentures for
investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the
Securities Act. We have such knowledge and experience in
financial business matters as to be capable of evaluating the
merits and risk of our investment in the Debentures and weinvest
in or purchase securities similar to the Debentures in the normal
course of our business. We and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.
2. We understand that the Debentures have not been
registered under the Securities Act and, unless so registered,
may not be sold except as permitted in the following sentence.
We agree on our own behalf and on behalf of any investor account
for which we are purchasing Debentures to offer, sell or
otherwise transfer such Debentures prior to the date which is
three years after the later of the date of original issue and the
last date on which the Company or any affiliate of the Company
was the owner of such Debentures (or any predecessor thereto)
(the "Resale Restriction Termination Date") only (a) so long as
the Debentures are eligible for resale pursuant to Rule 144A
under the Secuirities Act, to a person we reasonably believe is a
qualified institutional buyer, as defined in RUle 144A under the
Securities Act, (a "QIB") in a transaction complying with the
requirements of Rule 144A, (b) in an offshore transaction in
accordance with Regulation S under the Securities Act, (c)
pursuant to a registration statement which has been declared
effective under the Securities Act, (d) to the Company, or (e)
pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of
our property or the property of such investor account or accounts
be at all times within our or their control and in compliance
with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. Each purchaser acknowledges that
the Company, Trustee and Registrar reserve the right prior to any
offer, sale or other transfer prior to the Resale Termination
Date of the Debentures pursuant to clauses (b) or (e) above to
require the delivery of an opinion of counsel, certifications
and/or other information satisfactory to the Company, Trustee and
Registrar.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
TRANSFEREE: _________________________
BY:__________________________________
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of September 22, 1995, by and
between Diagnostic/Retrieval Systems, Inc., a Delaware
corporation (the "Company"), and Forum Capital Markets L.P. (the
"Initial Purchaser"). The Company proposes to issue and sell to
the Initial Purchaser, upon the terms set forth in a purchase
agreement of even date herewith (the "Purchase Agreement"), up to
$25,000,000 aggregate principal amount of its Senior Subordinated
Convertible Debentures due 2003 (the "Debentures"), which
Debentures are convertible into Common Stock (as defined herein)
as provided in the Debentures and the Indenture (as defined
herein). As an inducement to the Initial Purchaser to enter into
the Purchase Agreement and in satisfaction of a condition to the
Initial Purchaser's obligations thereunder, the Company agrees
with the Initial Purchaser, for the benefit of the Initial
Purchaser and the other Holders (as defined herein), as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms
shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended from time
to time.
"CLOSING DATE" has the meaning set forth in the Purchase
Agreement.
"COMMON STOCK" means the Class A Common Stock, par value
$.01 per share, of the Company, or any successor class thereto,
issuable upon conversion of the Debentures.
"COMMISSION" means the Securities and Exchange Commission.
"DAMAGES PAYMENT DATE" means with respect to the Debentures
and the outstanding shares of Common Stock, if any, each Interest
Payment Date.
"EFFECTIVENESS PERIOD" has the meaning set forth in Section
2 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time.
"HOLDERS" means Persons owning Transfer Restricted
Securities.
"INDENTURE" means the Indenture, to be dated the date
hereof, between the Company and The Trust Company of New Jersey,
as trustee (the "TRUSTEE"), pursuant to which the Debentures are
to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
"INTEREST PAYMENT DATE" has the meaning set forth in the
Form of Debenture attached as Exhibit A to the Indenture.
"LIQUIDATED DAMAGES" has the meaning set forth in Section 4
hereof.
"OPTION CLOSING DATE" has the meaning set forth in the
Purchase Agreement.
"PERSON" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization,
or a government or agency or political subdivision thereof.
"PROSPECTUS" means the prospectus included in the Shelf
Registration Statement, as amended or supplemented by any
prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"RECORD HOLDER" means (i) with respect to any Damages
Payment Date relating to the Debentures, each Person who is a
Holder of Debentures on the record date with respect to the
Interest Payment Date on which such Damages Payment Date shall
occur and (ii) with respect to any Damages Payment Date relating
to the Common Stock, each Person who is a Holder of Common Stock
on the day that is fifteen days prior to the succeeding Damages
Payment Date.
"REGISTRATION DEFAULT" has the meaning set forth in Section
4 hereof.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in
Section 2 hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Section 77aaa-77bbbb) as in effect on the date of the Indenture.
"TRANSFER RESTRICTED SECURITIES" means each Debenture and,
if such Debenture has been converted, each share of Common Stock
issued in connection with such conversion, until (a) the date on
which such Debenture or shares of Common Stock, as applicable,
have been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement or (b) the date
on which such Debenture or shares of Common Stock, as applicable,
are distributed to the public pursuant to Rule 144 or any other
applicable exemption under the Act without additional restriction
upon public resale.
"UNDERWRITTEN OFFERING" means a registration in which
securities of the Company are sold to an underwriter for
reoffering to the public.
2. Shelf Registration. The Company shall use its
reasonable best efforts to file a registration statement with the
Commission within 90 days after the Closing Date relating to the
offer and sale of the Transfer Restricted Securities by Holders
from time to time pursuant to Rule 415 under the Act and in
accordance with the methods of distribution set forth therein,
which registration statement may be substituted for by one or
more subsequent registration statements each relating to the
offer and sale of the Transfer Restricted Securities by Holders
from time to time (as in effect from time to time, the "Shelf
Registration Statement"), and the Company shall use its
reasonable best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission within 150
days after the Closing Date, provided, however, that the Company
may delay such filing or effectiveness under the circumstances
and during the periods described in Section 3 hereof. In
addition, the Company shall use its reasonable best efforts to
keep the Shelf Registration Statement continuously effective,
supplemented and amended for a period (the "Effectiveness
Period") of not less than three years following the later of the
Closing Date or any Option Closing Date or such shorter period
that will terminate when all the shares of Common Stock and the
Debentures covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement.
3. Delay Periods; Suspension of Sales.
(a) If at any time prior to the expiration of the
Effectiveness Period, counsel to the Company (which counsel shall
be experienced in securities laws matters) has determined in good
faith that the filing of the Shelf Registration Statement or the
compliance by the Company with its disclosure obligations in
connection with the Shelf Registration Statement would require
the disclosure of material information which the Company has a
bona fide business purpose for preserving as confidential, then
the Company may delay the filing of the Shelf Registration
Statement (if not then filed) and shall not be required to
maintain the effectiveness thereof or amend or supplement the
Shelf Registration Statement for a period (an "Information Delay
Period") expiring upon the earlier to occur of (A) the date on
which such material information is disclosed to the public or
ceases to be material or the Company is able to so comply with
its disclosure obligations and Commission requirements or (B) 30
days after counsel to the Company makes such good faith
determination. There shall not be more than four Information
Delay Periods during the Effectiveness Period, and there shall
not be two Information Delay Periods during any contiguous 90 day
period.
(b) If at any time prior to the expiration of the
Effectiveness Period, the Company is advised by a nationally
recognized investment banking firm selected by the Company that,
in such firm's written reasonable opinion addressed to the
Company (a copy of which shall be delivered to each Holder of
Transfer Restricted Securities registered under the Shelf
Registration Statement), sales of Common Stock pursuant to the
Shelf Registration Statement at such time would materially
adversely affect any immediately planned underwritten public
equity financing by the Company of at least $5 million, the
Company shall not be required to maintain the effectiveness of
the Shelf Registration Statement or amend or supplement the Shelf
Registration Statement for a period (a "Transaction Delay
Period") commencing on the date of pricing of such equity
financing and expiring upon the earliest to occur of (i) the
abandonment of such financing or (ii) 90 days after the
completion of such financing. There shall not be more than two
Transaction Delay Periods during the Effectiveness Period.
(c) A Transaction Delay Period and an Information Delay
Period are hereinafter collectively referred to as "Delay
Periods" or a "Delay Period." The Company will give prompt
written notice, in the manner prescribed by Section 10(a) hereof,
to each Holder of each Delay Period. Such notice shall be given
(i) in the case of a Transaction Delay Period, 30 days in advance
of the commencement of such Delay Period and (ii) in the case of
an Information Delay Period, as soon as practicable after the
circumstances giving rise thereto are identified. Such notice
shall state to the extent, if any, as is practicable, an estimate
of the duration of such Delay Period. Each Holder, by his
acceptance of any Transfer Restricted Securities, agrees that (i)
upon receipt of such notice of an Information Delay Period it
will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, (ii)
upon receipt of such notice of a Transaction Delay Period it will
forthwith discontinue disposition of the Common Stock pursuant to
the Shelf Registration Statement and (iii) in either such case,
will not deliver any prospectus forming a part of the Shelf
Registration Statement in connection with any sale of Transfer
Restricted Securities or Common Stock, as the case may be, until
the expiration of such Delay Period.
4. Liquidated Damages. If (i) the Shelf Registration
Statement is not filed with the Commission within 90 days after
the Closing Date, (ii) the applicable Registration Statement has
not been declared effective by the Commission within 150 days
after the Closing Date (the "Effectiveness Target Date"), or
(iii) at any time prior to the third anniversary of the later of
the Closing Date or any Option Closing Date, the Shelf
Registration Statement is filed and declared effective but shall
thereafter cease to be effective (other than as a result of the
effectiveness of a successor registration statement) or fail to
be useable for its intended purpose without being succeeded
promptly by a post-effective amendment to the Shelf Registration
Statement that cures such failure and that is itself declared
effective within 45 days after the Shelf Registration Statement
ceases to be effective (each such event referred to in clauses
(i) through (iii), a "Registration Default"), the Company will
pay liquidated damages ("Liquidated Damages") to each Holder who
has complied with its obligations under this Agreement. During
the first 90-day period immediately following the occurrence of
such Registration Default, the amount of such Liquidated Damages
shall be $.05 per week per $1,000 principal amount of Debentures
and, if applicable, $.01 per week per share (subject to
adjustment in the event of stock splits, stock consolidations,
stock dividends and the like) of Common Stock constituting
Transfer Restricted Securities registered under the Shelf
Registration Statement. During each subsequent 90-day period
following the occurrence of such Registration Default, the amount
of Liquidated Damages shall increase by an additional $.05 per
week per $1,000 principal amount of Debentures and $.01 per week
per share (subject to adjustment as set forth above) of Common
Stock constituting Transfer Restricted Securities registered
under the Shelf Registration Statement; provided, however, the
maximum amount of Liquidated Damages shall be $.20 per week per
$1,000 principal amount of Debentures and $.04 per week per share
(subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities registered under the
Shelf Registration Statement. All accrued Liquidated Damages
shall be paid by the Company to Record Holders entitled thereto
on the next succeeding Damages Payment Date by wire transfer of
immediately available funds or by federal funds check. Following
the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease, but any Liquidated Damages accrued through
the date of cure shall be paid to Record Holders on the next
succeeding Damages Payment Date. If the Registration Defaults
described in either of clauses (i) or (ii) above arose solely
because the applicable Holder or Holders failed to provide the
Company with certain information within 20 business days after
request therefor pursuant to Section 5(m), Liquidated Damages in
respect thereof will not begin to accrue until five business days
after such information has been provided to the Company.
All of the Company's obligations set forth in the preceding
paragraph which are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a
Transfer Restricted Security shall survive until such time as all
such obligations with respect to such security shall have been
satisfied in full.
5. Registration Procedures.
In connection with the Shelf Registration Statement and any
Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities, the following
provisions shall apply:
(a) The Company shall furnish to each Holder, prior to the
filing thereof with the Commission, a copy of the Shelf
Registration Statement and each amendment thereto or each
amendment or supplement to the Prospectus included therein, and
shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as any
Holder reasonably may propose.
(b) The Company shall take such action as may be necessary
so that (i) the Shelf Registration Statement and any amendment
thereto and any Prospectus forming a part thereof and any
supplement or amendment thereto complies in all material respects
with the Act and the rules and regulations thereunder, (ii) the
Shelf Registration and any amendment thereto (in either case,
other than with respect to written information furnished to the
Company by or on behalf of any Holder specifically for inclusion
therein) does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make any statement
therein not misleading and (C) the Prospectus and any supplement
thereto (in either case, other than with respect to such
information from Holders), does not include an untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company shall promptly advise the Holders of
Transfer Restricted Securities registered under the Shelf
Registration Statement (which advice pursuant to clauses (ii) -
(iv) shall be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made) and,
if requested by such Persons, to confirm such advice in writing;
(i) when the Shelf Registration Statement and any
amendment thereto has been filed with the Commission and
when the Shelf Registration Statement or any post-effective
amendment thereto has become effective;
(ii) of any request by the Commission for amendments
to the Shelf Registration Statement or amendments or
supplements to the Prospectus or for additional information
relating thereto;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Shelf Registration
Statement or of the suspension by any state securities
commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding
purposes; and
(iv) of the happening of any event that requires the
making of any changes in the Shelf Registration Statement or
the Prospectus so that, as of such date, the Shelf
Registration Statement and the Prospectus do not contain an
untrue statement of a material fact and do not omit to state
a material fact required to be stated therein or necessary
to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they
were made) not misleading.
(d) If at any time the Commission shall issue any stop
order suspending the effectiveness of the Shelf Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company
shall use its reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(e) The Company shall furnish to each Holder of Transfer
Restricted Securities included under the Shelf Registration
Statement, without charge, at least one copy of the Shelf
Registration Statement and each post-effective amendment thereto,
including all financial statements and schedules, documents
incorporated by reference therein and, if the Holder so requests
in writing, all exhibits (including exhibits incorporated therein
by reference).
(f) The Company shall, during the Effectiveness Period,
deliver to each Holder of Transfer Restricted Securities included
under the Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the
Company consents to the use of the Prospectus and any amendment
or supplement thereto by each of the selling Holders in
connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment
or supplement thereto during the Effectiveness Period.
(g) Prior to any public offering pursuant to the Shelf
Registration Statement, the Company shall use its reasonable best
efforts to register or qualify or cooperate with the Holders of
Transfer Restricted Securities registered thereunder, the
underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of such
Transfer Restricted Securities under the securities or Blue Sky
laws of such jurisdictions as such Holders or underwriters
reasonably request in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in
such jurisdictions of such Transfer Restricted Securities;
provided, however, that the Company will not be required to
qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it
to general service of process or to taxation in any jurisdiction
where it is not then so subject.
(h) Unless any Transfer Restricted Securities shall be in
book-entry form only, the Company shall cooperate with the
Holders and the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Securities to be sold under the Shelf Registration
Statement, free of any restrictive legends and in such
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request in connection with the sales
of Transfer Restricted Securities pursuant to the Shelf
Registration Statement.
(i) Upon the occurrence of any event contemplated by
Section 5(c)(ii) - (iv), the Company shall file (and use its
reasonable best efforts to have declared as soon as possible) a
post-effective amendment to the Shelf Registration Statement or
an amendment or supplement to the Prospectus or file any other
required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities registered under the
Shelf Registration Statement, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading. Each
Holder of Transfer Restricted Securities registered under the
Shelf Registration Statement agrees by acquisition of such
Transfer Restricted Securities that, upon receipt of any notice
from the Company of the existence of any fact of the kind
described in Section 5(c)(ii) - (iv) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the Shelf Registration Statement until
such Holder receives copies of the supplemented or amended
Prospectus contemplated by this Section 5(i), or until such
Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and such Holder has received copies of
any additional or supplemental filings which are incorporated by
reference in the Prospectus. If so directed by the Company, each
Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Transfer Restricted
Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time period
regarding the Company's obligations to maintain the effectiveness
of the Shelf Registration Statement set forth in Section 2 hereof
shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to
Section 5(c) hereof to and including the date when such Holder
shall have received the copies of the supplemented or amended
Prospectus contemplated by this Section 5(i).
(j) The Company shall provide a CUSIP number for all
Transfer Restricted Securities registered under the Shelf
Registration Statement, in the event of and at the time of any
distribution thereof to Holders, not later than the effective
date of the Shelf Registration Statement and provide the Trustee
and the transfer agent for the Common Stock with printed
certificates for such Transfer Restricted Securities which are in
a form eligible for deposit with the Depository Trust Company.
(k) The Company shall use its reasonable best efforts to
comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders
or otherwise provide in accordance with Section 11(a) of the Act,
as soon as practicable after the effective date of the Shelf
Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Act.
(l) The Company shall cause the Indenture to be qualified
under the TIA in a timely manner not later than the effective
date of the Shelf Registration Statement, and, in connection
therewith, cooperate with the Trustee and the Holders of
Debentures to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with
the terms of the TIA.
(m) The Company may require each Holder of Transfer
Restricted Securities to be registered under the Shelf
Registration Statement to furnish to the Company such information
regarding such Holder and the distribution of such Holder's
securities thereunder as the Company may from time to time
reasonably require for inclusion in the Shelf Registration
Statement and the Company may exclude from such registration the
Transfer Restricted Securities of any Holder that fails to
furnish such information within a reasonable time after receiving
such request.
(n) The Company shall, if requested by the Holders of
Transfer Restricted Securities being sold in an Underwritten
Offering or the underwriter(s) thereof, promptly incorporate in
the Shelf Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment, if necessary, such
information as such underwriters and Holders reasonably agree
should be included therein and to which the Company does not
reasonably object including, without limitation, information
relating to the plan of distribution of the Transfer Restricted
Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s),
the purchase price being paid therefor and with respect to any
other terms of the offering of the Transfer Restricted Securities
to be sold in such offering; and shall make all required filings
of such Prospectus supplement or post-effective amendment as soon
as practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment.
(o) The Company shall enter into such customary agreements
(including an underwriting agreement in customary form, if
applicable) and take all such other appropriate actions in order
to expedite or facilitate the disposition of the Transfer
Restricted Securities pursuant to the Shelf Registration
Statement, and in connection therewith, the Company shall (1)
make such representations and warranties to the Holders of
Transfer Restricted Securities registered thereunder and the
underwriter(s), if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary
underwritten offerings; (2) obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to such
underwriters and the Holders of a majority of the Transfer
Restricted Securities being sold) addressed to each such Holder
and underwriter covering such matters as are customarily covered
in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Holders and
underwriters; (3) if and to the extent permitted by Statement of
Auditing Standards No. 72, obtain comfort letters and updates
thereof from the Company's independent certified public
accountants addressed to the underwriters requesting the same,
such letters to be in customary form and covering matters of the
type customarily covered in comfort letters in connection with
primary underwritten offerings; (4) in connection with an
Underwritten Offering only, set forth in full or incorporate by
reference in the underwriting agreement the indemnification
provisions and procedures of Section 6 hereof with respect to all
parties to be indemnified pursuant to said Section; and (5)
deliver such documents and certificates as may be reasonably
requested by such Holders or underwriters to evidence compliance
with Section 5(i) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the
Company pursuant to this Section 5(o). The foregoing actions set
forth in clauses (1), (2), (3) and (5) of this Section 5(o) shall
be performed at each closing under any underwriting or similar
agreement as and to the extent required thereunder.
(p) The Company shall make available at reasonable times
for inspection by the Holders of the Transfer Restricted
Securities, any underwriter participating in any disposition
pursuant to the Shelf Registration Statement, and any attorney or
accountant retained by any such Holders or underwriters, all
financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries; and cause the
Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with the Shelf Registration
Statement subsequent to the filing thereof as is customary for
similar due diligence examinations; provided, however, that any
information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such
information shall be kept confidential by such Holders or any
such underwriter, attorney or accountant, unless such disclosure
is made in connection with a court proceeding or required by law,
or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality; and provided, further that the foregoing
inspection and information gathering shall, to the greatest
extent possible, be coordinated on behalf of the Holders and the
other parties entitled thereto by one counsel designated by and
on behalf of such Holders and other parties.
(q) The Company shall use its reasonable best efforts,
subject to any applicable rules thereto, to cause all Common
Stock included among the Transfer Restricted Securities to be
listed on each securities exchange on which the Common Stock is
listed and, if requested by the Holders of a majority in
aggregate principal amount of Debentures, to list the Debentures
registered under the Shelf Registration Statement on a national
securities exchange or the Nasdaq Stock Market.
6. Registration Expenses.
(a) Except as otherwise provided in Section 8, the Company
shall bear all expenses incurred in connection with the
performance of or compliance with its obligations under Sections
2, 4 and 5 hereof, including without limitation all registration
and filing fees, fees and expenses of compliance with securities
or blue sky laws, printing expenses, messenger and delivery
expenses and fees and disbursements of counsel for the Company
and all independent certified public accountants, and other
persons retained by the Company (all such expenses being herein
called "Registration Expenses"). Registration Expenses shall
also include the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed or on
the Nasdaq Stock Market. The Company will reimburse the Holders
for the reasonable fees and disbursements of one firm of
attorneys chosen by the Holders of a majority of the Debentures
to be sold pursuant to the Shelf Registration Statement to act as
counsel therefor in connection therewith not to exceed $15,000.
(b) Each Holder will pay any discounts and commissions
incurred upon the sale of securities by it under the Shelf
Registration Statement.
7. Indemnification and Contribution.
(a) In connection with any Shelf Registration Statement,
the Company shall indemnify and hold harmless each Holder, its
officers and directors and each Person who controls such Holder
within the meaning of the Act against any and all losses, claims,
damages or liabilities and expenses whatsoever as incurred,
insofar as such losses, claims, damages, liabilities and expenses
arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in the Shelf Registration
Statement, or any Prospectus or preliminary Prospectus or any
amendment thereof or supplement thereto or arise out of or are
based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and agrees to reimburse
each such indemnified Person, as incurred, for any legal or other
expense reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that (i) the Company will
not be liable in any case to the extent that any loss, claim,
damage, liability or expense arises out of or is based upon any
such untrue or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of
any such Holder specifically for inclusion therein and (ii) the
foregoing indemnity with respect to any untrue statement or
alleged untrue statement or omission or alleged omission made in
any preliminary prospectus relating to the Shelf Registration
Statement shall not inure to the benefit of any Holder (or any
person controlling such Holder) from whom the person asserting
any such loss, claim, damage or liability purchases any of the
Transfer Restricted Securities that are the subject thereof if
such person did not receive a copy of the final prospectus (or
the final prospectus as supplemented) at or prior to the written
confirmation of the sale of such Transfer Restricted Securities
to such person and the untrue statement or alleged omission
contained in the preliminary prospectus was corrected in the
final prospectus (or the final prospectus as supplemented).
The Company also agrees to indemnify or contribute to losses
of, as provided in Section 6(d), any underwriters of Transfer
Restricted Securities registered under the Shelf Registration
Statement, their officers and directors and each Person, if any,
who controls any such underwriter (within the meaning of the Act)
on substantially the same basis as that of the indemnification of
the Holders provided in this Section 7(a) and shall, if requested
by any Holder, enter into an underwriting agreement reflecting
such agreement, as provided in Section 5(o) hereof.
(b) Each Holder shall indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who
controls the Company (within the meaning of the Act) against any
and all losses, claims, damages, liabilities and expenses
described in the indemnity contained in Section 7(a) hereof, as
incurred, resulting from any untrue or alleged untrue statement
of material fact contained in the Shelf Registration Statement or
any amendment thereof or supplement thereto or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent, that such loss,
claim, damage, liability or expense relates to or arises from
information relating to such Holder furnished in writing by such
Holder specifically for use in the Shelf Registration Statement;
provided, however, that the obligation to indemnify will be
individual to each Holder and will be limited to the amount of
net proceeds received by such Holder from the sale of Transfer
Restricted Securities pursuant to the Shelf Registration
Statement.
(c) Any Person entitled to indemnification hereunder shall
give notice as promptly as reasonably practicable to each
indemnifying party of any claim or action commenced against it in
respect of which indemnity may be sought hereunder; provided,
however, that failure to so notify an indemnifying party shall
not relieve such indemnifying party from any obligation that it
may have pursuant to this Section except to the extent that it
has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; provided
further, however, that the failure to notify the indemnifying
party shall not relieve it from any liability that it may have to
an indemnified party otherwise than on account of this indemnity
agreement. If any such claim or action shall be brought against
an indemnified party, the indemnified party shall notify the
indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this
Section 6 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof;
provided, however, that an indemnified party will have the right
to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense
of such indemnified party unless (1) the employment of counsel by
the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are
different from or in addition to those available to the
indemnifying party, (3) a conflict or potential conflict exists
(based on advice of counsel to the indemnified party) between the
indemnified party and indemnifying party (in which case the
indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel
will be at the expense of the indemnifying party or parties. It
is understood that the indemnifying party or parties shall not,
in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of
attorneys (in addition to any local counsel) at any one time for
all such indemnified party or parties. Each indemnified party,
as a condition to the indemnity agreements contained in Sections
6(a) and 6(b), shall use all reasonable efforts to cooperate with
the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement
or any such action effected without its written consent, but if
settled with its written consent or if there be a final judgment
of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from
and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If a claim by an indemnified party for indemnification
under this Section 6 is found unenforceable in a final judgment
by a court of competent jurisdiction (not subject to further
appeal or review) even though the express provisions hereof
provide for indemnification in such case, then each applicable
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified as a result of such losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions,
statements or omissions that resulted in such losses as well as
any other relevant equitable considerations. The relative fault
of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as
a result of any losses shall be deemed to include, subject to the
limitations set forth in Section 7(c) herein, any legal or other
fees or expenses reasonably incurred by such party in connection
with any investigation or proceedings.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section, an
indemnifying party that is a Holder shall not be required to
contribute any amount in excess of the amount by which the total
price at which the Transfer Restricted Securities sold by such
indemnifying party and distributed to the public were offered to
the public exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled any contribution from any person who was not guilty of
such fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use commercially
reasonable efforts to file the reports required to be filed by it
under the Act and the Exchange Act in a timely manner and, if at
any time the Company is not required to file such reports, it
will, upon the written request of any Holder of Transfer
Restricted Securities, make publicly available other information
so long as necessary to permit sales of such Holder's securities
pursuant to Rules 144 and 144A. The Company covenants that it
will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell
securities without registration under the Act within the
limitation of the exemptions provided by Rules 144 and 144A
(including the requirements of Rule 144A(d)(4)).
9. Underwritten Registrations. If any of the Transfer
Restricted Securities included under the Shelf Registration
Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders
of a majority of the shares of Common Stock included among such
Transfer Restricted Securities (calculated as if all of the then
outstanding Debentures were converted into Common Stock at the
time of such selection), provided, however, that such managing
underwriters shall be reasonably satisfactory to the Company and
the Company shall not be obligated to arrange for more than one
underwritten offering during the Effectiveness Period.
No Person may participate in any underwritten registration
hereunder unless such Person (i) agrees to sell such Person's
Transfer Restricted Securities on the basis reasonably provided
in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents
reasonably required under the terms of such underwriting
arrangements and (iii) at least 20% of the outstanding Transfer
Restricted Securities are included in such underwritten offering.
The Holders participating in any underwritten offering shall be
responsible for any expenses customarily borne by selling
securityholders, including underwriting discounts and commissions
and fees and expenses of counsel to the selling securityholders.
10. Miscellaneous.
(a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may
not be given, unless the Company has obtained the written consent
of Holders of a majority of the Common Stock issued or issuable
upon conversion of the Debentures (calculated as if all of the
then outstanding Debentures were converted into Common Stock at
the time of such consent). Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of the
Holders of Transfer Restricted Securities being sold pursuant to
the Shelf Registration Statement and that does not directly or
indirectly affect the rights of other Holders may be given by
Holders of a majority of the shares of Common Stock included
among such Transfer Restricted Securities.
(b) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-
delivery, first-class mail, telex, telecopier, or air courier
guaranteeing overnight delivery:
(1) if to a Holder, at the address of such Holder
maintained by the Registrar under the Indenture;
(2) if to the Initial Purchaser, at the address set
forth in the Purchase Agreement;
(3) if to the Company, at its address set forth in the
Purchase Agreement;
or to such other addresses as the recipient party has specified
to the sending party by prior written notice to the sending
party.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally
delivered; one business day after being delivered to a next-day
air courier; five business days after being deposited in the
mail; when answered back, if faxed; and when receipt is
acknowledged by the recipient's telecopier machine, if
telecopied.
(c) Remedies. In the event of a breach by the Company or
by a Holder of any of their respective obligations under this
Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and
each Holder agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
(d) Severability. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(e) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its securities
which is inconsistent with or violates the rights granted to the
Holders in this Agreement.
(f) Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto
will bind and inure to the benefit of their respective heirs,
executors, administrators, successors, legal representatives and
assigns. In addition, whether or not any express assignment has
been made, the provisions of this Agreement which are for the
benefit of Holders are also for the benefit of, and enforceable
by, any subsequent Holder.
(g) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need
not contain the signatures of more than one party, but all such
counterparts taken together will constitute one and the same
Agreement.
(h) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
(i) Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement shall
be governed by and construed in accordance with the domestic laws
of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of
New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State
of New York.
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/ Mark S. Newman
--------------------------------
Its: Chief Executive Officer and President
-------------------------------------
FORUM CAPITAL MARKETS L.P., acting
on behalf of itself and as the
representative of the Holders
By: /s/ Michael F. McNulty
---------------------------------
Its: Managing Director
---------------------------------
EXHIBIT 23.1
Accountants' Consent and Report on Schedule
The Board of Directors
Diagnostic/Retrieval Systems, Inc.:
The audits referred to in our report dated May 18, 1995,
included the related financial statement schedule for
each of the years in the three-year period ended March
31, 1995, included in the Registration Statement. This
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on
our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole,
presents fairly, in all material respects, the
information set forth therein.
We consent to the use of our reports included herein and
to the references to our firm under the headings
"Selected Consolidated Financial Data" and "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 29, 1995
Securities Act of 1933 File No. _________
(If application to determine eligibility
of trustee for delayed offering
pursuant to Section 305 (b) (2))
_______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)___________
__________________
THE TRUST COMPANY OF NEW JERSEY
(Exact name of trustee as specified in its charter)
22-1337980
(I.R.S. Employer Identification Number)
35 JOURNAL SQUARE, JERSEY CITY, NEW JERSEY
(Address of principal executive offices)
07036
(Zip Code)
________________
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
13-2632319
(I.R.S. Employer Identification No.)
5 SYLVAN WAY
PARSIPPANY, NEW JERSEY
(Address of principal executive offices)
07054
(Zip Code)
__________________________________
9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES DUE October 1, 2003
(Title of the indenture securities)
_______________________________________________________________________
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
New Jersey Department of Banking
36 West State Street
CN-440
Trenton, NJ 08625
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE,
DESCRIBE EACH SUCH AFFILIATION.
The Trustee is not the obligor, nor is the Trustee
directly or indirectly controlling, controlled by,
or under common control with the obligor.
ITEM 3. VOTING SECURITIES OF THE TRUSTE
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF
VOTING SECURITIES OF THE TRUSTEE.
As of November 30, 1995:
Column A Column B
Title of Class Amount Outstanding
------------------------------- --------------------
Common Stock ($2.00 par Value) 19,594,170 shares
9 3/4 % Cumulative Preferred Stock 60,000 shares
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE
UNDER WHICH ANY OTHER SECURITIES, OR CERTIFICATES OF
INTEREST OR PARTICIPATION IN ANY OTHER SECURITIES, OF
THE OBLIGOR ARE OUTSTANDING, FURNISHING THE FOLLOWING
INFORMATION:
(A) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH
SUCH OTHER INDENTURE.
None
(B) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS
A BASIS FOR THE CLAIM THAT NO CONFLICTING
INTEREST WITHIN THE MEANING OF SECTION 310
(B) (1) OF THE ACT ARISES AS A RESULT OF THE
TRUSTEESHIP UNDER ANY SUCH OTHER INDENTURE,
INCLUDING A STATEMENT AS TO HOW THE INDENTURE
SECURITIES WILL RANK AS COMPARED WITH THE
SECURITIES ISSUED UNDER SUCH OTHER INDENTURE.
Reference is made to the response to Item 4 (a)
above.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS
WITH THE OBLIGOR OR UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE
OFFICERS OF THE TRUSTEE IS A DIRECTOR, OFFICER,
PARTNER, EMPLOYEE, APPOINTEE OR A REPRESENTATIVE OF
THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR,
IDENTIFY EACH SUCH PERSON HAVING ANY SUCH CONNECTION
AND STATE THE NATURE OF EACH SUCH CONNECTION.
None.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE
OBLIGOR OR ITS OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING
SECURITIES OF THE TRUSTEE OWNED BENEFICIALLY BY THE
OBLIGOR AND EACH DIRECTOR, PARTNER AND EXECUTIVE
OFFICER OF THE OBLIGOR.
As of November 30, 1995
None.
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY
UNDERWRITERS OR THEIR OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING
SECURITIES OF THE TRUSTEE OWNED BENEFICIALLY BY EACH
UNDERWRITER FOR THE OBLIGOR AND EACH DIRECTOR, PARTNER
AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER.
As of November 30, 1995
None.
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE
TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO SECURITIES OF
THE OBLIGOR OWNED BENEFICIALLY OR HELD AS COLLATERAL
SECURITY FOR OBLIGATIONS IN DEFAULT BY THE TRUSTEE.
As of November 30, 1995
None.
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS
COLLATERAL SECURITY FOR THE OBLIGATIONS IN DEFAULT ANY
SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR, FURNISH
THE FOLLOWING INFORMATION AS TO EACH CLASS OF
SECURITIES OF SUCH UNDERWRITER ANY OF WHICH ARE SO
OWNED OR HELD BY THE TRUSTEE.
As of November 30, 1995
None.
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING
SECURITIES OF CERTAIN AFFILIATES OR SECURITIES HOLDERS OF
THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS
COLLATERAL SECURITY FOR THE OBLIGATIONS IN DEFAULT
VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE, (1) OWNS 10 PERCENT OF THE VOTING
SECURITIES OF THE OBLIGOR OR (2) IS AN AFFILIATE,
OTHER THAN A SUBSIDIARY OF THE OBLIGOR, FURNISH THE
FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF
SUCH PERSON.
As of November 30, 1995
None.
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY
SECURITIES OF A PERSON OWNING 50 PERCENT OR MORE OF THE
VOTING SECURITIES OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS
COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT ANY
SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF THE
TRUSTEE, OWNS 50 PERCENT OR MORE OF THE VOTING
SECURITIES OF THE OBLIGOR, FURNISH THE FOLLOWING
INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH
PERSON ANY OF WHICH ARE SO OWNED OR HELD BY THE
TRUSTEE.
As of November 30, 1995
None.
ITEM 12. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
*1. -- A copy of the Articles of Association of the
trustee as now in effect.
*2. -- Not Applicable.
*3. -- Not Applicable.
*4. -- A copy of the existing by-laws of The Trust
Company of New Jersey.
*5. -- Not Applicable
7. -- A copy of the latest report of condition of
the trustee published pursuant to law or the
requirements of its supervising or examining
authority.
___________________
* The Exhibits thus designated are incorporated herein
by reference. Following the description of such Exhibits is
a reference to the copy of the Exhibit heretofore filed with
the Securities and Exchange Commission, to which there have
been no amendments or changes.
NOTE
Inasmuch as this Form T-1 is filed prior to the
ascertainment by the trustee of all facts on which to base a
responsive answer to Item 2 the answer to said Item is based
on incomplete information.
Item 2 may, however, be considered as correct unless
amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture
Act of 1939, the trustee, The Trust Company of New Jersey a
corporation organized and existing under the laws of the
United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Jersey City,
and the State of New Jersey, on this 30th day of November,
1995.
THE TRUST COMPANY OF NEW JERSEY
By:/s/ Roger T. Bernhammer
_____________________________
Roger T. Bernhammer
Vice President
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION
THE TRUST COMPANY OF NEW JERSEY
of Jersey City in the State of New Jersey, at the close of business
on June 30, 1995, published in response to call made by Comptroller
of the Currency, under title 12, United States Code, Section 161.
COMPTROLLER OF THE CURRENCY NORTHEASTERN DISTRICT
STATEMENT OF RESOURCES AND LIABILITIES
THOUSANDS
ASSETS OF
DOLLARS
Cash and balances due from depository institutions: $93,709
Federal funds sold 85,000
Total cash and cash equivalents 178,709
SECURITIES:
Available-for-sale securities (Market value
$493,231 in 1995) 493,231
Held to maturity (Market value $669,534 in 1995) 672,497
Total securities 1,165,728
LOANS: $960,337
Less: Unearned income (22,156)
Less: Allowance for possible loan losses (21,628)
Net loans 916,553
-------
Premises and equipment 22,341
Other real estate owned, net of reserves 44,180
Accrued interest receivable 18,832
Other assets 40,333
TOTAL ASSETS $2,386,676
LIABILITIES AND STOCKHOLDERS EQUITY
DEPOSITS:
Noninterest-bearing $337,343
Interest-bearing 1,837,812
----------
Total deposits 2,175,155
Securities sold under agreement to repurchase 41,173
Accrued taxes and other liabilities 15,321
Total liabilities 2,231,649
Commitments and contingencies
Preferred stock, $100 par value, issueable in
series, authorized 60,000 shares; outstanding
60,000 shares Series A 9.75% cumulative
shares (preference on liquidation at par value) 6,000
Common stock, $2.00 par value; authorized
72,000,000 shares; outstanding 19,594,170 in 1995 39,188
Additional paid in capital 20,051
Undivided profits 95,083
Unrealized holding loss on securities, net of
related income taxes (5,295)
Total stockholders equity 155,027
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,386,676
I, Michael A. Marinelli., Executive Vice President and Chief
Financial Officer of the above named bank do hereby declare
that this Report of Condition is true and correct to the best
of my knowledge and belief.
(Signed) Michael A. Marinelli
We the undersigned directors, attest to the correctness of
this statement of resources and liabilities. We declare
that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with
the instructions and is true and correct.
(Signed) Siggi B. Wilzig
(Signed) Fred F. Moses Directors
(Signed) Peter J. O Brien