Registration No. 33-[_______]
As filed with the Securities and Exchange Commission on May 31, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
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 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
Maximum Proposed
Offering Maximum
Amount to Price Aggregate Amount of
Title of Each Class of be Regis- Per Secu- Offering Registra-
Securities to be Registered tered rity (1) Price (1) tion Fee
Common Stock, $.01 par value 885,924 $8.50 $7,530,354.00 $2,596.67
________________
(1) Estimated solely for purposes of calculating the registra-
tion fee pursuant to Rule 457 and based upon the average of
the high and low sale price of the Common Stock of the
Company on the American Stock Exchange as of May 24,1996.
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-1
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 Finan-
cial Data
4. Use of Proceeds . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . Plan of Distribution
6. Dilution . . . . . . . . . . . . . . Not Applicable
7. Selling Stockholders . . . . . . . . Selling Stockholders
8. Plan of Distribution . . . . . . . . Outside Front Cover
Page; Plan of Distri-
bution
9. Description of Securities to be
Registered . . . . . . . . . . . . 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 Finan-
cial Condition and Re-
sults of Operations;
Business; Management;
Security Ownership; Cer-
tain Relationships and
Related Transactions;
Description of the De-
bentures; Description of
Capital Stock; Plan of
Distribution; Index to
Financial Statements
12. 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 MAY 31, 1996
PROSPECTUS DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
885,924 Shares of Common Stock
This Prospectus relates to 885,924 shares of Common Stock, $.01
par value (the "Common Stock") of Diagnostic/Retrieval Systems, Inc.
(the "Company"). The Common Stock may be offered from time to time for
the account of holders named herein (the "Selling Stockholders"). The
Company will not receive any proceeds from this offering. The
Company's Common Stock is listed on the American Stock Exchange (the
"AMEX") under the symbol "DRS." On May 23, 1996, the last reported
sale price of the Common Stock on the AMEX was $8-3/8 per share.
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 SECURI-
TIES 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 Stockholders that the
Selling Stockholders, each acting as a principal for its 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 Common Stock offered hereby from time to time, depending
on market conditions and other factors, in one or more transactions on
the AMEX or otherwise, at market prices prevailing at the time of sale,
at negotiated prices or at fixed prices. To the extent required, the
number of shares of Common Stock to be sold, the names of the Selling
Stockholders, the offering 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
Stockholders from the sale of Common Stock offered by the Selling Stock-
holders hereby will be the offering price of such Common Stock less any
commissions. For information concerning indemnification arrangements
between the Company and the Selling Stockholders see "Plan of
Distribution."
The Selling Stockholders and any broker-dealers, agents or under-
writers that participate with the Selling Stockholders in the distribu-
tion of the shares of 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 shares of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The date of this Prospectus is , 1996
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 inspect-
ed, 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 pre-
scribed fees. Materials can also be inspected at the offices of
the AMEX, 86 Trinity Place, New York, New York 10006, the ex-
change on which the Common Stock is listed.
The Company has filed with the SEC a Registration Statement
on Form S-1 (the "Registration Statement") under the Securities
Act, with respect to the shares of Common Stock offered pursuant
to this Prospectus. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the informa-
tion set forth in the Registration Statement, certain items of
which are contained in the exhibits and schedules thereto as
permitted by the rules and regulations of the SEC. For further
information with respect to the Company and the 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 the Registration Statement are not necessarily com-
plete, each statement being qualified in all respects by such
reference. Copies of all or any part of the Registration State-
ment, including exhibits thereto, may be obtained, upon payment
of the prescribed fees, at the offices of the SEC as set forth
above.
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 Diagnos-
tic/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 commer-
cial 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 informa-
tion and the electronic content and sophistication of defense
systems increases.
During its last three fiscal years, the Company has restruc-
tured 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 technol-
ogy and product base into complementary military
and commercial markets primarily through acquisi-
tions and the forging of strategic relationships;
* increasing revenue opportunities through the de-
sign and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased manufactur-
ing 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
Lockheed-Martin Tactical Defense Systems (formerly, Loral Corpo-
ration) 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 nine months ended December 31,
1995 the Company had revenues of $65.6 million, net income of
$2.5 million and fully diluted earnings per share of $.44,
representing increases of 38.4%, 45.7% and 29.4%, respectively,
compared with the same nine-month period ended December 31, 1994.
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
Nine Months
Year Ended March 31, Ended December 31,
_____________________________________________________________ _____________________
1995 1994 1993 1992 1991 1995 1994
____ ____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenues . . . . . . . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 65,628,000 $ 47,404,000
Costs and Expenses 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 60,289,000 44,143,000
Operating Income (Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 5,339,000 3,261,000
Interest and Related Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (1,675,000) (1,020,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 425,000 613,000
Earnings (Loss) before
Income Taxes (Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 4,089,000 2,854,000
Income Taxes (Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,594,000 1,142,000
Net Earnings (Loss) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 2,495,000 $ 1,712,000
Net Earnings (Loss) per share
of Class A and Class B
Common Stock(1)(2) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .44 $ .34
December 31, 1995
BALANCE SHEET DATA:
Working Capital $ 40,585,000
Net Property, Plant and
Equipment $ 14,728,000
Total Assets $ 90,770,000
Long-Term Debt, Excluding
Current Installments $ 35,319,000
Net Stockholders' Equity $ 24,907,000
<FN>
___________________________
(1) No cash dividends have been distributed during any of the years in
the five-year period ended March 31, 1995 or the nine months ended
December 31, 1995.
(2) Does not give effect to the Reclassification (as hereinafter
defined). On April 1, 1996, the Reclassification became effective
pursuant to which each share of the Class A Common Stock (as
hereinafter defined) and each share of the Class B Common Stock (as
hereinafter defined) was reclassified into one share of the Common
Stock. See "The Offering--Reclassification" and "Description of
Capital Stock."
</TABLE>
THE OFFERING
Common Stock Offered . . . . 885,924 shares
Common Stock to be outstanding
after the offering . . . . . . . 5,467,632 shares(1)
Reclassification . . . . . . On February 7, 1996, the Board
of Directors of the Company
approved and recommended for
submission to the stockholders
of the Company by a majority
vote the consideration and
approval of an Amended and
Restated Certificate of Incor-
poration (the "Restated Cer-
tificate"), which amended and
restated the Company's certif-
icate to (i) effect a reclas-
sification (the "Reclassifica-
tion") of each share of Class
A Common Stock, $.01 par value
per share (the "Class A Common
Stock"), and each share of
Class B Common Stock, $.01 par
value per share (the "Class B
Common Stock"), into one share
of Common Stock of the Compa-
ny, (ii) provide that action
by the stockholders may be
taken only at a duly called
annual or special meeting, and
not by written consent, and
(iii) provide that the stock-
holders of the Company would
have the right to make, adopt,
alter, amend, change or repeal
the by-laws of the Company
only upon the affirmative vote
of not less than 66-2/3 % of the
outstanding capital stock of
the Company entitled to vote
thereon. On March 26, 1996,
the stockholders approved the
Restated Certificate. The
Restated Certificate was filed
with the Secretary of State of
the State of Delaware and
became effective on April 1,
1996. As a result of the
Reclassification, the
Company's 9% Senior Subordi-
nated Convertible Debentures
due October 1, 2003 (the "De-
bentures") and the 81/2% Con-
vertible Subordinated Deben-
tures due August 1, 1998 (the
"1998 Debentures") are con-
vertible into shares of Common
Stock. In addition, each
option issued or issuable
pursuant to the Company's
stock option plan is now exer-
cisable for an equal number of
shares of the Common Stock.
The purpose of the Reclassifi-
cation was to simplify the
Company's capital structure,
streamline the Company's vot-
ing procedures and enhance the
marketability and liquidity of
and maximize investor interest
in the Company's capital
stock. In addition, the Com-
pany believes that, as a re-
sult of the Reclassification,
the Company is in a more flex-
ible position to raise capital
and effect mergers and acqui-
sitions using its common
stock. However, there can be
no assurance that the Reclas-
sification will have such
effects.
Voting Rights . . . . . . . . Holders of Common Stock are
entitled to one vote per share
on all matters submitted for
approval of stockholders. See
"Description of Capital
Stock."
AMEX symbol for Common Stock . . "DRS"
Registration Rights . . . . . Pursuant to a registration
rights agreement (the "Regis-
tration Rights Agreement")
between the Company and Pali-
sade Capital Management L.L.C.
("Palisade"), acting as in-
vestment adviser to the Sell-
ing Stockholders, the Company
has agreed to file a shelf
registration statement (the
"Shelf Registration State-
ment") relating to the shares
of Common Stock offered here-
by. The Company has agreed to
use its reasonable best ef-
forts to maintain the effec-
tiveness of the Shelf Regis-
tration Statement until the
earlier of the disposition of
the shares offered hereby or
the third anniversary of the
effective date of the Shelf
Registration Statement, except
that it will be permitted to
suspend the use of the Shelf
Registration Statement during
certain periods under certain
circumstances.
Use of Proceeds . . . . . . . The Company will not receive
any proceeds from the sale of
shares of Common Stock offered
pursuant to this Prospectus.
The Selling Stockholders will
receive all of the net pro-
ceeds from any sale of shares
of Common Stock offered here-
by. See "Use of Proceeds" and
"Selling Stockholders."
(1) Based upon 5,467,632 shares of Common Stock outstanding as
of May 23, 1996 (exclusive of 498,434 shares held in treasury).
RISK FACTORS
In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the
following factors before purchasing the Common Stock 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 particu-
lar, 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 subcon-
tractor, 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 agen-
cies. 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 produc-
tion 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 reduc-
tions 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. Govern-
ment 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.
SUBSTANTIAL INDEBTEDNESS
The Company has indebtedness that is substantial in relation
to its stockholders' equity. See "Capitalization." The inden-
ture (the "Indenture") relating to the Debentures imposes signif-
icant 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, 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 indebt-
edness, thereby reducing the funds available to the Company for
other purposes; (iii) the Company's substantial degree of lever-
age 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 perfor-
mance, 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 manufactur-
ing delays might result. The Company has not experienced signif-
icant 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 person-
nel, 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 Compa-
ny. 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 Common Stock in the public market could adversely affect the
prevailing market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of
its securities. As of May 23, 1996, there was an aggregate of
5,467,632 shares of Common Stock outstanding (excluding 498,434
shares held in treasury). Of such shares, 1,062,248 are "re-
stricted" under the Securities Act and are resalable pursuant to
the limitations of Rule 144 under the Securities Act. The
Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock,
at a conversion price of $8.85 per share, subject to adjustment
under certain circumstances. In addition, the 1998 Debentures
are convertible into an additional 332,800 shares of Common Stock
at $15 per share, subject to adjustment under certain circumstances.
LACK OF PUBLIC MARKET; RESTRICTIONS ON RESALE
At present, the Company's Common Stock is owned by a small
number of institutional investors. The Common Stock, the Deben-
tures, the 1998 Debentures and the shares of Common Stock which
are issuable upon conversion of the Debentures and the 1998
Debentures (hereinafter, the Company's "Listed Securities") are
listed on the AMEX. The markets for the Listed Securities have
historically been characterized by limited trading volume and a
limited number of holders. There can be no assurance that a more
active trading market for the Common Stock will develop.
THE COMPANY
GENERAL
The Company designs, manufactures and markets high-technolo-
gy 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 increas-
es.
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, remount-
ing 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 mili-
tary 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 restruc-
tured 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 technolo-
gy and product base into complementary military
and commercial markets primarily through acquisi-
tions and the forging of strategic relationships;
* increasing revenue opportunities through the de-
sign and adaptation of products for use by all
branches of the military; and
* enhancing financial performance through specific
cost reduction measures and increased manufactur-
ing 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
Lockheed-Martin Tactical Defense Systems (formerly, Loral Corpo-
ration) 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 nine months ended December 31, 1995, the
Company had revenues of $65.6 million, net income of $2.5 million
and fully diluted earnings per share of $.44, representing
increases of 38.4%, 45.7% and 29.4%, respectively, compared with
the same nine-month period ended December 31, 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 reve-
nues) 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 appli-
cations. 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 architec-
ture, 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 technolo-
gy. ESG's systems process incoming sonar, radar and other
information through complex customized software, enabling opera-
tors 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 strate-
gy. 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 genera-
tion 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 original-
ly 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 broad-
casters 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
shares of Common Stock offered pursuant to this Prospectus. The
Selling Stockholders will receive all of the net proceeds from
any sale of the shares of Common Stock offered hereby.
CAPITALIZATION
The following table sets forth the consolidated capitaliza-
tion of the Company at December 31, 1995. The information
presented below should be read in conjunction with the consoli-
dated financial statements of the Company included elsewhere in
this Prospectus.
December 31, 1995
_________________
Long-term debt, excluding current installments(1):
Senior Indebtedness(2) . . . . . . . . . . . . $ 2,819,000
8-1/2% Convertible Subordinated Debentures
due August 1, 1998 . . . . . . . . . . . . . . 7,500,000
Senior Subordinated Convertible Debentures due 2003 25,000,000
___________
Total long-term debt . . . . . . . . . . . . . 35,319,000
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(3). . . 37,000
Class B Common Stock, $.01 par value, 20,000,000
shares authorized; 2,216,353 shares issued(3). . . 22,000
Additional paid-in capital . . . . . . . . . . . . . 13,579,000
Retained earnings . . . . . . . . . . . . . . . . . 13,414,000
____________
27,052,000
Less Treasury Stock -at cost: 432,639 shares
of Class A Common Stock and 21,619 shares
of Class B Common Stock(3) . . . . . . . . . (1,918,000)
Less unamortized restricted stock compensation. . (227,000)
_____________
Net stockholders' equity . . . . . . . . . . . . 24,907,000
____________
Total capitalization . . . . . . . . . . . . . . . $ 60,226,000
============
_________________
(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 obliga-
tions. See Note 6 to Consolidated Financial Statements.
(3) Does not give effect to the Reclassification. On April 1,
1996, the Reclassification became effective pursuant to which
each share of the Class A Common Stock and each share of the
Class B Common Stock was reclassified into one share of the
Common Stock. See "Description of Capital Stock."
MARKET PRICES OF CAPITAL STOCK
Prior to the Reclassification, the Company's Class A Common
Stock and Class B Common Stock traded on the AMEX (Symbols: DRSA
and DRSB, respectively). On April 1, 1996, upon the effective-
ness of the Reclassification, trading of the newly classified
Common Stock commenced. The following table sets forth for each
period indicated the high and low closing sales prices of the
Company's Class A Common Stock, Class B Common Stock and Common
Stock, as reported by the American Stock Exchange Monthly Market
Statistics:
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock Common Stock*
-------------------- -------------------- --------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
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 . . . . . 8 7 7-7/8 6-3/4 - -
Fourth Quarter . . . . 8-11/16 7-7/16 8-3/4 7-3/8 - -
Year Ended March 31, 1997:
First Quarter
(through May 23, 1996) . . . - - - - 8-1/2 7-1/4
<FN>
________________
* As of May 23, 1996, the Common Stock was held by 2,113
stockholders (of which 346 were registered holders and 1,767
were beneficial holders). See "Risk Factors -- Lack of
Public Market; Restrictions on Resale."
</TABLE>
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 Common Stock. The Company's 1998 Debentures limit
the Company's ability to pay dividends or make other distribu-
tions on its Common Stock. See Note 6 of Notes to Consolidated
Financial Statements for information concerning restrictions on
the declaration or payment of dividends. 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 state-
ments 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 nine months ended December 31, 1995 and 1994 and the selected
consolidated balance sheet data as of December 31, 1995 are
derived from the unaudited consolidated statements of the Compa-
ny, 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 nine months ended December 31, 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>
Nine Months
Year Ended March 31, Ended December 31,
_____________________________________________________________ _____________________
1995 1994 1993 1992 1991 1995 1994
____ ____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenues . . . . . . . . $ 69,930,000 $ 57,820,000 $ 47,772,000 $ 28,925,000 $ 47,762,000 $ 65,628,000 $ 47,404,000
Costs and Expenses . . . 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000 60,289,000 44,143,000
Operating Income (Loss) 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000) 5,339,000 3,261,000
Interest and Related Expenses (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000) (1,675,000) (1,020,000)
Other Income, Net 534,000 834,000 1,224,000 944,000 1,677,000 425,000 613,000
Earnings (Loss) before
Income Taxes (Benefit) 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000) 4,089,000 2,854,000
Income Taxes (Benefit) 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000) 1,594,000 1,142,000
Net Earnings (Loss) $ 2,604,000 $ 1,615,000 $ 1,085,000 $ (5,355,000) $ (4,247,000) $ 2,495,000 $ 1,712,000
Net Earnings (Loss) per share
of Class A and Class B
Common Stock(1)(2) $ .50 $ .30 $ .20 $ (1.01) $ (.79) $ .44 $ .34
March 31, December 31, 1995
__________________________________________________________________ _________________
1995 1994 1993 1992 1991
____ ____ ____ ____ ____
BALANCE SHEET DATA:
Working Capital . . . $ 20,317,000 $ 19,803,000 $ 17,994,000 $ 17,747,000 $ 24,833,000 $ 40,585,000
Net Property, Plant and
Equipment . . . . . 9,849,000 8,893,000 9,768,000 11,602,000 13,904,000 14,728,000
Total Assets . . . . . 64,590,000 58,836,000 51,948,000 53,904,000 58,527,000 90,770,000
Long-Term Debt, Excluding
Current Installments . . 11,732,000 14,515,000 17,290,000 19,958,000 22,240,000 35,319,000
Net Stockholders' Equity. . 22,509,000 19,759,000 18,115,000 17,047,000 22,300,000 24,907,000
<FN>
____________________
(1) No cash dividends have been distributed during any of the years in the five-year period ended March
31, 1995 or the nine months ended December 31, 1995.
(2) Does not give effect to the Reclassification. On April 1, 1996, the Reclassification became effective
pursuant to which each share of the Class A Common Stock and each share of the Class B Common
Stock was reclassified into one share of the Common Stock. See "The Offering--Reclassification",
"Description of Capital Stock."
</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 nine months
ended December 31, 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 complementa-
ry 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
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. Currently, the Company does not intend to continue discus-
sions with NAI regarding any proposed merger.
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. In March 1996, the Company entered into an employ-
ment, non-competition and termination agreement with Mr. Leonard
Newman. Pursuant to such agreement, Mr. Newman resigned as Chairman
Emeritus of the Company. See "-- Financial Condition and Liquidity -
Certain Agreements."
On May 30, 1996, the Company issued a press release reporting
operating results for the fourth quarter and fiscal year ended March
31, 1996. Revenues for the fourth quarter increased by approximately
59% to $35.8 million from $22.5 million. Operating income increased
to $3.2 million from $1.8 million, or approximately 75%. Net earnings
also increased by approximately 80% to $1.6 million from $0.9 million.
Fully diluted earnings per share increased to $0.23 from $0.16 in last
fiscal year's fourth quarter.
For the fiscal year ended March 31, 1996, revenues increased to
$101.5 million from $69.9 million, an increase of approximately 45%.
Operating income also increased by approximately 68% to $8.5 million
from $5.1 million. In addition, net earnings increased to $4.1
million from $2.6 million, an increase of approximately 58%. Fully
diluted earnings per share increased to $0.69 from $0.50 in the prior
fiscal year.
RESULTS OF OPERATIONS
The following table sets forth items in the consolidated state-
ments of operations as a percentage of revenues and the percentage
increase or decrease of those items as compared with the prior period.
<TABLE>
<CAPTION>
Percentage of Revenues Percentage Change
________________________________ ________________
Nine
Months
Ended
Decem-
ber
Nine Months 31,
Year Ended March 31 Ended De- 1995
cember 31, vs.
Nine
Months
Fis- Fis- Ended
cal cal Decem-
1995 1994 ber
vs. vs. 31,
1995 1994 1993 1995 1994 1994 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . 100.0% 100.0% 100.0% 100.0% 100.0% 20.9% 21.0% 38.4%
Costs and Ex-
penses . . . 92.7 94.0 95.2 91.9 93.1 19.2 19.6 36.6
_____ _____ _____ ____ _____
Operating In-
come . . . . 7.3 6.0 4.8 8.1 6.9 47.7 49.2 63.7
Interest and
Related Ex-
penses . . . (2.0) (2.7) (3.6) (2.5) (2.2) (12.8) (9.3) 64.2
Other Income, Net. .8 1.4 2.6 0.6 1.3 (36.0) (31.9) (30.7)
_____ _____ ____ ____ _____
Earnings be-
fore Income
Taxes . . . . 6.1 4.7 3.8 6.2 6.0 57.2 50.4 43.3
Income Taxes. . 2.4 1.9 1.5 2.4 2.4 51.1 52.9 39.6
_____ _____ ____ ____ ____
Net Earnings. . 3.7% 2.8% 2.3% 3.8% 3.6% 61.2% 48.8% 45.7%
===== ===== ==== ===== ====
</TABLE>
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1995 WITH NINE MONTHS
ENDED DECEMBER 31, 1994
Revenues for the nine-month period ended December 31, 1995
increased 38.4% to $65.6 million from $47.4 million for the same nine-
month period in fiscal 1995. The revenue growth was due primarily to
increased shipments of display workstations and data storage systems,
as well as from higher commercial product sales. In addition, revenue
growth was partly due to higher sales of electro-optical systems
following the acquisition of substantially all of the assets of Opto
Mechanik, Inc. on July 5, 1995 (the "OMI Asset Acquisition").
Operating income for the nine-month period ended December 31,
1995 increased 63.7% to $5.3 million from $3.3 million for the same
nine-month period in fiscal 1995. Operating income as a percentage of
revenues was 8.1% for the nine-month period ended December 31, 1995 as
compared with 6.9% for the comparable prior year period. Higher
operating income was due primarily to the overall increase in revenues,
together with higher margins on the company's commercial products.
Interest and related expenses were $1.7 million for the nine
months ended December 31, 1995 as compared to $1.0 million for the
comparable prior year period. The increase for the period was primar-
ily due to the increase in debt associated with the Debenture Offering,
offset in part by a reduction in interest resulting from repurchases of
the Company's 1998 Debentures, in satisfaction of the August 1, 1995
sinking fund requirement for this debt.
Other income, net, was $0.4 million for the nine-month period
ended December 31, 1995, representing a decrease from $0.6 million in
the comparable prior year period. This decrease was due to a gain on
the sale of fixed assets of approximately $0.2 million in the third
quarter of fiscal 1995, offset in part by interest earned on higher
average cash balances this fiscal year, primarily resulting from the
net proceeds generated from the Debentures.
The Company's effective tax rate for the nine-month period ended
December 31, 1995 was 39%, as compared to 40% in the comparable prior
year period. 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 nine months ended December 31, 1995 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 attrib-
utable 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 primari-
ly within the 1994 and 1993 fiscal years. Revenues from older con-
tracts 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 trans-
actions 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 December 31,
1995 and March 31, 1995 represented approximately 25% and 17%, respec-
tively, of total assets. During the nine-month period ended December
31, 1995, cash increased $11.9 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, and the
additional placement of $5,000,000 in aggregate principal amount of
the Debentures, pursuant to an over-allotment option, completed on
November 3, 1995. In addition, approximately $2.4 million was gener-
ated from sales of certain fixed assets. These contributions to cash
were offset by uses of: (i) approximately $4.1 million in the OMI
Asset 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 $3.7
million for capital expenditures. Additionally, approximately $3.5
million was used in support of operations, primarily for material
procurement.
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 represent-
ed 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 attrib-
utable 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 invest-
ing 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, excluding assets ac-
quired as a result of the OMI Asset Acquisition, are expected to
approximate $4.4 million. The majority of these expenditures will be
for facilities improvements, as well as for computer and laboratory-
related equipment, which will be required to support the Company's
growth.
Working capital as of December 31, 1995 was $40.6 million, as
compared to $20.3 million at March 31, 1995. The increase was primar-
ily due to higher cash balances resulting from the Debenture Offering.
Net proceeds from the offering of $25,000,000 aggregate principal
amount of Debentures (the "Debenture Offering") were used on February
16, 1996 to repurchase approximately $5.0 million in principal amount
of outstanding 1998 Debentures, for working capital requirements and
for future acquisition-related transactions. During the first quarter
of fiscal 1996, the Company obtained a $5.0 million unsecured line of
credit from NatWest Bank, in order to supplement its working capital
needs. This line of credit expired on December 31, 1995 and has not
been renewed. As of August 1995, the Company satisfied its $2.5
million sinking fund obligation under the 1998 Debentures. The
Company continues to seek acquisition opportunities consistent with
its business strategy and is engaged in preliminary discussions
regarding several potential acquisitions. However, there can be no
assurance that definitive agreements will be reached or that any
acquisition will be consummated.
On May 31, 1996 the Company entered into a $15 million unsecured
revolving line of credit with Mellon Bank, N.A. ("Mellon Bank"). The
line of credit will be used for working capital, stand-by letters of
credit, and to refinance certain existing debt obligations of the
Company at more favorable interest rates. Interest on borrowings under
the line of credit will be accrued at the prime rate or London Interbank
Offered Rate plus 175 basis points. The Company has agreed to maintain
certain financial covenants, including the maintenance of: (i) a
certain minimum quarterly ratio of liquid assets to current liabilities,
(ii) a certain minimum interest coverage ratio, calculated on a rolling
four quarter basis and (iii) a certain maximum quarterly ratio of total
liabilities to tangible net worth.
The Company believes that its current working capital position is
sufficient to support operational needs as well as its near-term
business objective.
Accounts Receivable and Inventories. Accounts receivable
increased approximately $3.2 million in the nine-month period ended
December 31, 1995, primarily resulting from increased billings associ-
ated with certain contracts and, to a lesser extent, from the OMI
Asset Acquisition. 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 $4.8 million during the
first nine months of fiscal 1996, primarily due to increased material
procurement related to higher production activity on certain display
workstation programs. The increase in inventories was also due, in
part, to the OMI Asset Acquisition. 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 approxi-
mately $23.6 million during the nine-month period ended December 31,
1995 to $35.3 million, primarily due 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
December 31, 1995 and 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 $2.4
million during the nine-month period ended December 31, 1995 to $24.9
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, total-
ling 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, respec-
tively, totalling approximately $2.9 million pursuant to the offering.
Backlog. At December 31, 1995, the Company's backlog of orders
was approximately $147 million as compared to $126 million at March
31, 1995. The increase in backlog for the first nine months of the
fiscal year was due to the net effect of bookings, partially offset by
revenues, and the addition of approximately $16 million of backlog
from the OMI Asset Acquisition. New contract awards of approximately
$71 million were booked during the nine-month period ended December
31, 1995. As of February 25, 1996, backlog totalled approximately
$148 million, which included approximately $16 million of backlog from
the OMI Asset 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 approxi-
mately $2.2 million of commercial orders. New business awards during
fiscal 1995 totalled approximately $61.4 million and included approxi-
mately $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 appli-
cations.
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 approxi-
mately $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 Forum Capital Market L.P., as the
initial purchaser ("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 Debentures (the "Debenture Registration
Rights Agreement"), the Company agreed to file, within ninety (90)
days after the Debenture Closing Date, a shelf registration statement
relating to the Debentures and the shares of 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 addi-
tion, 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
filed a registration statement on Form S-1 in compliance with such
obligation under the Debenture Registration Rights Agreement to file a
shelf registration statement. In connection with these transactions,
the Company incurred approximately $625,000 of professional fees and
other costs. These costs, together with Forum'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 December 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 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 December 31, 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 $25,000,000 aggregate principal amount of
the Debentures, the Debt Ratio at December 31, 1995 was 0.4:1. The
Company has obtained a waiver, renewable quarterly, 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 Agree-
ment 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 Agree-
ment 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.
On March 28, 1996, the Company entered into an employment, non-
competition and termination agreement (the "Newman Agreement") with
Leonard Newman. Pursuant to the Newman Agreement, Mr. Newman received
a lump sum payment of approximately $2.0 million. Under the terms of
the Newman Agreement, Mr. Newman has agreed to provide consulting
services, as required from time to time, to the Company for a five
year period and has also agreed not to compete with the Company during
this same period. This agreement supersedes a previous deferred
compensation agreement with the Company.
In March 1996, Mr. Leonard Newman and certain members of his
immediate family sold the 885,924 shares of Common Stock offered
hereby to Palisade, acting as investment adviser to the Selling
Stockholders. In connection with such sale, the Company entered into
the Registration Rights Agreement with Palisade, acting as investment
adviser to the Selling Stockholders, to assist in facilitating such
sale. The Company has agreed to file and cause to become effective a
registration statement, of which this prospectus is a part, with the
SEC upon demand, at its expense, relating to such shares for future
sale by the Selling Stockholders.
Inflation. The Company has experienced the effects of inflation
through increased costs of labor, services and raw materials. Al-
though 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 Stan-
dards 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 attribut-
able 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 in-
cludes 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 statu-
tory tax rates applied are those applicable to the years in which the
differences are expected to reverse. The cumulative effect of adopt-
ing 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 Pen-
sions" ("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 finan-
cial 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 outstand-
ing 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 con-
verted 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 amor-
tized 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 Technolo-
gies, 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, repre-
senting 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 mil-
lion. 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 Preci-
sion 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 includ-
ed 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.
On July 5, 1995 (the "OMI Closing Date"), Photronics Corp., a New
York corporation and a wholly-owned subsidiary of the Company
("Photronics Corp."), acquired (through OMI, a Delaware corporation
and a wholly-owned subsidiary of Photronics Corp.), substantially all
of the assets of Opto Mechanik, Inc. ("Opto"), a Delaware corporation,
pursuant to an Agreement for Acquisition of Assets dated May 24, 1995,
as amended July 5, 1995, between Photronics Corp. and Opto (the "OMI
Agreement"), and approved by the United States Bankruptcy Court for
the Middle District of Florida on June 23, 1995. OMI, now located in
Palm Bay, Florida, designs and manufactures electro-optical sighting
and targeting systems used primarily in military fire control devices
and in various weapons systems.
Pursuant to the OMI Agreement, the Company paid a total of
$5,450,000 consisting of (i) $1,150,000 in cash to PNC Bank, Kentucky,
Inc. ("PNC"), (ii) a note to PNC in the principal amount of $1,450,000
payable in forty eight (48) equal monthly installments of principal
and interest commencing with the first day of the month subsequent to
the OMI Closing Date (the "PNC Note"), (iii) $2,550,000 in cash to
MetLife Capital Corporation and (iv) a note in the principal amount of
$300,000 to Opto payable in six (6) equal monthly installments of
principal and interest commencing on August 5, 1995 (the "Opto Note").
The PNC Note bears interest at a floating rate equal to the lesser of
(i) PNC's stated prime interest rate plus 0.5% or (ii) the prime rate
as reported by the Wall Street Journal plus 0.5%. The Opto Note bears
interest at a rate of 9.5% per annum. Professional fees and other
costs associated with the acquisition were capitalized as part of the
total purchase price. Total cash consideration paid in the acquisi-
tion was obtained from the Company's working capital.
The acquisition of the assets of Opto has been accounted for
under the purchase method. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed. The fair value of the
assets acquired represented slightly less than 10% of the total assets
of the Company as of March 31, 1995.
Prior to the asset acquisition, on October 11, 1994, Opto filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. For the twelve months ended March 31, 1995, Opto had revenues
of approximately $13.9 million and an operating loss of approximately
$6.6 million, primarily attributable to excessive labor and overhead
costs, which the Company believes caused significant cost overruns on
substantially all of Opto's contracts.
The operating results of OMI, the acquiring corporation, have
been included in the Company's reported operating results since the
date of acquisition. For the period from the date of acquisition to
December 31, 1995, revenues generated in respect of the assets ac-
quired constituted approximately 10% of the consolidated revenues of
the Company for that period. These assets were operated at a modest
profit, which was less than 10% of the consolidated operating income
of the Company for such period. Interest expense for such period
incurred in connection with the acquired assets was immaterial to the
Company's consolidated results of operations. At the present time,
there is no single contract being performed or to be performed with
the acquired assets which is expected to significantly affect the
Company's operating results in the foreseeable future. The business
currently being conducted with such assets is subject to risks and
uncertainties similar to those of the Company as a whole. See "Risk
Factors" and "Business -- Industry Consolidation."
Since the asset acquisition, the Company has relocated a portion
of the Electro-Optical Systems Group's manufacturing operations from
Hauppauge, New York to OMI's new location in Palm Bay, Florida. The
Company expects to realize certain cost benefits and other efficien-
cies as a result of this consolidation. See "The Company -- Company
Organization" and Business -- Strategy."
On February 6, 1996, pursuant to a Joint Venture Agreement, dated
February 6, 1996, by and among DRS/MS, Inc. ("DRS/MS"), a wholly-owned
subsidiary of the Company, Universal Sonics Corporation ("Universal
Sonics"), a New Jersey corporation, Ron Hadani, Howard Fidel and
Thomas S. Soulos, and a Partnership Agreement, dated February 6, 1996,
by and between DRS/MS and Universal Sonics, the Company entered into a
partnership with Universal Sonics (the "Partnership") for the purpose
of developing, manufacturing and marketing medical ultrasound imaging
equipment. The Company's contribution to the Partnership consisted of
$400,000 in cash and certain managerial expertise and manufacturing
capabilities, representing a 90% interest in the Partnership.
On February 9, 1996, Precision Echo acquired (through Ahead
Technology Acquisition Corporation ("Ahead Acquisition"), a Delaware
corporation and a wholly-owned subsidiary of Precision Echo), certain
assets and assumed certain liabilities (principally, obligations under
property leases) of Mag-Head Engineering Company, Inc. ("Mag-Head"), a
Minnesota corporation, pursuant to an Asset Purchase Agreement, dated
as of February 9, 1996, by and among Mag-Head and Ahead Acquisition
for approximately $400,000 in cash. Mag-Head produces audio and
flight recorder heads.
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 prod-
ucts 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 with-
stand 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 com-
mercial 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 effi-
ciencies.
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 rela-
tionships with other defense suppliers such as Lockheed-Martin Tacti-
cal Defense Systems (formerly, 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 mili-
tary 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 nine months ended December 31,
1995, the Company had revenues of $65.6 million, net income of $2.5
million and fully diluted earnings per share of $.44, representing
increases of 38.4%, 45.7% and 29.4%, respectively, compared with the
same nine-month period ended December 31, 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 manufac-
turing operations at ESG and enables the Company to solicit and bid
effectively for long-term system development and manufacturing con-
tracts.
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 relation-
ships with other defense suppliers such as Lockheed-Martin Tactical
Defense Systems (formerly, Loral Corporation) and Westinghouse Elec-
tric 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 informa-
tion processing workstations that can be applied for use in other
branches of the military. Similarly, the Company's boresight prod-
ucts, 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 produc-
tion 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 develop-
ment 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 advan-
tages, 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 commer-
cial 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 increas-
ingly costly assets are efficiently deployed and to minimize destruc-
tion 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 expen-
ditures, 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 consolida-
tions 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 contrac-
tors. 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 Technol-
ogy 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, Mary-
land, 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 proces-
sors 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 de-
signed 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 process-
ing. This new approach allows for required high bandwidth
processing while maintaining response times for opera-
tor/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 pro-
vide various upgrades to these field installations.
* AN/SQQ-TIA: These are portable training systems used on
board MIUW vans to simulate actual sonar signal processing
sets currently used by the U.S. Navy and are employed pri-
marily 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 subcon-
tract with the Government Systems Group of Loral (Unisys)
Corporation (presently, Lockheed-Martin Tactical Defense
Systems). The AN/UYQ-70 is a self-contained, microproces-
sor-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 poten-
tial 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 ship-
board 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, func-
tions 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 sys-
tems, 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 loca-
tions 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 mainte-
nance, 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 applica-
tions 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 deploy-
ment in the U.S. Navy's A-6E attack aircraft. PE is cur-
rently 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 heli-
copters. 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 conjunc-
tion 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 moved into a new joint
facility.
ELECTRO-OPTICAL SYSTEMS GROUP ("EOSG")
EOSG consists of 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' naviga-
tion, targeting, and weapon systems, as well as pilots' helmet sight-
ing 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 prod-
ucts 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 previously
located in Melbourne, Florida through OMI. In order to reduce its
production costs, Photronics Corp. consolidated a portion of its
manufacturing operations to OMI's new facility in Palm Bay, 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 modifica-
tion 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 assem-
blies.
* 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 subcontrac-
tors 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 December 31, 1995, the Company's backlog of orders was approx-
imately $147 million compared to $126 million at March 31, 1995. The
increase in backlog for the first nine months of the fiscal year was
due to the net effect of bookings, partially offset by revenues, and
the addition of approximately $16 million of backlog from the OMI
Asset Acquisition. New contract awards of approximately $71 million
were booked during the nine-month period ended December 31, 1995. As
of February 25, 1996, backlog totalled approximately $148 million,
which included approximately $16 million of backlog from the OMI Asset
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 Govern-
ment contract awards.
RESEARCH AND DEVELOPMENT
The military electronics industry is subject to rapid technologi-
cal 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 devel-
opment 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 develop-
ment. 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, contin-
gent 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 con-
tract. 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. Govern-
ment 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. Unallow-
able costs, pursuant to the FAR, have been excluded from costs accumu-
lated on U.S. Government contracts. Work-in-process inventory includ-
ed 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 developmen-
tal 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 complet-
ed. 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 commer-
cial 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 resourc-
es. 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 assem-
bly process. Purchased components include integrated circuits,
circuit boards, sheet metal fabricated into cabinets, resistors,
capacitors, semiconductors and insulated wire and cables. In addi-
tion, many of the Company's products use machined castings and hous-
ings, motors and recording and reproducing heads. Many of the pur-
chased components have been fabricated to Company designs and specifi-
cations. 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 avail-
able 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 attrib-
utable 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 Depart-
ment of State. The Company's foreign contracts are generally payable
in United States' dollars.
EMPLOYEES
As of February 25, 1996, the Company employed 795 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 have recently been consolidated and
relocated to 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 approximately 54,000 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, $1.5
million and $1.9 million in fiscal 1995, 1994, 1993, and the nine-
month period ended December 31, 1995 (unaudited), 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 Di-
rector
Nancy R. Pitek . . Controller, Treasurer and Secre- 39
tary
Paul G. Casner, Jr. Vice President; President of DRS 58
Electronic Systems Group
Stuart F. Platt . . Vice President and Director; 62
President of DRS Media Technology
Group
Richard Ross . . . Vice President; President of DRS 41
Electro-Optical Systems Group
Leonard Newman . . Director 71
Jack Rachleff . . . Director 82
Theodore Cohn . . . Director 72
Mark N. Kaplan . . Director 66
Donald C. Fraser . Director 55
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 Account-
ing. 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 presi-
dent 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 also
serves as President of DRS Media Technology Group. He is a co-founder
and director of FPBSM Industries, Inc., a holding company and manage-
ment 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 compa-
nies 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. Mr.
Ross also serves as President of the DRS Electro-Optical Systems
Group.
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. From August 1995 until March 1996, Mr. Newman held the
position of 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
Photronics 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.
EXECUTIVE COMPENSATION
Summary of Cash and Certain other Compensation. There is shown
below information concerning the annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended
March 31, 1995, 1994 and 1993, of those persons who were, at March 31,
1995 (i) the chief executive officer and (ii) the other four most
highly compensated executive officers of the Company (the "Named
Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-
Term
Compen-
sation
Annual Compensation (i) Awards
<S> <C> <C> <C> <C> <C>
Stock All Other
Name and Principal Fiscal Salary Bonus Op- Compensa-
Position Year ($) ($) tions(#) tion($)
Leonard Newman . . 1995 321,910 0 0 57,000(a)(b)(c)(d)
Chairman of the 1994 331,140 100,000 0 52,538(a)(b)(c)(d)
Board 1993 332,294 20,000 0 43,974(a)(b)(c)(d)
& Secretary
Mark S. Newman . . 1995 281,344 120,000 150,000(f)(j) 19,440(b)(c)(d)
President & 1994 230,767 52,993 0 86,728(b)(c)(d)(e)
Chief 1993 226,083 15,000 0 13,910(b)(c)(d)
Executive Officer
Paul G. Casner, Jr. . 1995 198,000 40,000 0 32,201(b)(d)(h)
Vice President &
President--DRS
Electronic
Systems Group
Stuart F. Platt . . 1995 256,970 50,000 0 4,414(c)(d)
Vice President & 1994 262,854 21,597 5,000(g)(j) 3,664(c)(d)
President--DRS 1993 187,889 0 0 2,426(c)(d)
Media Technology
Group
Richard Ross . . 1995 198,618 36,000 0 9,070(b)(c)(d)
Vice President & 1994 155,596 27,237 5,000(g)(j) 7,010(b)(c)(d)
President--DRS 1993 159,166 10,000 0 5,851(b)(c)(d)
Electro-Optical
Systems Group
<FN>
___________________
(a) Includes deferred compensation of $25,000 pursuant to a
Deferred Compensation Agreement (as defined herein) between
the Company and Mr. L. Newman. See "-Deferred Compensation
Agreement."
(b) Includes the amounts of employer contributions which vested
pursuant to the Company's Retirement/Savings Plan (as de-
fined herein) (See"-Retirement/Savings Plan") in the fiscal
years ended March 31, 1995 and 1994, respectively, in the
accounts of the Named Officers, as follows: Mr. L. Newman,
$4,292 and $1,626; Mr. M. Newman, $4,838 and $3,530; Mr. P.
Casner, Jr., $3,000; and Mr. R. Ross, $3,486 and $2,234.
There were no employer contributions under the Retire-
ment/Savings Plan during fiscal 1993.
(c) Includes the fixed annual amounts, computed on a fiscal year
basis, provided by the Company for the benefit of the Named
Officers, to reimburse such officers for the amounts of
medical and hospital expenses actually incurred by them,
which are not covered or paid to them under the Company's
group medical and hospitalization plans during the fiscal
years ended March 31, 1995, 1994 and 1993, respectively, as
follows: Mr. L. Newman, $4,000, $3,250 and $3,750; Mr. M.
Newman, $4,500, $3,250 and $5,250; Mr. S. Platt, $4,000,
$3,250 and $2,150; and Mr. R. Ross, $4,000, $3,250 and
$4,500.
(d) The Company pays the cost of policies of life insurance and
long-term disability insurance, in excess of the amounts
furnished under the group coverage provided to all employ-
ees, for the benefit of the Named Officers. Under certain
of the life insurance policies, the Company is a beneficiary
to the extent of the premiums paid. The total amounts of
the premiums paid by the Company or the economic benefit to
the Named Officers for such insurance policies during the
fiscal years ended March 31, 1995, 1994 and 1993, respec-
tively, were as follows: Mr. L. Newman, $23,708, $22,662
and $15,224; Mr. M. Newman, $10,102, $9,948, and $8,660; Mr.
P. Casner, Jr., $124; Mr. S. Platt, $414, $414 and $276; and
Mr. R. Ross, $1,584, $1,526 and $1,350.
(e) Includes $70,000 earned by Mark S. Newman as a consequence
of his involvement in the Company's October 1993 acquisition
of TAS.
(f) Represents non-qualified stock options to purchase 50,000
shares of Common Stock and incentive stock options to pur-
chase 100,000 shares of Common Stock issued to Mr. M. Newman
under the Company's 1991 Stock Option Plan (the "1991 Stock
Option Plan"). Such options, granted on June 9, 1994,
became exercisable six months from the date of grant with
respect to 20% of such options and are further exercisable
cumulatively at 20% per year on each of the first four
anniversaries of the date of grant.
(g) Represents incentive stock options to purchase shares of
Common Stock issued to the Named Officers under the
Company's 1991 Stock Option Plan. Such options, granted on
August 5, 1993, became exercisable six months from the date
of grant with respect to 20% of such options and are further
exercisable cumulatively at 20% per year on each of the
first four anniversaries of the date of grant.
(h) Includes forgiveness of principal and interest owed pursuant
to the Grid Note (as defined herein) in an amount equal to
$29,077.
(i) The dollar value of perquisites and other personal benefits
provided for the benefit of the Named Officers during the
fiscal years ended March 31, 1995, 1994 and 1993, respec-
tively, did not exceed the lesser of either $50,000 or 10%
of the total annual salary and bonus reported for the Named
Officers in those period. There were no other amounts of
compensation required to be reported as "Other Annual Com-
pensation", by Item 402 of Regulation S-K, earned by the
Named Officers.
(j) In connection with the Reclassification, each option issued
or issuable pursuant to the 1991 Stock Option Plan will be
exercisable for an equal number of shares of the Company's
Common Stock.
Stock Options. The following table contains information
concerning the grant of stock options under the Company's 1991
Stock Option Plan to the Named Officer during the Company's
fiscal year ended March 31, 1995. The following table does not
give effect to the Reclassification.
</TABLE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term
_____________________________________________ ________________________________
Number % of
of Secu- Total
Under- Options
lying Granted to Exercise Expir-
Options Employees in Price ation
Name Granted (#) Fiscal 1995 ($/Sh) Date 0% ($) 5%($)(c) 10%($)(c)
____________ ___________ ____________ ________ ________ ______ _________ __________
<S> <C> <C> <C> <C> <C> <C> <C>
Mark S. Newman 50,000(a) 33.0% $0.01 06/08/99 $224,500 $286,500 $362,000
100,000(b) 67.0% $4.95 06/08/99 -- $ 79,000 $230,000
<FN>
______________
(a) The options granted were for shares of Class B Common Stock
at an exercise price equal to the par value of the Company's
Class B Common Stock on the date of grant. The options
become exercisable over a five year period in increments of
20% beginning six months from the date of grant and continu-
ing at an additional 20% per year on the anniversary of the
date of grant. The grant date of the options was June 9,
1994.
(b) The options granted were for shares of Class B Common Stock
at an exercise price equal to 110% of the fair market value
of the Company's Class B Common Stock on the date of grant.
The options become exercisable over a five year period in
increments of 20% beginning six months from the date of
grant and continuing at an additional 20% per year on the
anniversary of the date of grant. The grant date of the
options is June 9, 1994.
(c) The amounts shown under these columns are the result of
calculations at the 5% and 10% rates required by the SEC and
are not intended to forecast future appreciation of the
Company's stock price.
</TABLE>
Option Exercises and Fiscal Year-End Values. Shown below is
information with respect to the options exercised during fiscal
1995 by the Named Officers and the unexercised options to pur-
chase the Company's Class A and Class B Common Stock granted
through March 31, 1995 under the Company's 1981 Incentive Stock
Option Plan, 1981 Non-Qualified Stock Option Plan and 1991 Stock
Option Plan to the Named Officers and held by them at that date.
The following table does not give effect to the Reclassification.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-
END OPTION VALUE
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at March 31, 1995 at March 31, 1995(a)
Class A Class B Class A
Common Common Common Class B
Shares Stock Stock Stock Common Stock
Acquired
on Value Exer- Unexer- Exer- Unexer- Exer- Unexer- Exer- Unexer-
Name Exercise (#) Realized cisable cisable cisable cisable cisable cisable cisable cisable
________________ ____________ ________ _______ _______ _______ ________ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard Newman . . -- -- -- -- 25,000 -- -- -- $ 85,925 --
Mark S. Newman . . -- -- 40,000 -- 30,000 120,000 $105,500 -- $ 65,900 $263,600
Paul G. Casner Jr. . -- -- -- -- 20,000 30,000 -- -- $109,800 $164,700
Stuart F. Platt . . -- -- -- -- 2,000 3,000 -- -- $ 3,750 $ 5,625
Richard Ross . . 10,600 $32,719 -- -- 2,000 3,000 -- -- $ 3,750 $ 5,625
<FN>
___________________
(a) Based on the difference between the exercise price of each
grant and the closing price on the AMEX-Composite Transac-
tions of the Company's Class A and Class B Common Stock on
that date, $5.25 and $5.50, respectively.
</TABLE>
DEFERRED COMPENSATION AGREEMENT
In June 1993, pursuant to approval by the Board of Direc-
tors, the Company and Mr. Leonard Newman entered into a deferred
compensation agreement (the "Deferred Compensation Agreement")
providing for certain deferred benefits which would become
payable upon the termination of his employment for any reason
including death, and providing for certain changes to certain
insurance policies maintained by the Company. Upon entering into
the Newman Agreement in March 1996, this Deferred Compensation
Agreement was superseded. Under the terms of the Deferred
Compensation Agreement, in the event of termination of employ-
ment, compensation (the "Deferred Benefit") equal to $25,000
multiplied by the number of complete years of employment from
July 1, 1969 through the date of termination of employment,
payable in twenty quarterly installments commencing on the first
day of the month following the date of termination, was to be
provided to Mr. L. Newman or, in the case of death, to his
designated beneficiary. The terms used for computing the De-
ferred Benefit were similar in all material respects to those
that had been used in the computation of deferred compensation
provided pursuant to an employment agreement that expired on June
30, 1990, between the Company and Mr. L. Newman. In the event of
permanent disability, as defined in the Deferred Compensation
Agreement, the Company was required to pay the employee an amount
equal to five times the employee's annual base compensation in
effect immediately prior to his permanent disability. Such
payments were to be made on the Company's regular payroll dates
during the five-year period following the permanent disability.
In the event of the death of the employee during the five-year
pay-out period, the Company was to pay to the employee's desig-
nated beneficiary the Deferred Benefit described above reduced by
the total of the disability payments previously paid in equal
quarter-annual installments over the remainder of the five-year
period. In addition, pursuant to the terms of the Deferred
Compensation Agreement, a keyman term insurance policy owned by
the Company for Mr. L. Newman was transferred to him. Under the
Newman Agreement, the Company will continue to be required to
provide Mr. L. Newman, on an annual basis, the sum sufficient to
pay the schedule premium on such policy.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
In April 1994, the Company entered into an agreement with
Mr. Richard Ross which provided for a severance benefit in the
event of (i) termination of his employment other than for cause,
(ii) diminution in compensation and/or responsibilities and (iii)
the change in ownership of the Company or Photronics. The
severance benefit is equal to 30 months of Mr. Ross' then current
salary plus reimbursement of outplacement expenses up to a
maximum of $15,000.
Effective July 20, 1994, the Company entered into the Gross
Agreement and the Gross Stock Purchase Agreement with David E.
Gross. Under the terms of the Gross Agreement, Mr. Gross will
receive a total of $600,000 over a five-year period as compensa-
tion for his services pursuant to a five-year consulting arrange-
ment 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 terms 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 accor-
dance 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.
On March 28, 1996, the Company entered into the Newman
Agreement with Leonard Newman. Pursuant to the Newman Agreement,
Mr. Newman received a lump sum payment of approximately $2.0
million. Under the terms of the Newman Agreement, Mr. Newman has
agreed to provide consulting services, as required from time to
time, to the Company for a five year period and has also agreed
not to compete with the Company during this same period. This
agreement supersedes a previous deferred compensation agreement
with the Company.
RETIREMENT/SAVINGS PLAN
The Summary Compensation Table above includes amounts
deferred by the Named Officers pursuant to the Company's Retire-
ment/Savings Plan under Section 401(k) of the Internal Revenue
Code of 1986 (the "Retirement/Savings Plan"). The value of a
participant's contributions to the Retirement/Savings Plan is
fully vested at all times; the value of employer contributions
becomes 50% vested after the employee has completed three years
of service, 75% vested after completion of four years of service,
and 100% vested after completion of five years of service.
MEDICAL REIMBURSEMENT PLAN
At the beginning of each calendar year, the Company accrues
fixed annual amounts for the benefit of certain officers to be
paid as needed to reimburse such officers for the amounts of
medical and hospital expenses actually incurred by such officers
which are not covered, and until January 1, 1993, the excess of
the amounts of medical and hospital expenses actually incurred
by such officers over the amount paid to them, under the
Company's group medical and hospitalization plans. The amount
accrued for the benefit of each such officer is included in such
officer's compensation for tax purposes regardless of whether
such accrued amount is actually paid to him. The excess of the
amount accrued over the amounts paid is used to offset the
administrative expenses payable by the Company to the medical
insurance carrier.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Leonard Newman, who was appointed to the Board of
Director's Executive Compensation Committee (the "Committee") on
May 26, 1994, served as the Chairman of the Board and Secretary
of the Company during fiscal 1995 and until his resignation from
such offices in August 1995. During the period in which he
served on the Committee, Mr. Newman did not participate in
compensation decisions relating to himself or Mark S. Newman.
SECURITY OWNERSHIP
The following table gives effect to the Reclassification and
shows, as of May 23, 1996, the number of shares of Common Stock
held by each director and executive officer, and by all directors
and executive officers of the Company as a group and the percent-
age beneficially owned (within the meaning of Rule 13d-3 of the
Exchange Act).
Common Stock (a)
_____________________________
Name of Benefi- Percent
cial Owner Shares of Class
_______________ ______ ________
Mark S. Newman . . 194,149(b)(c)(d) 3.5
Theodore Cohn . . 5,900 0.1
Donald C. Fraser. . - -(e)
Mark N. Kaplan . . 1,000 -(e)
Stuart F. Platt . . 3,000(c) 0.1
Jack Rachleff . . . 1,000 -(e)
Paul G. Casner, Jr. . 31,000(c) 0.6
Nancy R. Pitek . . 14,307(b)(c) 0.3
Richard Ross . . . 3,000(c) 0.1
Leonard Newman . . 0 -(e)
All directors and
executive
officers as a
group
(10 persons). . . 240,249(b)(c)(d) 4.3%
__________________
(a) As of May 23, 1996, the Company had outstanding 5,467,632 shares
of Common Stock (excluding 498,434 shares of Common Stock held in
treasury). Unless otherwise noted, each director and executive
officer had sole voting power and investment power over the
shares of Common Stock indicated opposite such director's and
executive officer's name.
(b) Includes 13,107 shares of Common Stock held by the trustee of the
Company's Retirement/Savings Plan. Mr. M. Newman and Ms. N.
Pitek share the power to direct the voting of such shares as
members of the administrative committee of such plan. Mr. M.
Newman and Ms. N. Pitek disclaim beneficial ownership as to and
of such shares.
(c) Includes shares of Common Stock which might be purchased upon
exercise of options which were exercisable on April 25, 1996 or
within 60 days thereafter, as follows: Mr. P. Casner, Jr.,
30,000 shares; Mr. Newman, 90,000 shares; Ms. N. Pitek, 1,200
shares; Mr. S. Platt, 3,000 shares; Mr. R. Ross, 3,000 shares;
and all directors and executive officers as a group, 181,200
shares.
(d) Includes 3,200 shares of Common Stock held by Mr. M. Newman as
custodian for his daughter over which Mr. M. Newman has sole
voting and investment power.
(e) Less than 0.1%.
The following table gives effect to the Reclassification and
sets forth certain information, as of May 23, 1996 with respect
to each person, other than executive officers and directors of
the Company, which has advised the Company that it may be deemed
to be the beneficial owner (within the meaning of Rule 13d-3 of
the Exchange Act) of more than five percent of a class of voting
securities of the Company. Such information has been derived
from statements on Schedule 13D or 13G filed with the SEC by the
person(s) listed below.
Common Stock
______________________________
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
___________________ __________ ________
First Pacific
Advisors, Inc.
10301 West Pico Blvd.
Los Angeles, CA 90064 . 1,670,314(a) 27.5%
Palisade Capital
Management L.L.C.
One Bridge Plaza
Suite 695
Fort Lee, New Jersey
07024 . 885,924(b) 16.2
Michael N. Taglich
Taglich Brothers,
D'Amadeo, Wagner &
Company, Incorporated
100 Wall Street
New York, NY 10005 . 529,850(c) 9.7
David E. Gross
27 Cameron Road
Saddle River,
NJ 07458 . 335,701(d) 6.1
__________________
(a) Includes 508,475 shares of Common Stock from the assumed conver-
sion of $4,500,000 principal amount of the Debentures, 104,739
shares of Common Stock from the assumed conversion of $1,571,000
principal amount of the Company's 1998 Debentures and 1,057,100
shares of Common Stock beneficially owned by First Pacific
Advisors, Inc. ("First Pacific") through control of FPA Capital
Fund, Inc. ("FPA"), Source Capital, Inc. ("Source Capital") and
FPA New Income, Inc. ("New Income") to which First Pacific serves
as investment advisor. The Company has been advised that First
Pacific has shared voting power with respect to 300,000 shares
and shared dispositive power with respect to 1,670,314 shares,
FPA has sole voting power and shared dispositive power with
respect to 510,000 shares, Source Capital has sole voting power
and shared dispositive power with respect to 273,925 shares and
New Income has sole voting power and shared dispositive power
with respect to 282,792 shares.
(b) Represents shares of Common Stock beneficially owned by Palisade,
acting as investment adviser to (i) Chrysler Corp. Emp. #1
Pension Plan Dtd. 4-1-89, which is the registered owner of
292,300 shares of such Common Stock, (ii) IBM Corp. Retirement
Plan Trust Dtd. 12-18-45, which is the registered owner of
319,024 shares of such Common Stock, (iii) G.E. Pension Trust,
which is the registered owner of 212,600 shares of such Common
Stock, and (iv) NYNEX Master Pension Trust Dtd. 1-1-84, which is
the registered owner of 62,000 shares of such Common Stock. The
Company has been informed that Palisade has sole voting and sole
dispositive power with respect to the 885,924 shares of Common
Stock.
(c) Consists of 312,450 shares of Common Stock held by Lancer Part-
ners, Inc. ("Lancer Partners"), 11,500 shares of Common Stock
held by Antrade, N.V. ("Antrade"), 15,200 shares of Common Stock
held by Album N.V. ("Album"), 11,600 shares of Common Stock held
by Ralco Investments Group ("Ralco"), 156,850 shares of Common
Stock held by Lancer Offshore, Inc. ("Lancer Offshore") and
22,250 shares of Common Stock held by Michael Lauer. The Company
has been advised that Michael Lauer has sole voting power and
sole dispositive power with respect to 22,250 shares. Michael N.
Taglich and Michael Lauer serve as general partners of Lancer
Partners and managing partners of Lancer Offshore. The Company
has been advised that Messrs. Taglich and Lauer also share voting
and dispositive authority over the shares held by Album, Antrade
and Ralco resulting in shared voting and shared dispositive power
with respect to a total of 507,600 shares.
(d) Includes 282,381 shares of Common Stock held by Mr. Gross for
which he has sole voting and dispositive power. Also included
are 26,000 shares of Common Stock held by Mr. Gross' wife person-
ally and 27,320 shares of Common Stock held by her as custodian
for her two children. Mr. Gross has neither voting power nor
investment power over the shares of Common Stock held by his
wife, either personally or as custodian for her children, and
disclaims any beneficial interest in such shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was a party to a loan agreement, as amended
March 30, 1993, entered into with Leonard Newman as the Chairman
of the Board, Chief Executive Officer and Secretary of the
Company (the "Newman Loan"). At March 31, 1995, the outstanding
principal amount due to the Company was $160,257. The original
Newman Loan in the principal amount of $267,000 was made in March
1984 to provide financing for the purchase of a new house, closer
to the offices of the Company, during the time required to sell
his old house. The loan was restructured in October 1986 with
the Board of Directors authorizing a new loan to Mr. Newman in
the principal amount of $111,430, which was used to pay all
amounts then due and outstanding under the original Newman Loan.
With the concurrence of the Board of Directors and Mr. Newman, an
advance of $77,500 made to Mr. Newman by the Company in October
1989 against an anticipated bonus was converted subsequently into
a loan in that amount from the Company. In March 1990, the Board
of Directors authorized a consolidation of the then outstanding
principal amount and accrued interest on each of the two out-
standing Newman Loans. The consolidated loan in the principal
amount of $160,257 was evidenced by a promissory note bearing
interest at the rate of 1% over the prime commercial rate of
interest as announced from time to time by Morgan Guaranty Trust
Company of New York and was secured by a pledge of 109 shares
owned by Mr. Newman in, and an assignment of his interest in a
proprietary lease from, an apartment corporation in New York
City. Pursuant to approval by the Board of Directors effective
March 1993, the maturity date of the consolidated loan was
extended from March 30, 1993 to March 30, 1996. Principal and
interest on the consolidated loan was due in one installment at
maturity and could be paid in cash or in shares of Class A Common
Stock or Class B Common Stock of the Company, or in any combina-
tion of cash or such shares. At March 31, 1995, the largest
aggregate amount of indebtedness under the consolidated Newman
Loans since April 1, 1994 was $244,355. The loan was repaid as
of June 1995.
The Company is currently occupying and leasing a building at
138 Bauer Drive (the "LDR Building") owned by LDR Realty Co.
("LDR"), a partnership wholly owned, in equal amounts, by Leonard
Newman and David E. Gross, the former President and Chief Techni-
cal Officer of the Company. The current renegotiated lease
agreement is for a ten-year term beginning June 1, 1988 at a
monthly rental of $19,439. The Company is required to pay all
real estate taxes and is responsible for all repairs and mainte-
nance, structural and otherwise, subject to no cumulative limits.
The terms of the LDR lease were determined by the Company and
LDR, based on the formal appraisal of an appraisal firm and
informal appraisals from real estate brokers in the area. Such
appraisals indicated that the rental provided for in the LDR
lease is not in excess of the range of fair market rentals in the
relevant area. The Company believes that the LDR 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.
Skadden, Arps, Slate, Meagher & Flom, a law firm of which
Mark N. Kaplan, a director, is a member, provided legal services
to the Company during its 1995 fiscal year.
In July 1993, the Company and Donald C. Fraser, a director,
entered into a consulting agreement pursuant to which Dr. Fraser
will provide consultation to the Company concerning defense
technologies. Under the terms of the consulting agreement, as
amended, consulting services are to be provided to the Company
through July 5, 1995 on an as-requested basis, for a fee of
$1,500 per day plus approved travel and miscellaneous expenses.
During fiscal 1995, total remuneration paid to Dr. Fraser under
this agreement approximated $9,000.
In October 1993, the Company issued a Demand Grid Note (the
"Grid Note") in the principal amount of $100,000 to Paul G.
Casner, Jr. The loan bears interest at the applicable federal
rate necessary under the Internal Revenue Code of 1986, as
amended, to avoid an imputed rate of interest.
In May 1995, the Company became a party to a loan with Mark
S. Newman, the President and Chief Executive Officer of the
Company, to provide an amount equal to the exercise price of
incentive stock options which had been granted to him under the
Company's 1981 Incentive Stock Option Plan. The loan is evi-
denced by a promissory note in the principal amount of $104,500
and bears interest at an annual rate of 8%. The loan is payable
on the earlier of (i) the sale or disposition of the shares of
stock obtained pursuant to the exercise of the stock options,
(ii) cessation of Mr. M. Newman's employment by the Company or
(iii) May 25, 2005. Interest is payable on May 25 of each
calendar year or at such earlier time as the loan is repaid.
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under the Indenture dated as of
September 22, 1995, and as supplemented as of April 1, 1996,
between the Company and The Trust Company of New Jersey, as
trustee (the "Trustee"). The following summary does not purport
to be complete and is subject to and is qualified in its entirety
by reference to the Indenture and the form of the Debentures.
The Debentures were issued on September 29, 1995 in an
aggregate principal amount of $20,000,000. On November 3, 1995,
pursuant to the exercise of an overallotment option by Forum, an
additional $5,000,000 aggregate principal amount was issued. 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 April 25, 1996,
$25 million aggregate principal amount of the Debentures were
outstanding. The Debentures bear interest at 9% per annum, and
accrued but unpaid interest is payable semi-annually on April 1
and October 1 of each year commencing April 1, 1996 (each, an
"Interest Payment Date"). Interest is 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
is computed on the basis of a 360-day year of twelve 30-day
months.
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 Common Stock of the Company at the
conversion price of $8.85, subject to adjustment under certain
circumstances.
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, at the redemption prices established for the
Debentures, together with accrued but unpaid interest, if any, to
the date fixed for redemption. If a Change of Control occurs (as
defined in the Indenture), the Company shall offer to repurchase
each Holder's Debentures 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 circum-
stances make more difficult or discourage a takeover of the
Company.
In addition, in the event the Company's Consolidated Net
Worth (as defined in the Indenture) at the end of any two consec-
utive fiscal quarters is below $18.0 million, 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.
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 subsidiar-
ies. However, all these limitations and prohibitions are subject
to a number of qualifications, as set forth therein.
Senior Indebtedness is defined in the Indenture to mean the
principal of and premium, if any, and interest on (a) the Debt
(as defined in the Indenture) of the Company or any of its
Subsidiaries (as defined in the Indenture) which is outstanding
on the date of the Indenture and has been provided by a bank that
is not an Affiliate (as defined in the Indenture) 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 govern-
ment 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 out-
standing provides that such Debt is not superior in right of
payment to the Debentures.
DESCRIPTION OF 1998 DEBENTURES
The following summary describes certain provisions of the
indenture governing the 1998 Debentures, as supplemented as of
April 1, 1996 (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. As of May 23,
1996, $4,992,000 aggregate principal amount of the 1998 Deben-
tures were outstanding. 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 Indebted-
ness 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 Common Stock of the Company at a conver-
sion 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 acquisi-
tion (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
On February 7, 1996, the Board of Directors of the Company
approved and recommended for submission to the stockholders of
the Company by a 6 to 1 vote, with Leonard Newman voting against
such submission, the consideration and approval of an Amended and
Restated Certificate of Incorporation (the "Restated Certifi-
cate"), which amended and restated the Company's certificate of
incorporation to (i) effect a reclassification of each share of
Class A Common Stock and each share of Class B Common Stock into
one share of Common Stock, (ii) provide that action by the
stockholders may be taken only at a duly called annual or special
meeting, and not by written consent and (iii) provide that the
stockholders of the Company would have the right to make, adopt,
alter, amend, change or repeal the By-Laws of the Company only
upon the affirmative vote of not less than 66 2/3% of the out-
standing capital stock of the Company entitled to vote thereon.
On March 26, 1996, the stockholders approved the Restated
Certificate. The Restated Certificate was filed with the Secre-
tary of State of the State of Delaware and became effective April
1, 1996. The authorized capital stock of the Company currently
consists of 2,000,000 shares of Preferred Stock and 20,000,000
shares of Common Stock. As of May 23, 1996, there were 5,467,632
shares of Common Stock issued and outstanding (exclusive of
498,434 shares held in treasury). No shares of Preferred Stock
have been issued. All outstanding shares of Common Stock are
fully paid and nonassessable.
PREFERRED STOCK
The Restated Certificate authorizes 2,000,000 shares of
Preferred Stock each having a par value of $10 per share.
Subject to applicable law, the Board may issue, in its sole
discretion, shares of Preferred Stock without further stockholder
action by resolution at the time of issuance. The Preferred
Stock may be issued in one or more series and may vary as to the
designation and number of shares in such series, the voting power
of the holders thereof, the dividend rate, the redemptive terms
and prices, the voluntary and involuntary liquidation preferenc-
es, the conversion rights and the sinking fund requirements, if
any, of such series. The Board, however, may not create any
series of Preferred Stock with more than one vote per share.
COMMON STOCK
Voting Rights. As a result of the Reclassification, all
holders of Common Stock have the same preferences, rights, powers
and qualifications, including one vote for each share of Common
Stock held.
The Board was previously divided into two classes; Class A
Directors and Class B Directors. The Class A Directors were
divided into three classes serving staggered terms, the Class A-I
Directors, the Class A-II Directors and the Class A-III Direc-
tors. As a result of the Reclassification, the Board is no
longer divided into Class A Directors and Class B Directors. The
directors who, as of the effective date of the Reclassification,
were designated as Class A-I Directors, Class A-II Directors and
Class A-III Directors are now designated as Class I Directors,
Class II Directors and Class III Directors, respectively, and
will continue to serve out their respective terms. Each of the
former Class B Directors was appointed to serve as either a Class
I Director, Class II Director or Class III Director. Each class
of directors will consist of as nearly an equal number of direc-
tors as possible. At each annual meeting beginning with the 1996
Annual Meeting, one class of directors will be elected to succeed
those whose terms expire by all record holders of the Common
Stock as of the date of determination, with each new director to
serve a three-year term.
In General. Holders of Common Stock have no redemption or
preemptive rights and are not liable for further calls or assess-
ments. Holders of Common Stock will be entitled, after satisfac-
tion 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 held.
Subject to the rights of holders of Preferred Stock, if any,
and subject to other provisions of the Restated Certificate,
holders of Common Stock are entitled to receive such dividends
and other distributions in cash, property or shares of stock of
the Company as may be declared from time to time by the Board in
its discretion from any assets of the Company legally available
therefor.
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 the Common Stock.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this
offering. The Selling Stockholders may sell all or a portion of
the shares of Common Stock offered hereby from time to time on
terms to be determined at the times of such sales. The shares of
Common Stock may be sold from time to time to purchasers directly
by any of the Selling Stockholders. Alternatively, any of the
Selling Stockholders may from time to time offer the shares of
Common Stock through underwriters, dealers or agents, who may
receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Stockholders and the
purchasers of the shares of Common Stock for whom they may act as
agent. To the extent required, the number of shares of Common
Stock to be sold, the names of the Selling Stockholders, the
offering 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 Stockholders will sell any or all of
the shares of Common Stock offered hereby. The Selling Stock-
holders and any broker-dealers, agents or underwriters that
participate with the Selling Stockholders in the distribution of
the shares of 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 shares of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The shares of Common Stock may be sold from time to time in
one or more transactions, depending on market conditions and
other factors, in one or more transactions on the AMEX or other-
wise, at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices. Such prices may 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. In addition, the
Selling Stockholders may from time to time sell the shares of
Common Stock in transactions under Rule 144 promulgated under
the Securities Act.
To comply with the securities laws of certain states, if
applicable, the shares of Common Stock will be sold in such
jurisdictions only through registered or licensed brokers or
dealers. In addition in certain states the shares of 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.
Pursuant to the Registration Rights Agreement, the Company
agreed to indemnify the Selling Stockholders against certain
liabilities in connection with the offer and sale of the Common
Stock, including liabilities under the Securities Act, and to
contribute to payments that the Selling Stockholders may be
required to make in respect thereof.
The Company will pay substantially all expenses incident to
the offering and sale of the Common Stock to the public to the
extent provided for in the Registration Rights Agreement other
than underwriting discounts and selling commissions and expenses,
and the fees and disbursements of the Selling Stockholders'
counsel, accountants and experts. The Company and the Selling
Stockholders have agreed to indemnify each other against certain
liabilities arising under the Securities Act. In addition, any
underwriter utilized by the Selling Stockholders may be indemni-
fied against certain liabilities, including liabilities under the
Securities Act. See "Selling Stockholders."
The Common Stock is listed on the AMEX and has historically
been characterized by limited trading volume and a limited number
of holders. No assurance can be given as to the liquidity of or
the trading market for the Common Stock. See "Risk Factors --
Lack of Public Market; Restrictions on Resale."
SELLING STOCKHOLDERS
The following table sets forth information concerning the
number of shares of Common Stock beneficially owned by each
Selling Stockholder which may be offered from time to time
pursuant to this Prospectus. Other than as a result of the
ownership of Common Stock, none of the Selling Stockholders 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 Stockholders.
Number
Number of of Percent
Shares Shares of Out-
Benefi- Being stand-
cially Regis- ing
Name Owned tered Shares
Chrysler Corp. Emp. # Pension
Plan Dtd. 4-1-89 . . . . . . . . 292,300 292,300 33%
IBM Corp. Retirement Plan Trust
Dtd. 12-18-45 . . . . . . . . . . 319,024 319,024 36%
G.E. Pension Trust . . . . . . . 212,600 212,600 24%
NYNEX Master Pension Trust Dtd.
1-1-84 . . . . . . . . . . . . . 62,000 62,000 7%
Total . . . . . . . . . . . . 885,924 885,924 100%
Because the Selling Stockholders may sell all or some of the
Common Stock which they hold pursuant to the offering contemplat-
ed by this Prospectus, no estimate can be given as to the aggre-
gate amount of shares of Common Stock that are to be offered
hereby or that will be owned by the Selling Stockholders upon
completion of this offering to which this Prospectus relates.
Accordingly, the aggregate principal amount of Common Stock
offered hereby may decrease. As of the date of this Prospectus,
5,467,632 shares of Common Stock, including the shares being
offered hereby, were outstanding (exclusive of 498,434 shares
held in treasury). 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 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 herein and in the Registration
Statement, have been included herein and in the Registration
Statement, in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere
herein and in the Registration Statement, 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
December 31, 1995 (unaudited)...................................... F-3
Consolidated Statements of Earnings for the fiscal years
ended March 31, 1995, 1994 and 1993 and for the nine months
ended December 31, 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 nine months ended December 31, 1995
(unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1995, 1994 and 1993 and for the nine months
ended December 31, 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
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
December
31,
March 31, ---------------
-----------------------------
1995 1994 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents...................................... $11,197,000 $15,465,000 $23,069,000
Accounts Receivable (Notes 2 and 6)............................ 17,432,000 15,538,000 20,594,000
Inventories, Net of Progress Payments (Note 3)................. 11,724,000 5,042,000 16,558,000
Other Current Assets........................................... 2,445,000 2,563,000 2,477,000
------------ ------------- ------------
Total Current Assets........................................... 42,798,000 38,608,000 62,698,000
------------ ------------ ------------
Property, Plant and Equipment, at Cost (Notes 4 and 6)........ 33,661,000 32,182,000 39,958,000
Less Accumulated Depreciation and Amortization................. 23,812,000 23,289,000 25,230,000
------------ ------------ ------------
Net Property, Plant and Equipment.............................. 9,849,000 8,893,000 14,728,000
------------ ------------ -------------
Intangible Assets, Less Accumulated Amor-
tization of $3,457,000, $3,008,000 and
$3,883,000 at March 31, 1995 and 1994 and
December 31, 1995, respectively................................ 8,920,000 8,414,000 8,494,000
Other Assets................................................... 3,023,000 2,921,000 4,850,000
------------ ------------ ------------
Total Assets................................................... $64,590,000 $58,836,000 $90,770,000
=========== ============ ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Current Installments of Long-Term Debt
(Note 6) ...................................................... $ 2,492,000 $ 2,664,000 $ 3,436,000
Accounts Payable and Accrued Expenses (Note 5)................. 19,989,000 16,141,000 18,677,000
------------ ------------ -----------
Total Current Liabilities...................................... 22,481,000 18,805,000 22,113,000
Long-Term Debt, Excluding Current Installments (Note 6)........ 11,732,000 14,515,000 35,319,000
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 3,826,000
------------ ------------ ------------
Total Liabilities.............................................. 42,081,000 39,077,000 65,863,000
------------ ------------ ------------
Stockholders' Equity (Notes 6, 9 and 13):
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 December 31, 1995, respectively..................... 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
December 31, 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 13,414,000
------------ ------------ ------------
24,413,000 21,343,000 27,052,000
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, 423,419 Shares of Class A Common
Stock and 21,440 Shares of Class B Common Stock at
March 31, 1994, and 432,639 Shares of Class A Common
Stock and 65,795 Shares of Class B Common Stock at
December 31, 1995 (Note 10) ................................... (1,617,000) (1,579,000) (1,918,000)
Unamortized Restricted Stock Compensation...................... (287,000) (5,000) (227,000)
------------ ------------ ------------
Net Stockholders' Equity....................................... 22,509,000 19,759,000 24,907,000
------------ ------------ ------------
Commitments and Contingencies (Note 10)
Total Liabilities and Stockholders' Equity................... $64,590,000 $58,836,000 $90,770,000
=========== =========== ===========
- ------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Nine Months Ended
Years Ended March 31, December 31,
------------------------------------------ ------------------------------
1995 1994 1993 1995 1994
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $69,930,000 $57,820,000 $47,772,000 $65,628,000 $47,404,000
Costs and Expenses (Note 3)............... 64,836,000 54,372,000 45,461,000 60,289,000 44,143,000
---------- ---------- ---------- ---------- ----------
Operating Income.......................... 5,094,000 3,448,000 2,311,000 5,339,000 3,261,000
Interest and Related Expenses............. (1,372,000) (1,574,000) (1,735,000) (1,675,000) (1,020,000)
Other Income, Net (Notes 7 and 11) 534,000 834,000 1,224,000 425,000 613,000
---------- ---------- ---------- ----------- -----------
Earnings before Income Taxes.............. 4,256,000 2,708,000 1,800,000 4,089,000 2,854,000
Income Taxes (Note 8)..................... 1,652,000 1,093,000 715,000 1,594,000 1,142,000
---------- ---------- ---------- ---------- ----------
Net Earnings.............................. $ 2,604,000 $ 1,615,000 1,085,000 2,495,000 $ 1,712,000
=========== =========== ========= ========= ============
Earnings per Share of Class A and Class B
Common Stock (Note 13):
Primary........................... $ .50 $ .30 $ .20 $ .44 $ .34
Fully diluted..................... $ .50 $ .30 $ .20 $ .44 $ .34
Weighted Average Number of
Shares of Class A and Class
B Common Stock Outstanding (Note 13):
Primary........................... 5,231,000 5,334,000 5,324,000 5,647,000 5,026,000
Fully diluted..................... 5,231,000 5,334,000 5,324,000 6,552,000 5,026,000
<FN>
- -----------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Years Ended March
31, 1995, 1994 and
1993, and Nine
Months Ended
December 31, 1995 Common Stock
(unaudited) --------------------------------
Class A Class B Unamortized Net
----------- ---------- Additional Restricted Stock-
Paid In Retained Treasury Stock holders'
Shares Amount Shares Amount Capital Earnings Stock Compensation Equity
- ----------------------- ------ ------ ------ ------ --------- -------- ------- ------------ -------
<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 Relating
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 Relating to
Stock Options, Net ....... -- -- -- -- 388,000 -- -- (282,000) 106,000
Purchase of Trea-
sury Stock .............. -- -- -- -- -- -- (2,900,000) -- (2,900,000)
Sale of Treasury
Stock.................... -- -- -- -- (111,000) -- 2,862,000 -- 2,751,000
---------- ------- --------- ------- --------- -------- ---------- --------- -----------
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 (unaudited)... -- -- -- -- -- 2,495,000 -- -- 2,495,000
Stock Options
Exercised (unaudited)..... 40,000 -- 53,100 -- 220,000 -- -- -- 220,000
Expenses relating
to the Sale of
Treasury Stock
(unaudited)............... -- -- -- -- (76,000) -- -- -- (76,000)
Receipt of Stock
Into Treasury
(unaudited)............... -- -- -- -- -- -- (301,000) -- (301,000)
Compensation Re-
lating to Stock
Options Net (unaudited)... -- -- -- -- -- -- -- 60,000 60,000
--------- ------- ---------- -------- -------- --------- -------- --------- ---------
Balances at December 31,
1995 (unaudited)......... 3,739,963 $ 37,000 2,216,353 $ 22,000 $13,579,000 $13,414,000 $(1,918,000) $(227,000) $24,907,000
<FN>
- --------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Nine Months Ended
Years Ended March 31, December 31,
------------------------------------ -----------------------
1995 1994 1993 1995 1994
----------- --------- --------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings ............................. $ 2,604,000 $ 1,615,000 $ 1,085,000 $ 2,495,000 $ 1,712,000
Adjustments to Reconcile Net
Earnings to Cash Flows from
Operating Activities:
Depreciation and Amortization......... 2,480,000 2,558,000 3,202,000 2,226,000 1,967,000
Deferred Income Taxes ................ 26,000 (15,000) (31,000) -- --
Other, Net ........................... (77,000) (233,000) (446,000) 305,000 (235,000)
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) (2,859,000) 2,265,000
(Increase) Decrease in Inventories......... (6,408,000) 2,069,000 2,186,000 (4,141,000) (5,543,000)
(Increase) Decrease in Other
Current Assets ........................... (7,000) (133,000) 1,400,000 667,000 (130,000)
Increase (Decrease) in Accounts Payable and
Accrued Expenses .......................... 3,640,000 2,928,000 (400,000) (2,381,000) (182,000)
Other, Net ................................ 1,643,000 (62,000) (357,000) 194,000 160,000
---------- ---------- ---------- ---------- ----------
Net Cash Provided by (Used in) Operating
Activities: .................................. 2,486,000 10,170,000 5,759,000 (3,494,000) 14,000
--------- ---------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ......................... (2,543,000) (988,000) (922,000) (3,712,000) (1,014,000)
Sales of Fixed Assets ........................ -- -- -- 2,380,000 --
Payments Pursuant to Business
Combinations, Net of Cash Acquired............ (1,514,000) (696,000) -- (4,140,000) (1,514,000)
Cash Advanced to Company Ac-
quired for Repayment of Debt
Prior to Acquisition ......................... -- (1,800,000) -- -- --
Other, Net ................................... 263,000 11,000 2,000 -- 236,000
---------- ------------ ------------ ------------ ------------
Net Cash Used in Investing activities....... (3,794,000) (3,473,000) (920,000) (5,472,000) (2,292,000)
----------- ----------- --------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Long-Term Debt ................ (275,000) (168,000) (262,000) (374,000) (56,000)
Repurchases of Convertible
Subordinated Debentures ................... (2,667,000) (2,354,000) (1,880,000) (2,242,000) (2,639,000)
Net Proceeds From Issuance of
Senior Subordinated Convertible
Debentures ................................ -- -- -- 23,360,000 --
Other Borrowings .......................... 20,000 325,000 -- 55,000 75,000
Purchase of Treasury Stock ................ (2,900,000) -- -- -- (2,900,000)
Sale of Treasury Stock .................... 2,862,000 -- -- -- 2,625,000
Other, Net ................................ -- -- -- 39,000 --
------------ ----------- ----------- ----------- ----------
Net Cash Used in Financing Activities...... (2,960,000) (2,197,000) (2,142,000) 20,838,000 (2,895,000)
------------ ----------- ----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents................. (4,268,000) 4,500,000 2,697,000 11,872,000 (5,173,000)
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 $23,069,000 $10,292,000
============ =========== =========== =========== ===========
<FN>
- --------------------
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 December 31, 1995 and for the nine
months ended December 31, 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 December 31, 1995, the statements of earnings for the
nine months ended December 31, 1995 and 1994, cash flows
for the nine months ended December 31, 1995 and 1994 and
the statement of stockholders' equity for nine months
ended December 31, 1995. The results of operations for
the nine months ended December 31, 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 (UNAUDITED WITH RESPECT TO
THE NINE MONTHS ENDED DECEMBER 31, 1995)
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. In fiscal 1995, the computation of
earnings per share included approximately 123,000 shares
from the assumed exercise of dilutive stock options
computed using the treasury stock method. Options out-
standing to purchase shares of common stock are not
included in the computation of earnings per share for
fiscal 1994 and 1993, because their effect was not mate-
rial. Furthermore, additional shares assumed to be
outstanding applicable to the Company's 8-1/2% Convertible
Subordinated Debentures also are not included for any of
the periods presented, because their effect on earnings
per share was antidilutive.
For the nine month period ended December 31,
1995, the computation of primary earnings per share
included approximately 174,000 shares from the assumed
exercise of dilutive stock options computed using the
treasury stock method. Options outstanding to purchase
shares of common stock were excluded from the computation
of earnings per share for the nine month period ended
December 31, 1994, because their effect was not material.
The computation of fully diluted earnings per share for
the nine month period ended December 31, 1995 included
approximately 185,000 shares, also from the assumed
exercise of dilutive stock options and, in addition,
included approximately 894,000 shares from the assumed
conversion of the Company's 9% Senior Subordinated Con-
vertible Debentures (the "Debentures"). Additional
shares assumed to be outstanding applicable to the
Company's 8-1/2% Convertible Subordinated Debentures were
excluded from the computations for the interim 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, December 31,
_____________________ ___________________
1995 1994 1995
------ ------ -----
(unaudited)
Work-in-Process . . . $ 23,017,000 $ 14,639,000 $38,356,000
Raw Material . . . . 2,573,000 2,917,000 836,000
------------- ----------- ------------
25,590,000 17,556,000 39,192,000
Less Progress Payments . 13,866,000 12,514,000 22,634,000
----------- ---------- -----------
Total . . . . . . . . $ 11,724,000 $ 5,042,000 $16,558,000
----------- ---------- -----------
General and administrative costs included in work-in-process
were $6,584,000 and $3,753,000 at March 31, 1995 and 1994 and $9,111,000 at
December 31, 1995 (unaudited), respectively. General and administrative
costs included in costs and expenses amounted to $17,681,000, $16,896,000,
$14,028,000 and $14,622,000 in fiscal 1995, 1994, 1993, and for the nine
months ended December 31, 1995 (unaudited), respectively. Included in those
amounts are expenditures for Company-sponsored independent research and
development, amounting to approximately $795,000, $537,000, $470,000 and
$218,000 in fiscal 1995, 1994, 1993, and for the nine months ended December
31, 1995 (unaudited), 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, December 31,
---------------------- -----------
1995 1994 1995
---------- ---------- -----------
(unaudited)
Convertible Subordinated
Debentures, Due 1998............. $ 12,209,000 $14,889,000 $9,963,000
Industrial Revenue Bonds,
Due 1998......................... 1,895,000 2,095,000 1,895,000
Senior Subordinated Convertible
Debentures, Due 2003............. -- -- 25,000,000
Other Obligations................ 120,000 195,000 1,897,000
---------- ---------- -----------
14,224,000 17,179,000 38,755,000
Less Current Installments of
Long-Term Debt................... 2,492,000 2,664,000 3,436,000
---------- ---------- -----------
TOTAL............................ $11,732,000 $14,515,000 $35,319,000
----------- ----------- -----------
============================================================================
The 1998 Debentures bear interest at a rate of 8 1/2% 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 Number of
Shares of Shares of Option
Class A Option Price Class B Price per
Common Stock per 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 fourth quarter of fiscal 1994, each quarter of fiscal
1995 and the first, second and third 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
------------------------- --------------------------
1996 1995 1995 1994
----------- ------------ ------------ ----------
Revenues........... $ 25,563,000 $ 15,742,000 $ 22,526,000 $ 22,451,000
Operating
Income............. $ 2,181,000 $ 1,005,000 $ 1,833,000 $ 1,275,000
Income
Taxes.............. $ 590,000 $ 425,000 $ 510,000 $ 413,000
Net Earnings....... $ 924,000 $ 634,000 $ 892,000 $ 617,000
Net Earnings per
Share.............. $ .16 $ .13 $ .16 $ .12
Primary and fully diluted net earnings per share amounts are
the same for each of the periods presented above.
NOTE 13. SUBSEQUENT EVENTS AND OTHER MATTERS (UNAUDITED)
On July 5, 1995 (the "OMI Closing Date"), Photronics Corp., a
New York corporation and a wholly-owned subsidiary of the Company
("Photronics Corp."), acquired (through OMI Acquisition Corp. ("OMI"), a
Delaware corporation and a wholly-owned subsidiary of Photronics Corp.),
substantially all of the assets of Opto Mechanik, Inc. ("Opto"), a Delaware
corporation, pursuant to an Agreement for Acquisition of Assets dated May
24, 1995, as amended July 5, 1995, between Photronics Corp. and Opto (the
"OMI Agreement"), and approved by the United States Bankruptcy Court for
the Middle District of Florida on June 23, 1995. OMI, now located in Palm
Bay, Florida, designs and manufactures electro-optical sighting and
targeting systems used primarily in military fire control devices and in
various weapons systems.
Pursuant to the OMI Agreement, the Company paid a total of
$5,450,000 consisting of (i) $1,150,000 in cash to PNC Bank, Kentucky, Inc.
("PNC"), (ii) a note to PNC in the principal amount of $1,450,000 payable
in forty eight (48) equal monthly installments of principal and interest
commencing with the first day of the month subsequent to the OMI Closing
Date (the "PNC Note"), (iii) $2,550,000 in cash to MetLife Capital
Corporation and (iv) a note in the principal amount of $300,000 to Opto
payable in six (6) equal monthly installments of principal and interest
commencing on August 5, 1995 (the "Opto Note"). The PNC Note bears interest
at a floating rate equal to the lesser of (i) PNC's stated prime interest
rate plus 0.5% or (ii) the prime rate as reported by the Wall Street
Journal plus 0.5%. The Opto Note bears interest at a rate of 9.5% per
annum. Professional fees and other costs associated with the acquisition
were capitalized as part of the total purchase price. Total cash
consideration paid in the acquisition was obtained from the Company's
working capital.
The acquisition of the assets of Opto has been accounted for
under the purchase method. The operating results of OMI, the acquiring
corporation, have been included in the Company's reported operating results
since the date of acquisition. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets
acquired and the liabilities assumed.
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 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. The Company
filed a Registration Statement on Form S-1 (No. 33-64641) with the
Securities and Exchange Commission (the "Commission"), pursuant to the
terms of the Registration Rights Agreement. In connection with these
transactions, the Company expects to incur approximately $625,000 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 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 December 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 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 December 31,
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 $25,000,000 aggregate principal amount of the Senior
Subordinated Convertible Debentures on September 29, 1995, the Debt Ratio
at December 31, 1995 was 0.4:1. The Company has obtained a waiver,
renewable quarterly, from the bank of the required debt ratio and is in
compliance with all covenants under the letter of credit.
On February 6, 1996, pursuant to a Joint Venture Agreement,
dated February 6, 1996, by and among DRS/MS, Inc. ("DRS/MS"), a
wholly-owned subsidiary of the Company, Universal Sonics Corporation
("Universal Sonics"), a New Jersey corporation, Ron Hadani, Howard Fidel
and Thomas S. Soulos, and a Partnership Agreement, dated February 6, 1996,
by and between DRS/MS and Universal Sonics, the Company entered into a
partnership with Universal Sonics (the "Partnership") for the purpose of
developing, manufacturing and marketing medical ultrasound imaging
equipment. The Company's contribution to the Partnership consisted of
$400,000 in cash and certain managerial expertise and manufacturing
capabilities, representing a 90% interest in the Partnership.
On February 9, 1996, Precision Echo acquired (through Ahead
Technology Acquisition Corporation ("Ahead Acquisition"), a Delaware
corporation and a wholly-owned subsidiary of Precision Echo), certain
assets and assumed certain liabilities (principally, obligations under
property leases) of Mag-Head Engineering Company, Inc. ("Mag-Head"), a
Minnesota corporation, pursuant to an Asset Purchase Agreement, dated as of
February 9, 1996, by and among Mag-Head and Ahead Acquisition for
approximately $400,000 in cash. Mag-Head produces audio and flight recorder
heads.
On February 7, 1996, the Board of Directors of the Company
approved and recommended for submission to the stockholders of the Company
by a majority vote the consideration and approval of an Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), which
amended and restated the Company's certificate (i) to effect a
reclassification (the"Reclassification") of each share of Class A Common
Stock and each share of Class B Common Stock into one share of common
stock, par value $.01 per share (the "Common Stock"), of the Company, (ii)
to provide that action by the stockholders may be taken only at a duly
called annual or special meeting, and not by written consent and (iii) to
provide that the stockholders of the Company would have the right to make,
adopt, alter, amend, change or repeal the By-Laws of the Company only upon
the affirmative vote of not less than 662/3% of the outstanding capital
stock of the Company entitled to vote thereon. On March 26, 1996, the
stockholders approved the Restated Certificate. The Restated Certificate
was filed with the Secretary of State of the State of Delaware and became
effective April 1, 1996. As a result of the Reclassification, the Senior
Subordinated Convertible Debentures and the 1998 Debentures are convertible
into shares of Common Stock and each option issued or issuable pursuant to
the Company's stock option plans (See Note 9) are exercisable for an equal
number of shares of the Common Stock.
On March 28, 1996, the Company entered into an Employment,
Non-Competition and Termination Agreement (the "Newman Agreement") with
Leonard Newman. Pursuant to the Newman Agreement, Mr. Newman received a
lump sum payment of approximately $2.0 million. Under the terms of the
Newman Agreement, Mr. Newman has agreed to provide consulting services,
as required from time to time, to the Company for a five year period and
has also agreed not to compete with the Company during this same period.
This agreement supersedes a previous deferred compensation agreement
with Mr. Newman.
In March 1996, Mr. Leonard Newman and certain members of his
immediate family sold an aggregate of 885,924 shares of Common Stock to a
buyer, acting as an investment adviser to several accounts. In connection
with such sale, the Company entered into a registration rights agreement
with such buyer to assist in facilitating such sale. The Company has agreed
to file and cause to become effective a registration statement with the
Securities and Exchange Commission upon demand, at its expense, relating to
such shares for future sale by such buyer.
NO PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CON-
TAINED OR INCORPORATED BY REF-
ERENCE IN THIS PROSPECTUS, AND
ANY INFORMATION OR REPRESENTA- 885,924 SHARES
TION NOT CONTAINED OR INCORPO-
RATED BY REFERENCE HEREIN MUST
NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY DIAGNOSTIC/RETRIEVAL
OR ANY UNDERWRITER. THIS PRO- SYSTEMS, INC.
SPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITY OTHER
THAN THE REGISTERED SECURITIES
TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY JURISDIC- COMMON STOCK
TION WHERE SUCH OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IM- _______________
PLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE PROSPECTUS
COMPANY SINCE THE DATE HEREOF. ______________
_____________
TABLE OF CONTENTS
Page
Available Information . . . 2
Prospectus Summary . . . . 3
Risk Factors . . . . . . . 7
The Company . . . . . . . . 10
Use of Proceeds . . . . . . 12
Capitalization . . . . . . 12
Market Prices of Capital
Stock . . . . . . . . . 13
Dividend Policy . . . . . . 13
Selected Consolidated
Financial Data . . . . . 14
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations . . . . . . 15
Business . . . . . . . . . 24
Management . . . . . . . . 35
Security Ownership . . . . 42
Certain Relationships
and Related Transactions . 45
Description of the
Debentures . . . . . . . 46
Description of 1998
Debentures . . . . . . 48
Description of Capital
Stock . . . . . . . . . 49
Plan of Distribution . . . 51
Selling Stockholders . . . 52
Legal Matters . . . . . . . 53
Experts . . . . . . . . . . 53
Index to Financial Statements , 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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 Common Stock being registered.
All amounts (other than the registration fee) are estimated.
Item Amount
Securities and Exchange Commission
registration fee. . . . . . . . . . $ 2,596.67
Blue Sky fees and expenses . . . . . . 2,500.00
Accountants' fees and expenses . . . . 10,000.00
Legal fees and expenses . . . . . . . 45,000.00
Transfer agent and registrar fees
and expenses. . . . . . . . . . . . 1,000.00
Miscellaneous . . . . . . . . . . . . 3,903.33
Total . . . . . . . . . . . . . . 65,000.00
_____________________________________
ITEM 14. 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 Amended and
Restated 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 Certif-
icate 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 Dela-
ware, as amended from time to time, indemnify all persons whom it
may indemnify pursuant thereto and eliminates the personal lia-
bility of its directors to the full extent permitted by Section
102(b)(7) of the General Corporation Law of the State of Dela-
ware, 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 proceed-
ing 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, indemni-
fication 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 indem-
nity 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 elimi-
nate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stock-
holders, (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 15. Recent Sales of Unregistered Securities.
Other than the Debenture Offering, there were no recent
sales by the Registrant of securities which were not registered
under the Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) Certain of the following exhibits, designated with an
asterisk (*), will be filed upon amendment and certain of the
following exhibits, designated with two asterisks (**), are filed
herewith. The exhibits not so designated have been previously
filed with the Commission and are incorporated herein by refer-
ence to the documents indicated in brackets following the de-
scriptions of such exhibits.
Exhibit No. Description
1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P. [Regis-
tration Statement, File No. 33-
64641]
3.1 - Restated Certificate of Incorpora-
tion 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 Incorpora-
tion 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 Cer-
tificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - Amended and Restated Certificate of
Incorporation of the Company, as
filed April 1, 1996 [Registration
Statement, File No. 33-64641]
3.5 - 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]
3.6 - 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]
3.7 - Form of Advance Notice By-Laws of
the Company [Form 10-Q, quarter
ended December 31, 1995, File No.
1-8533, Exhibit 3]
3.8 - Amended and Restated By-Laws of the
Company, as of April 1, 1996 [Reg-
istration Statement, File No. 33-
64641]
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
[Registration Statement, File No.
33-64641]
4.2 - Form of 9% Senior Subordinated Con-
vertible Debenture Due 2003 (in-
cluded as part of Exhibit 4.1)
[Registration Statement, File No.
33-64641]
4.3 - Registration Rights Agreement, dat-
ed as of September 22, 1995 between
the Company and Forum Capital Mar-
kets L.P. [Registration Statement,
File No. 33-64641]
4.4 - Indenture, dated as of August 1,
1983, between the Company and Bank-
ers 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 In-
dustrial Development Agency, Manu-
facturers and Traders Trust Compa-
ny, as Trustee and certain bond-
holders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated De-
cember 1, 1991, among Photronics
Corp., the Company and Morgan Guar-
anty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
4.7 - Registration Rights Agreement, dat-
ed as of March 27, 1996, by and
between the Company and Palisade
Capital Management L.L.C., acting
as investment adviser to the ac-
counts named therein [Registration
Statement, File No. 33-64641]
4.8 - First Supplemental Indenture, dated
as of April 1, 1996, to Indenture,
dated as of September 22, 1995,
between the Company and The Trust
Company of New Jersey, as Trustee
**4.9 - First Supplemental Indenture, dated
as of April 1, 1996, to Indenture,
dated as of August 1, 1983, between
Company and Bankers Trust Company,
as Trustee
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS Acqui-
sition Corp., Technology Applica-
tions 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 Septem-
ber 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 Sys-
tems 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 Decem-
ber 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") [Registra-
tion Statement No. 2-70062-NY, Ex-
hibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the Com-
pany [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
[Registration Statement, File No.
33-64641]
10.12 - Lease Modification Agreement, dated
February 22, 1994, between Technol-
ogy Applications and Service Compa-
ny and Atlantic Real Estate Part-
ners 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 Tech-
nology Applications and Service
Company and Atlantic Estate Part-
ners 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 Applica-
tions 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, be-
tween 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 Cor-
poration 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, be-
tween the Company and Sammis New
Jersey Associates [Form 10-K, fis-
cal 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 end-
ed March 31, 1995, File No. 1-8533,
Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the Com-
pany [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102, dat-
ed 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 Au-
gust 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 Sep-
tember 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, dat-
ed April 1, 1992, between the Com-
pany and the Navy [Form 10-K, fis-
cal 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 Sep-
tember 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 Oc-
tober 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 Feb-
ruary 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 end-
ed 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, dat-
ed 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 De-
cember 10, 1993, under Contract No.
N00024-93-G-6336, between the Com-
pany and Westinghouse Electric Cor-
poration 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 Com-
pany and Westinghouse Electric Cor-
poration 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 Con-
tract 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 Com-
pany and Unisys Corporation Govern-
ment Systems Group [Form 10-K, fis-
cal year ended March 31, 1995, File
No. 1-8533, Exhibit 10.37]
10.39 - Contract No. N00019-90-G-0051, dat-
ed 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, dat-
ed 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 No-
vember 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 Feb-
ruary 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 Jan-
uary 29, 1993, to Contract No.
N00019-93-C-0041 [P] [Registration
Statement, File No. 33-64641]
10.47 - Modification No. P00005, dated Jan-
uary 29, 1993, to Contract No.
N00019-93-C-0041 [P] [Registration
Statement, File No. 33-64641]
10.48 - Contract No. N00019-93-C-0202, dat-
ed 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 Au-
gust 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 Au-
gust 30, 1993, to Contract No.
N00019-93-C-0202 [P] [Registration
Statement, File No. 33-64641]
10.54 - Modification No. P00006, dated Au-
gust 30, 1993, to Contract No.
N00019-93-C-0202 [P] [Registration
Statement, File No. 33-64641]
10.55 - Contract No. N00024-93-C-5204, dat-
ed November 18, 1992, between Tech-
nology 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 end-
ed March 31, 1994, File No. 1-8533,
Exhibit 10.54]
10.57 - Modification No. P00002, dated Au-
gust 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 Sep-
tember 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, dat-
ed February 17, 1994, between Tech-
nology Applications & Service Com-
pany and the Navy [Form 10-K, fis-
cal 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 Broth-
ers 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 Prod-
ucts 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 Prod-
ucts 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 Preci-
sion 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 February 14, 1995,
to Purchase Order No. CN74325, be-
tween Precision Echo and Lockheed
Aeronautical Systems Company [P]
[Registration Statement, File No.
33-64641]
10.68 - Amendment, dated April 4, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed Aero-
nautical Systems Company [P] [Reg-
istration Statement, File No. 33-
64641]
10.69 - Amendment, dated June 20, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed Aero-
nautical Systems Company [P] [Reg-
istration Statement, File No. 33-
64641]
10.70 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems Com-
pany [P] [Registration Statement,
File No. 33-64641]
10.71 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325 be-
tween Precision Echo and Lockheed
Aeronautical Systems Company [P]
[Registration Statement, File No.
33-64641]
10.72 - Contract No. N39998-94-C-2239, dat-
ed July 26, 1993, between the Com-
pany and the Navy [Form 10-K, fis-
cal year ended March 31, 1995, File
No. 1-8533, Exhibit 10.77]
10.73 - Contract No. N00019-95-C-0057, dat-
ed December 16, 1994, between Pre-
cision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.74 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between Diagnos-
tic/Retrieval Systems, Inc. and
David E. Gross [Form 10-Q, quarter
ended June 30, 1994, File No. 1-
8533, Exhibit 1]
10.75 - Stock Purchase Agreement, dated as
of July 20, 1994, between Diagnos-
tic/Retrieval Systems, Inc. and
David E. Gross [Form 10-Q, quarter
ended June 30, 1994, File No. 1-
8533, Exhibit 2]
10.76 - 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 Corpora-
tion [Form 10-Q, quarter ended De-
cember 31, 1994, File No. 1-8533,
Exhibit 1]
10.77 - Amendment to Agreement for Acquisi-
tion 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]
10.78 - Contract No. N00421-95-D-1067, dat-
ed September 30, 1995, between the
Company and the Navy [P] [Registra-
tion Statement, File No. 33-64641]
10.79 - Lease, dated August 17, 1995, be-
tween Ahead Technology, Inc. and
South San Jose Interests [Registra-
tion Statement, File No. 33-64641]
10.80 - Contract No. DAAH01-95-C-0308, dat-
ed July 21, 1995, between
Photronics Corp. and the Army [P]
[Registration Statement, File No.
33-64641]
10.81 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P. [Registration Statement,
File No. 33-64641]
10.82 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense [P] [Registra-
tion Statement, File No. 33-64641]
10.83 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense [P]
[Registration Statement, File No.
33-64641]
10.84 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.85 - Lease, dated August, 1995, by and
between OMI Acquisition Corp and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.86 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.87 - Memorandum of Lease, dated August,
1995, by and between OMI Acquisi-
tion Corp. and Fred E. Sutton and
Harold S. Sutton d/b/a Sutton Prop-
erties [Registration Statement,
File No. 33-64641]
10.88 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
[Registration Statement, File No.
33-64641]
10.89 - Schedule No. 001, dated September
1, 1995, to Master Lease between
OMI Acquisition Corp. and General
Electric Capital Corp. [Registra-
tion Statement, File No. 33-64641]
10.90 - Schedule No. 002, dated October 20,
1995, to Master Lease between OMI
Acquisition Corp. and General Elec-
tric Capital Corp. [Registration
Statement, File No. 33-64641]
10.91 - Joint Venture Agreement, dated as
of February 6, 1996, by and among
DRS/MS, Inc., Universal Sonics Cor-
poration, Ron Hadani, Howard Fidel
and Thomas S. Soulos [Registration
Statement, File No. 33-64641]
10.92 - Partnership Agreement, dated as of
February 6, 1996, by and between
DRS/MS, Inc. and Universal Sonics
Corporation [Registration State-
ment, File No. 33-64641]
10.93 - Asset Purchase Agreement, dated as
of February 9, 1996, by and among
Mag-Head Engineering Company, Inc.
and Ahead Technology Acquisition
Corporation, a subsidiary of Preci-
sion Echo, Inc. [Registration
Statement, File No. 33-64641]
10.94 - Employment, Non-Competition and
Termination Agreement, dated March
28, 1996, between the Company and
Leonard Newman [Registration State-
ment, File No. 33-64641]
11.1 - Computation of earnings (loss) per
share [Form 10-K, fiscal year ended
March 31, 1995, File No. 1-8533,
Exhibit 11]
11.2 - Computation of earnings per share
[Form 10-Q, quarter ended December
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 in-
corporated 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 Commis-
sion 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 sig-
nature page to Registration State-
ment)
25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939 [Registration Statement, File
No. 33-64641]
________________________
* To be filed upon amendment.
** Filed herewith.
(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 Con-
solidated 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 regis-
tration 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 state-
ment (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a funda-
mental change in the information set forth in the registra-
tion 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 amend-
ment 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 Com-
mission such indemnification is against public policy as ex-
pressed 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 Regis-
trant in the successful defense of any action, suit or proceed-
ing) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Regis-
trant 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 indemnifica-
tion 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 effec-
tive.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that con-
tains a form of prospectus shall be deemed to be a new Registra-
tion 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
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly autho-
rized, in The City of New York, State of New York on, May 31,
1996.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/Mark S. Newman
Mark S. Newman
Chairman of the Board, President,
and Chief Executive Officer
POWER OF ATTORNEY
Know all Men by These Presents, that each person whose name
appears below constitutes and appoints Mark S. Newman and Nancy
R. Pitek, and each of them, his true and lawful attorney-in-fact
and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capaci-
ties, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same,
with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premis-
es, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attor-
neys-in-fact and agents or any of them, or their or his substi-
tute 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 May 31, 1996
Mark S. Newman Officer, Chairman of the
Board and Director (Princi-
pal Executive Officer)
/s/Nancy R. Pitek Controller, Treasurer and May 31, 1996
Nancy R. Pitek Secretary (Principal Finan-
cial Officer and Principal
Accounting Officer)
/s/Stuart F. Platt Vice President, President May 31, 1996
Stuart F. Platt of Precision Echo and Di-
rector
/s/ Leonard Newman Director May 31, 1996
Leonard Newman
/s/Donald C. Fraser Director May 31, 1996
Donald C. Fraser
/s/Mark N. Kaplan Director May 31, 1996
Mark N. Kaplan
/s/Jack Rachleff Director May 31, 1996
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
<TABLE>
<CAPTION>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
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 (1) (2) (1) (2) Period
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 aster-
isk (*), have been previously filed and certain of the following
exhibits, designated with two asterisks (**), are filed herewith.
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 Fil-
No. ing
1.1 - Purchase Agreement, dated September
22, 1995 between the Company and
Forum Capital Markets L.P. [Regis-
tration Statement, File No. 33-
64641]
3.1 - Restated Certificate of Incorpora-
tion 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 Incorpora-
tion 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 Cer-
tificate of Incorporation of the
Company, as amended [Registration
Statement No. 2-85238, Exhibit 3.3]
3.4 - Amended and Restated Certificate of
Incorporation of the Company, as
filed April 1, 1996 [Registration
Statement, File No. 33-64641]
3.5 - 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]
3.6 - 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]
3.7 - Form of Advance Notice By-Laws of
the Company [Form 10-Q, quarter
ended December 31, 1995, File No.
1-8533, Exhibit 3]
3.8 - Amended and Restated By-Laws of the
Company, as of April 1, 1996 [Reg-
istration Statement, File No. 33-
64641]
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
[Registration Statement, File No.
33-64641]
4.2 - Form of 9% Senior Subordinated Con-
vertible Debenture Due 2003 (in-
cluded as part of Exhibit 4.1)
[Registration Statement, File No.
33-64641]
4.3 - Registration Rights Agreement, dat-
ed as of September 22, 1995 between
the Company and Forum Capital Mar-
kets L.P. [Registration Statement,
File No. 33-64641]
4.4 - Indenture, dated as of August 1,
1983, between the Company and Bank-
ers 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 In-
dustrial Development Agency, Manu-
facturers and Traders Trust Compa-
ny, as Trustee and certain bond-
holders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-
8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated De-
cember 1, 1991, among Photronics
Corp., the Company and Morgan Guar-
anty Trust Company of New York
[Form 10-K, fiscal year ended March
31, 1992, File No. 1-8533, Exhibit
4.3]
4.7 - Registration Rights Agreement, dat-
ed as of March 27, 1996, by and
between the Company and Palisade
Capital Management L.L.C., acting
as investment adviser to the ac-
counts named therein [Registration
Statement, File No. 33-64641]
4.8 - First Supplemental Indenture, dated
as of April 1, 1996, to Indenture,
dated as of September 22, 1995,
between the Company and The Trust
Company of New Jersey, as Trustee
**4.9 - First Supplemental Indenture, dated
as of April 1, 1996, to Indenture,
dated as of August 1, 1983, be-
tween Company and Bankers Trust
Company, as Trustee
**5.1 - Opinion of Skadden, Arps, Slate,
Meagher & Flom
10.1 - Stock Purchase Agreement, dated as
of August 6, 1993, among TAS Acqui-
sition Corp., Technology Applica-
tions 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 Septem-
ber 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 Sys-
tems 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 Decem-
ber 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") [Registra-
tion Statement No. 2-70062-NY, Ex-
hibit 9(b)(4)(i)]
10.7 - Lease, dated as of June 1, 1983,
between LDR Realty Co. and the Com-
pany [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
[Registration Statement, File No.
33-64641]
10.12 - Lease Modification Agreement, dated
February 22, 1994, between Technol-
ogy Applications and Service Compa-
ny and Atlantic Real Estate Part-
ners 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 Tech-
nology Applications and Service
Company and Atlantic Estate Part-
ners 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 Applica-
tions 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, be-
tween 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 Cor-
poration 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, be-
tween the Company and Sammis New
Jersey Associates [Form 10-K, fis-
cal 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 end-
ed March 31, 1995, File No. 1-8533,
Exhibit 10.19]
10.21 - 1991 Stock Option Plan of the Com-
pany [Registration Statement No.
33-42886, Exhibit 28.1]
10.22 - Contract No. N00024-92-C-6102, dat-
ed 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 Au-
gust 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 Sep-
tember 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, dat-
ed April 1, 1992, between the Com-
pany and the Navy [Form 10-K, fis-
cal 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 Sep-
tember 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 Oc-
tober 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 Feb-
ruary 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 end-
ed 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, dat-
ed 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 De-
cember 10, 1993, under Contract No.
N00024-93-G-6336, between the Com-
pany and Westinghouse Electric Cor-
poration 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 Com-
pany and Westinghouse Electric Cor-
poration 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 Con-
tract 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 Com-
pany and Unisys Corporation Govern-
ment Systems Group [Form 10-K, fis-
cal year ended March 31, 1995, File
No. 1-8533, Exhibit 10.37]
10.39 - Contract No. N00019-90-G-0051, dat-
ed 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, dat-
ed 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 No-
vember 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 Feb-
ruary 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 Jan-
uary 29, 1993, to Contract No.
N00019-93-C-0041[P] [Registration
Statement, File No. 33-64641]
10.47 - Modification No. P00005, dated Jan-
uary 29, 1993, to Contract No.
N00019-93-C-0041[P] [Registration
Statement, File No. 33-64641]
10.48 - Contract No. N00019-93-C-0202, dat-
ed 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 Au-
gust 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 Au-
gust 30, 1993, to Contract No.
N00019-93-C-0202[P] [Registration
Statement, File No. 33-64641]
10.54 - Modification No. P00006, dated Au-
gust 30, 1993, to Contract No.
N00019-93-C-0202[P] [Registration
Statement, File No. 33-64641]
10.55 - Contract No. N00024-93-C-5204, dat-
ed November 18, 1992, between Tech-
nology 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 end-
ed March 31, 1994, File No. 1-8533,
Exhibit 10.54]
10.57 - Modification No. P00002, dated Au-
gust 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 Sep-
tember 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, dat-
ed February 17, 1994, between Tech-
nology Applications & Service Com-
pany and the Navy [Form 10-K, fis-
cal 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 Broth-
ers 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 Prod-
ucts 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 Prod-
ucts 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 Preci-
sion 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 February 14, 1995,
to Purchase Order No. CN74325, be-
tween Precision Echo and Lockheed
Aeronautical Systems Company [P]
[Registration Statement, File No.
33-64641]
10.68 - Amendment, dated April 4, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed Aero-
nautical Systems Company [P] [Reg-
istration Statement, File No. 33-
64641]
10.69 - Amendment, dated June 20, 1995, to
Purchase Order No. CN74325, between
Precision Echo and Lockheed Aero-
nautical Systems Company [P] [Reg-
istration Statement, File No. 33-
64641]
10.70 - Amendment, dated September 28,
1995, to Purchase Order No.
CN74325, between Precision Echo and
Lockheed Aeronautical Systems Com-
pany [P] [Registration Statement,
File No. 33-64641]
10.71 - Amendment, dated November 7, 1995,
to Purchase Order No. CN74325, be-
tween Precision Echo and Lockheed
Aeronautical Systems Company [P]
[Registration Statement, File No.
33-64641]
10.72 - Contract No. N39998-94-C-2239, dat-
ed July 26, 1993, between the Com-
pany and the Navy [Form 10-K, fis-
cal year ended March 31, 1995, File
No. 1-8533, Exhibit 10.77]
10.73 - Contract No. N00019-95-C-0057, dat-
ed December 16, 1994, between Pre-
cision Echo, Inc. and Naval Air
Systems Command [Form 10-K, fiscal
year ended March 31, 1995, File No.
1-8533, Exhibit 10.78]
10.74 - Employment, Non-Competition and
Termination Agreement, dated July
20, 1994, between Diagnos-
tic/Retrieval Systems, Inc. and
David E. Gross [Form 10-Q, quarter
ended June 30, 1994, File No. 1-
8533, Exhibit 1]
10.75 - Stock Purchase Agreement, dated as
of July 20, 1994, between Diagnos-
tic/Retrieval Systems, Inc. and
David E. Gross [Form 10-Q, quarter
ended June 30, 1994, File No. 1-
8533, Exhibit 2]
10.76 - 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 Corpora-
tion [Form 10-Q, quarter ended De-
cember 31, 1994, File No. 1-8533,
Exhibit 1]
10.77 - Amendment to Agreement for Acquisi-
tion 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]
10.78 - Contract No. N00421-95-D-1067, dat-
ed September 30, 1995, between the
Company and the Navy [P] [Registra-
tion Statement, File No. 33-64641]
10.79 - Lease, dated August 17, 1995, be-
tween Ahead Technology, Inc. and
South San Jose Interests [Registra-
tion Statement, File No. 33-64641]
10.80 - Contract No. DAAH01-95-C-0308, dat-
ed July 21, 1995, between
Photronics Corp. and the Army [P]
[Registration Statement, File No.
33-64641]
10.81 - Lease, dated May 25, 1995, between
Technology Applications and Service
Company and Sports Arena Village,
Ltd., L.P. [Registration Statement,
File No. 33-64641]
10.82 - Contract No. 2025, dated December
20, 1993, between Opto Mechanik,
Inc. and the Government of Israel,
Ministry of Defense[P] [Registra-
tion Statement, File No. 33-64641]
10.83 - Amendment to Contract No. 2025,
dated August 31, 1995 between Opto
Mechanik, Inc. and the Government
of Israel, Ministry of Defense [P]
[Registration Statement, File No.
33-64641]
10.84 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.85 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.86 - Lease, dated August, 1995, by and
between OMI Acquisition Corp. and
Fred E. Sutton and Harold S. Sutton
d/b/a Sutton Properties [Registra-
tion Statement, File No. 33-64641]
10.87 - Memorandum of Lease, dated August,
1995, by and between OMI Acquisi-
tion Corp. and Fred E. Sutton and
Harold S. Sutton d/b/a Sutton Prop-
erties [Registration Statement,
File No. 33-64641]
10.88 - Master Lease, dated August 31,
1995, between OMI Acquisition Corp.
and General Electric Capital Corp.
[Registration Statement, File No.
33-64641]
10.89 - Schedule No. 001, dated September
1, 1995, to Master Lease between
OMI Acquisition Corp. and General
Electric Capital Corp [Registration
Statement, File No. 33-64641]
10.90 - Schedule No. 002, dated October 20,
1995, to Master Lease between OMI
Acquisition Corp. and General Elec-
tric Capital Corp. [Registration
Statement, File No. 33-64641]
10.91 - Joint Venture Agreement, dated as
of February 6, 1996, by and among
DRS/MS, Inc., Universal Sonics Cor-
poration, Ron Hadani, Howard Fidel
and Thomas S. Soulos [Registration
Statement, File No. 33-64641]
10.92 - Partnership Agreement, dated as of
February 6, 1996, by and between
DRS/MS, Inc. and Universal Sonics
Corporation [Registration State-
ment, File No. 33-64641]
10.93 - Asset Purchase Agreement, dated as
of February 9, 1996, by and among
Mag-Head Engineering, Company, Inc.
and Ahead Technology Acquisition
Corporation, a subsidiary of Preci-
sion Echo, Inc. [Registration
Statement, File No. 33-64641]
10.94 - Employment, Non-Competition and
Termination Agreement, dated March
28, 1996, between the Company and
Leonard Newman [Registration State-
ment, File No. 33-64641]
11.1 - Computation of earnings per share
[Form 10-K, Amendment No. 1, July
5, 1995, File No. 1-8533, Exhibit
11]
11.2 - Computation of earnings per share
[Form 10-Q, quarter ended December
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 in-
corporated 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 Commis-
sion 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 sig-
nature page to Registration State-
ment)
25.1 - Form T-1 Statement of Eligibility
and Qualification of the Trustee
under the Trust Indenture Act of
1939 [Registration Statement, File
No. 33-64641]
___________________
* To be filed.
** Filed herewith.
EXHIBIT 4.9
FIRST SUPPLEMENTAL INDENTURE, dated as of April
1, 1996 between Diagnostic/Retrieval Systems, Inc., a
Delaware corporation (the "Company"), and Bankers Trust
Company, a New York banking corporation, as trustee (the
"Trustee").
WHEREAS, the Company heretofore executed and
delivered to the Trustee an Indenture dated as of August
1, 1983 (the "Original Indenture" and, as it may be
amended or supplemented from time to time by one or more
indentures supplemental thereto entered into pursuant to
the applicable provisions thereof, the "Indenture"),
providing for the issuance of the Company's 81/2% Convert-
ible Subordinated Debentures due August 1, 1998 (the
"Debentures");
WHEREAS, on March 26, 1996, the stockholders of
the Company approved, effective as of April 1, 1996, the
reclassification (the "Reclassification") of each share
of Class A Common Stock, par value $.01 per share, and
each share of Class B Common Stock, par value $.01 per
share, into one share of a new single class of common
stock, par value $.01 per share;
WHEREAS, Section 11.11 of the Original Inden-
ture provides that in the event of any reclassification
of Class B Common Stock, the Company shall enter into a
supplemental indenture in accordance with the terms of
such Section 11.11; and
WHEREAS, the Conversion Price set forth in
Section 11.01 of the Original Indenture has not been
changed or adjusted pursuant to the Reclassification as
confirmed in the Officers' Certificate dated May 10,
1996.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDEN-
TURE WITNESSETH, that, for and in consideration of the
promises, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all holders of Deben-
tures, as follows:
ARTICLE ONE
Amendment to Original Indenture
SECTION 1.1.
(a) The definition of the defined term "Class
A Common Stock" that appears in Article 1., Section 1.01
of the Indenture is hereby deleted.
(b) The definition of the defined term "Class
B Common Stock" that appears in Article 1., Section 1.01
of the Indenture is hereby deleted.
(c) The definition of the defined term "Common
Stock" that appears in Article 1., Section 1.01 of the
Indenture is hereby amended in its entirety to read:
"Common Stock" means the Common Stock, par
value $.01 per share, of the Company, as presently desig-
nated, or shares of any class or classes of Capital Stock
resulting from any reclassification or reclassifications
thereof, or any successor class of common equity into
which such common stock may hereafter be converted.
(d) Any and all references in the Indenture to
"Class A Common Stock" and "Class B Common Stock" shall
be read as referring to "Common Stock".
SECTION 1.2 The Holder of each outstanding
Debenture shall have the right to convert such Debenture
into the same amount of shares of Common Stock at the
same Conversion Price upon the Reclassification as such
Debenture would have been convertible into with respect
to the Company's Class B Common Stock immediately prior
to such Reclassification.
ARTICLE TWO
Miscellaneous
SECTION 2.1 Instruments to be Read Together.
This First Supplemental Indenture is an indenture supple-
mental to and in implementation of the Original Inden-
ture, and the Original Indenture and this First Supple-
mental Indenture shall henceforth be read together.
SECTION 2.2 Confirmation. The Original
Indenture as amended and supplemented by this First
Supplemental Indenture is in all respects confirmed and
preserved.
SECTION 2.3 Terms Defined. Capitalized
terms used in this First Supplemental Indenture and not
otherwise defined herein shall have the respective mean-
ings set forth in the Original Indenture.
SECTION 2.4 Headings. The headings of the
Articles and Sections of this First Supplemental Inden-
ture have been inserted for convenience of reference
only, and are not to be considered a part hereof and
shall in no way modify or restrict any of the terms and
provisions hereof.
SECTION 2.5 Governing Law. The laws of the
State of New York shall govern this First Supplemental
Indenture, without regard to the conflicts of laws provi-
sions thereof.
SECTION 2.6 Counterparts. This First Sup-
plemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed
to be an original, but all such counterparts shall to-
gether constitute but one and the same instrument.
SECTION 2.7 Effectiveness. The provisions
of this First Supplemental Indenture will take effect
immediately upon its execution and delivery by the Trust-
ee in accordance with the provisions of Section 10.01 and
10.06 of the Indenture.
IN WITNESS WHEREOF, the parties hereto have
caused this First Supplemental Indenture to be duly
executed, all as of the date first written above.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Attest:
By: /s/ Nancy R. Pitek By: /s/Mark S. Newman
Name: Nancy R. Pitek Name: Mark S. Newman
Title: Controller, Title: Chief Executive
Treasurer and Officer and President
Secretary
BANKERS TRUST COMPANY
By: /s/ Christopher J. Browne
Name: Christopher J. Browne
Title: Assistant Treasurer
Exhibit 5.1
May 31, 1996
Diagnostic/Retrieval Systems, Inc.
5 Sylvan Way
Parsippany, New Jersey 07054
Re: Diagnostic/Retrieval Systems, Inc.
Registration on Form S-1
Ladies and Gentlemen:
We are acting as special counsel to
Diagnostic/Retrieval Systems, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a
registration statement on Form S-1 (the "Registration
Statement"). The Registration Statement relates to the
registration by the Company under the Securities Act of 1933,
as amended (the "1933 Act"), of up to 885,924 shares (the
"Shares") of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), being offered thereunder by the
Selling Stockholders named therein.
This opinion is delivered in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the
1933 Act.
In connection with this opinion, we have examined
and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following:
(i) the Registration Statement as filed with the Securities
and Exchange Commission (the "Commission") on May 30, 1996
under the 1933 Act; (ii) a specimen certificate representing
the Common Stock; (iii) the Restated Certificate of
Incorporation of the Company and the Amended and Restated By-
Laws of the Company, as presently in effect; and (iv) certain
resolutions of the Board of Directors of the Company relating
to, among other things, the original issuance of the Shares.
We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of
the Company and such agreements, certificates of public
officials, certificates of officers or other representatives
of the Company and others, and such other documents,
certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal
capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us
as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. As to any
facts material to the opinions expressed herein which we have
not independently established or verified, we have relied
upon oral or written statements and representations of
officers and other representatives of the Company and others.
Mark N. Kaplan, a partner of our firm, is a
director of the Company and owner of 1,000 shares of the
Common Stock of the Company.
Members of our firm are admitted to the bar in the
State of Delaware, and we express no opinion as to the laws
of any other jurisdiction.
Based upon and subject to the foregoing, we are of
the opinion that the issuance of the Shares has been duly
authorized and the Shares have been validly issued and are
fully paid and nonassessable.
We hereby consent to the filing of this opinion
with the Commission as Exhibit 5 to the Registration
Statement. We also consent to the reference to our firm
under the caption "Legal Matters" in the prospectus which
constitutes a part of the Registration Statement. In giving
this consent, we do not thereby admit that we are included in
the category of persons whose consent is required under
Section 7 of the 1933 Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom
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 con-
solidated 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 "Select-
ed Consolidated Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 31, 1996
