Registration No. 33-64641
As filed with the Securities and Exchange Commission on February 7, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-1
ON FORM S-3
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 LLP
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 Post-Effective
Amendment No. 2 to this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. |_|
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, other than securities offered only in connection
with dividend or interest reinvestment plans, please 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. |_|
--------------------------
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 Post-Effective Amendment No. 2 to this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Post-Effective Amendment No. 2 to
this 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-3
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; Business
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Plan of Distribution
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Selling Security Holders
8. Plan of Distribution............................ Outside Front Cover Page;
Plan of Distribution
9. Description of Securities to be Registered...... Description of the Deben-
tures; Description of
Capital Stock
10. Interests of Named Experts and Counsel.......... Legal Matters
11. Material Changes................................ Not Applicable
12. Incorporation of Certain Information by
Reference....................................... Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on Indem-
nification for Securities Act Liabilities....... Not Applicable
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED FEBRUARY 7, 1997
PROSPECTUS
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.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
$25,000,000 9% Senior Subordinated Convertible Debentures Due 2003
------------------
This Prospectus relates to $25,000,000 aggregate principal amount
of 9% Senior Subordinated Convertible Debentures Due 2003 (the
"Debentures") of Diagnostic/Retrieval Systems, Inc. (the "Company"), and
the shares of Common Stock (as defined herein) of the Company which are
issuable from time to time upon conversion of the Debentures. The
Debentures or Common Stock issued upon conversion may be offered from
time to time for the account of holders of the Debentures named herein
(the "Selling Security Holders"). The Debentures were originally issued
by the Company on September 29, 1995 in a private placement (including
the over-allotment option for $5,000,000 aggregate principal amount of
the Debentures which was exercised on November 3, 1995) (the "Debenture
Offering"). The Company will not receive any proceeds from this
offering. On March 26, 1996, the stockholders of the Company approved
the reclassification (the "Reclassification") of each share of the
Company's Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), and each share of the Company's Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), into one share of
the Company's new single class of common stock, par value $.01 per share
(the "Common Stock"). The Reclassification became effective on April 1,
1996.
Interest on the Debentures is payable semi-annually on April 1
and October 1 of each year, commencing April 1, 1996. The Debentures are
convertible at any time prior to maturity, unless previously redeemed or
repurchased, into shares of Common Stock of the Company, at a conversion
price of $8.85 per share, subject to adjustment under certain
circumstances. Prior to this offering there has not been any public
market for the Debentures. The Debentures are eligible for trading in
the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") Market. The Debentures and the shares of Common Stock which
are issuable upon conversion of the Debentures are listed on the
American Stock Exchange (the "AMEX"). The Company has been advised by
Forum Capital Markets L.P. (the "Initial Purchaser") that it intends to
make a market in the Debentures. The Initial Purchaser is, however,
under no obligation to do so and may discontinue any such market making
activity at any time without notice. There can be no assurance that a
secondary market in the Debentures will develop or be maintained. The
Company's Common Stock is listed on the AMEX under the symbol "DRS." On
February 4, 1997, the last reported sale price of the Common Stock on
the AMEX was $11 1/4 per share.
The Debentures are unsecured and subordinate to all Senior
Indebtedness (as defined herein) and are effectively subordinated to all
obligations of the subsidiaries of the Company. The Indenture (as
defined herein) governing the Debentures provides that the Company will
not (i) issue or incur any Debt (other than Senior Indebtedness or
Capitalized Lease Obligations) unless such Debt is subordinate in right
of payment to the Debentures at least to the same extent that the
Debentures are subordinate to Senior Indebtedness or (ii) permit any of
its subsidiaries to issue or incur any Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) unless such Debt provides
that it will be subordinate in right of payment to distributions and
dividends from such subsidiary to the Company in an amount sufficient to
satisfy the Company's obligations under the Debentures at least to the
same extent that the Debentures are subordinate to Senior Indebtedness.
At September 30, 1996, Senior Indebtedness (excluding current
installments) was approximately $2.5 million and the indebtedness
(excluding liability for income taxes) of the Company's subsidiaries was
approximately $19.3 million. The Debentures will mature on October 1,
2003. The Company may not redeem the Debentures prior to October 1,
1998. On or after such date, the Company may redeem the Debentures, in
whole or in part, at the redemption prices set forth herein plus accrued
but unpaid interest to the date of redemption. Upon a Change of Control
(as defined herein), the Company will offer to repurchase the Debentures
at 100% of the principal amount thereof plus accrued but unpaid interest
to the date of repurchase. In addition, upon a Net Worth Deficiency (as
defined herein), the Company will offer to repurchase up to 10% of the
aggregate principal amount of Debentures at 100% of the principal amount
thereof plus accrued but unpaid interest to the date of repurchase. See
"Description of the Debentures."
------------------
See "Risk Factors" beginning on page 7 of this Prospectus for
information that should be considered by prospective investors.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Company has been advised by the Selling Security Holders that
the Selling Security Holders, acting as principals for their own
account, directly, through agents designated from time to time, or
through dealers or underwriters also to be designated, may sell all or a
portion of the Debentures or shares of Common Stock offered hereby from
time to time on terms to be determined at the time of sale. To the
extent required, the aggregate principal amount of the Debentures or the
number of shares of Common Stock to be sold, the names of the Selling
Security Holders, the purchase price, the name of any such agent, dealer
or underwriter and any applicable commissions with respect to a
particular offer will be set forth in an accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the
Registration Statement of which this Prospectus is a part. The aggregate
proceeds to the Selling Security Holders from the sale of Debentures and
Common Stock offered by the Selling Security Holders hereby will be the
purchase price of such Debentures or Common Stock less any commissions.
For information concerning indemnification arrangements between the
Company and the Selling Security Holders, see "Plan of Distribution."
The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Debentures or shares of Common Stock may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in which event any commissions
received by such broker-dealers, agents or underwriters and any profit
on the resale of the Debentures or shares of Common Stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
------------------
The date of this Prospectus is , 1997
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "SEC") . Such reports and other
information filed by the Company with the SEC in accordance with the
Exchange Act may be inspected, without charge, at the Public Reference
Section of the SEC located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of all
or any portion of the material may be obtained from the Public Reference
Section of the SEC upon payment of the prescribed fees. Materials can
also be inspected at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006, the exchange on which the Debentures and the
Company's Common Stock is listed.
The Company is required, pursuant to the terms of the Indenture
under which the Debentures were issued, to deliver to the Trustee and
the holders of the Debentures, within 15 days after the Company has
filed the same with the SEC, copies of the annual reports and
information, documents and other reports which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act.
The Company has filed with the SEC a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act, with
respect to the Debentures and 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 information 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, the Debentures 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 complete, each statement being qualified in all
respects by such reference. Copies of all or any part of the
Registration Statement, including exhibits thereto, may be obtained,
upon payment of the prescribed fees, at the offices of the SEC as set
forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under
the Exchange Act with the SEC and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996.
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996.
3. The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
4. The description of the Common Stock of the Company set forth
as Item 1 under caption "Description of Registrant's Securities to be
Registered" in the Company's Registration Statement on Form 8-A, filed
pursuant to Section 12(b) of the Exchange Act.
All documents filed by the Company subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act and prior to termination of the Registration Statement of which this
Prospectus is a part shall be deemed to be incorporated by reference in
this Prospectus and shall be part hereof from the date of filing of such
document.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus or in any other
subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered,
upon their written or oral request, a copy of any or all of the
documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by
reference in such documents). Written requests for such copies should be
addressed to Patricia Williamson, Corporate Communications,
Diagnostic/Retrieval Systems, Inc., 5 Sylvan Way, Parsippany, New Jersey
07054, telephone number 201-898-1500.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless the context otherwise requires, all references herein
to the "Company" include Diagnostic/Retrieval Systems, Inc. and its
consolidated subsidiaries.
The Company
Diagnostic/Retrieval Systems,Inc. ("DRS" or the "Company")
designs, manufactures and markets high-technology computer workstations
for the United States (the "U.S.") Department of Defense,
electro-optical targeting systems for military customers and image and
data storage products for both military and commercial customers. In
response to a 1992 mandate by the Joint Chiefs of Staff, the Company
focuses on "commercial-off-the-shelf" ("COTS") product designs, whereby
commercial electronic components are adapted, upgraded and "ruggedized"
for application in harsh military environments. The Company believes
that the nature of modern warfare has changed, dictating increasing
reliance on real-time, accurate battlefield information derived from
increasingly sophisticated defense systems and electronics.
Additionally, the nature of military procurement programs has changed,
requiring suppliers to become more efficient and adaptable to current
and future market needs.
In recent 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:
o designing new products and adapting existing products for
use by all branches of the military;
o transferring technologies developed in the defense sector to
commercial and industrial markets; and
o acquiring businesses that will further strengthen and
complement the technology, product and market reach in the
electronic systems, data storage systems and electro-optical
systems segments of the marketplaces targeted by the
Company.
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 Corporation) and Northrop-
Grumman (formerly 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, 1996, the Company had revenues of $101.5 million, net earnings
of $4.1 million and fully diluted earnings per share of $.69,
representing increases of 45.2%, 57.6% and 38.0%, respectively, compared
with the year ended March 31, 1995. For the six months ended September
30, 1996 the Company had revenues of $60.9 million, net earnings of $2.5
million and fully diluted earnings per share of $.38, representing
increases of 51.9%, 60.2% and 35.7%, respectively, compared with the
same six-month period ended September 30, 1995.
The Offering
Debentures Offered.................. $25,000,000 principal amount of
Senior Subordinated Convertible
Debentures Due 2003.
Maturity Date....................... October 1, 2003
Interest Payment Dates.............. April 1 and October 1
Interest............................ 9.0% per annum
Conversion.......................... Convertible into Common Stock at
any time prior to maturity, unless
previously redeemed or repurchased,
at a conversion price of $8.85 per
share, subject to adjustment in
certain circumstances.
Redemption at the Option of
the Company....................... Redeemable at the option of the
Company, in whole or in part at any
time on or after October 1, 1998,
upon not less than 30 nor more than
60 days' notice, at the redemption
prices set forth herein plus
accrued but unpaid interest to the
date of redemption. See
"Description of the Debentures --
Redemption."
Redemption at the Option of
the Holders........................ Upon a Change of Control (as
defined herein), the Company will
offer to repurchase the Debentures
at 100% of the principal amount
thereof plus accrued but unpaid
interest to the date of
repurchase. See "Description of
the Debentures -- Change of Con-
trol."
In the event the Company's
Consolidated Net Worth (as defined
herein) at the end of any two
consecutive fiscal quarters is
below $18.0 million (a "Net Worth
Deficiency"), the Company will
offer to repurchase up to 10% of
the aggregate principal amount of
Debentures at 100% of the principal
amount thereof plus accrued but
unpaid interest to the date of
repurchase. See "Description of
the Debentures -- Maintenance of
Consolidated Net Worth."
Ranking............................. The Debentures are subordinated to
all Senior Indebtedness (as
defined herein) and will be
effectively subordinated to all
obligations of the subsidiaries of
the Company. The Indenture (as
defined herein) governing the
Debentures provides that the
Company will not (i) issue or incur
any Debt (other than Senior
Indebtedness or Capitalized Lease
Obligations) unless such Debt
(other than Senior Indebtedness or
Capitalized Lease Obligations) is
subordinate in right of payment to
the Debentures at least to the same
extent that the Debentures are
subordinate to Senior Indebt-
edness or (ii) permit any of its
subsidiaries to issue or incur any
Debt (other than Senior
Indebtedness or Capitalized Lease
Obligations) unless such Debt
(other than Senior Indebtedness or
Capitalized Lease Obligations)
provides that it will be
subordinate in right of payment to
distributions and dividends from
such subsidiary to the Company in
an amount sufficient to satisfy
the Company's obligations under the
Debentures at least to the same
extent that the Debentures are
subordinate to Senior
Indebtedness. At September 30,
1996, Senior Indebtedness
(excluding current installments)
was approximately $2.5 million and
the indebtedness (excluding
liability for income taxes) of the
Company's subsidiaries was approxi-
mately $19.3 million. See
"Description of the Debentures --
Ranking."
Registration Rights................. Pursuant to a registration rights
agreement (the "Registration Rights
Agreement") between the Company
and the Initial Purchaser, the
Company has agreed to file a shelf
registration statement (the "Shelf
Registration Statement") relating
to the Debentures and the shares of
Common Stock which are issuable
from time to time upon conversion
of the Debentures. The Company has
agreed to use its reasonable best
efforts to maintain the
effectiveness of the Shelf
Registration Statement until the
third anniversary of the issuance
of the Debentures, except that it
will be permitted to suspend the
use of the Shelf Registration
Statement during certain periods
under certain circumstances.
Upon default by the Company with
respect to certain of its
obligations under the Regis-
tration Rights Agreement,
liquidated damages will be payable
on the Debentures and Common Stock
affected by such default. See
"Description of the Debentures --
Registration Rights; Liquidated
Damages."
Restrictive Covenants............... The indenture under which the
Debentures were issued (the
"Indenture") limits (i) the
issuance of additional debt by the
Company, (ii) the payment of
dividends on the capital stock of
the Company and investments by the
Company, (iii) certain transactions
with affiliates, (iv) incurrence of
liens, (v) issuance of preferred
stock by the Company or its
subsidiaries, (vi) stock splits,
consolidations and
reclassifications and (vii) sales
of assets and subsidiary stock.
The Indenture also prohibits
certain restrictions on distri-
butions from subsidiaries.
However, all these limitations
and prohibitions are subject to a
number of important
qualifications. See "Description
of the Debentures -- Certain
Covenants of the Company."
Use of Proceeds..................... The Company will not receive any
proceeds from the sale of the
Debentures or shares of Common
Stock offered pursuant to this
Prospectus. The Selling Security
Holders will receive all of the net
proceeds from any sale of the
Debentures or shares of Common
Stock offered hereby. See "Use of
Proceeds" and "Selling Security
Holders."
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors
before purchasing the Debentures offered hereby.
Amount and Risks of Government Business
Substantially all the Company's revenues are derived from
contracts or subcontracts with domestic and foreign government agencies
of which a significant portion is attributed to United States Navy (the
"U.S. Navy") procurements. The development and success of the Company's
business in the future will depend upon the continued willingness of the
U.S. Government to commit substantial resources to such U.S. Navy
programs and, in particular, upon continued purchases of the Company's
products. See "Business -- Company Organization and Products."
The Company's business with the U.S. Government is subject to
various risks, including termination of contracts at the convenience of
the U.S. Government; termination, reduction or modification of contracts
or subcontracts in the event of changes in the U.S. Government's
requirements or budgetary constraints; shifts in spending priorities;
and when the Company is a subcontractor, the failure or inability of the
prime contractor to perform its prime contract. Certain contract costs
and fees are subject to adjustment as a result of audits by government
agencies. In addition, all defense businesses are subject to risks
associated with the frequent need to bid on programs in advance of
design completion (which may result in unforeseen technological
difficulties and/or cost overruns).
Multi-year U.S. Government contracts and related orders are
subject to cancellation if funds for contract performance for any
subsequent year become unavailable. In addition, if certain technical or
other program requirements are not met in the developmental phases of
the contract, then the follow-on production phase may not be realized.
Upon termination other than for a contractor's default, the contractor
normally is entitled to reimbursement for allowable costs, but not
necessarily all costs, and to an allowance for the proportionate share
of fees or earnings for the work completed. Foreign defense contracts
generally contain comparable provisions relating to termination at the
convenience of the foreign government. See "Business -- Contracts."
Reduced Spending in Defense Industry
Reductions in U.S. Government expenditures for defense products
are likely to continue during the 1990's. These reductions may or may
not have an effect on the Company's programs; however, in the event
expenditures for products of the type manufactured by the Company are
reduced and not offset by greater foreign sales or other new programs or
products, there will be a reduction in the volume of contracts or
subcontracts awarded to the Company. Unless offset, such reductions
would adversely affect the Company's earnings.
Limited Term of Contracts
The Company's contracts with the U.S. Government are for varying
fixed terms, and there can be no assurance that a renewal or follow-on
contract will be awarded to the Company by the U.S. Government upon the
expiration of any such contract. Certain of the Company's U.S.
Government contracts account for a substantial portion of the Company's
revenues (i.e., the AN/UYQ-65 production contract). The loss of revenue
resulting from the failure to obtain a renewal or follow-on contract
with respect to any significant contract or a number of lesser
contracts, in either case without the substitution of revenues from the
award of new contracts, would have a material adverse effect upon the
Company's results of operations and financial position. In addition,
from time to time the Company enters into U.S. Government contracts with
a full funded backlog but in which the price per unit may not be
determined at the time of award. If the price per unit which is
ultimately determined is significantly less than anticipated by the
Company, the net revenues of the Company would be adversely affected.
Holding Company Structure; Subordination
The Debentures are a direct obligation of DRS, which derives a
majority of its revenues from the operations of its subsidiaries. The
ability of DRS to make interest payments on or redeem the Debentures and
to pay dividends, if any, on the Common Stock will be primarily
dependent upon the receipt of dividends or other distributions from such
subsidiaries. The payment of dividends from the subsidiaries to the
Company and the payment of any interest on or the repayment of any
principal of any loans or advances made by the Company to any of its
subsidiaries may be subject to statutory or contractual restrictions and
are contingent upon the earnings of such subsidiaries. Although the
Company believes that distributions and dividends from its subsidiaries
will be sufficient to pay interest on the Debentures as well as to meet
the Company's other obligations, there can be no assurance they will be
sufficient.
The Debentures are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, including all
indebtedness under the Company's credit agreements. By reason of such
subordination, in the event of an insolvency, liquidation or other
reorganization of the Company, the Senior Indebtedness must be paid in
full before the principal of, premium if any, and interest on the
Debentures may be paid. At September 30, 1996, Senior Indebtedness
(excluding current installments) was approximately $2.5 million. Because
a majority of the Company's operations are conducted through
subsidiaries, claims of the creditors of such subsidiaries will have
priority with respect to the assets and earnings of such subsidiaries
over the claims of the creditors of the Company, including holders of
the Debentures, even though such obligations do not constitute Senior
Indebtedness, except to the extent the Company is itself recognized as a
creditor of such subsidiary or such other creditors have agreed to
subordinate their claims to the payment of the Debentures. The Company's
subsidiaries had indebtedness (excluding liability for income taxes) of
approximately $19.3 million at September 30, 1996.
The Debentures are not secured by any of the assets of the Company
or its subsidiaries. In addition, certain obligations of the Company are
secured by pledges of certain assets of the Company or its subsidiaries.
Substantial Indebtedness
Following the issuance of the Debentures, the Company continues to
have indebtedness that is substantial in relation to its stockholders'
equity. The Indenture imposes significant operating and financial
restrictions on the Company. Such restrictions will affect, and in many
respects significantly limit or prohibit, among other things, the
ability of the Company to incur additional indebtedness and pay
dividends. These restrictions, in combination with the leveraged nature
of the Company, could limit the ability of the Company to effect future
financings or otherwise may restrict corporate activities. See
"Description of the Debentures." The Indenture permits the Company to
incur additional indebtedness under certain conditions, and the Company
expects to obtain additional indebtedness as so permitted.
The Company's high degree of leverage could have important
consequences to the holders of the Debentures, including the
following: (i) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired in the future; (ii) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for other purposes;
(iii) the Company's substantial degree of leverage may hinder its
ability to adjust rapidly to changing market conditions; and (iv) could
make it more vulnerable in the event of a downturn in general economic
conditions or its business. See "Description of the Debentures."
Competition
The military electronics industry is characterized by rapid
technological change. The Company's products are sold in markets
containing many competitors which are substantially larger than the
Company, devote substantially greater resources to research and
development and generally have greater resources. Certain of such
competitors are also suppliers to the Company. In the military sector,
the Company competes with many first-and second-tier defense
contractors on the basis of product performance, cost, overall value,
delivery and reputation. The Company's future success will depend in
large part upon its ability to improve existing product lines and to
develop new products and technologies in the same or related fields. The
introduction by competitors of new products with greater capabilities
could adversely affect the Company's business.
Reliance on Suppliers
The Company's manufacturing process for its products, excluding
electro-optical products, consists primarily of the assembly of
purchased components and testing of the product at various stages in the
assembly process.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers are
the Company's sole source of certain components. If a supplier should
cease to deliver such components, other sources probably would be
available; however, added cost and manufacturing delays might result.
The Company has not experienced significant production delays
attributable to supply shortages, but occasionally experiences
procurement problems with respect to certain components, such as
semiconductors and connectors. In addition, with respect to the
Company's electro-optical products, certain exotic materials, such as
germanium, zinc sulfide and cobalt, may not always be readily available.
Attracting and Retaining Technical Personnel
There is a continuing demand for qualified technical personnel,
and the Company believes that its future growth and success will depend
upon its ability to attract, train and retain such personnel. An
inability to maintain a sufficient number of trained personnel could
have a material adverse effect on the Company's contract performance or
on its ability to capitalize on market opportunities.
Funding of Repurchase Obligations; Absence of Sinking Fund
There is no sinking fund with respect to the Debentures, and at
maturity the entire outstanding principal amount thereof will become due
and payable by the Company. Also, upon the occurrence of certain events
the Company will be required to offer to repurchase all or a portion of
the outstanding Debentures. The source of funds for any such payment at
maturity or earlier repurchase will be the Company's available cash or
cash generated from operating or other sources, including, without
limitation, borrowings or sales of assets or equity securities of the
Company. There can be no assurance that sufficient funds will be
available at the time of any such event to pay such principal or to make
any required repurchase. See "Description of the Debentures."
Shares Eligible for Future Sale
The sale, or availability for sale, of substantial amounts of
Common Stock in the public market could adversely affect the prevailing
market price of the Debentures and the Common Stock into which the
Debentures are convertible and could impair the Company's ability to
raise additional capital through the sale of its securities. The
Debentures offered hereby are convertible at any time prior to maturity,
unless previously redeemed or repurchased, into shares of Common Stock,
at a conversion price of $8.85 per share, subject to adjustment under
certain circumstances. As of February 4, 1997, there was an aggregate of
5,584,093 shares of Common Stock outstanding (excluding 420,893 shares
held in treasury). Of such shares, 1,038,403 are "restricted" under the
Securities Act and are resalable pursuant to the limitations of Rule 144
under the Securities Act. After giving effect to the application of $5.0
million in net proceeds acquired by the Company pursuant to the
Debenture Offering to repurchase approximately $5.0 million in principal
amount of the Company's 8-1/2% Convertible Subordinated Debentures due
August 1, 1998 (the "1998 Debentures"), the remaining outstanding 1998
Debentures will be convertible into an additional 332,800 shares of
Common Stock at $15 per share.
Lack of Public Market; Restrictions on Resale
At present, the Debentures are owned by a small number of
institutional investors, and prior to this offering there has not been
any public market for the Debentures. The Debentures and the shares of
Common Stock which are issuable upon conversion of the Debentures are
listed on the AMEX. The Debentures are eligible for trading in the
PORTAL Market of the National Association of Securities Dealers, Inc.
There can be no assurance regarding the future development of a market
for the Debentures or the ability of holders of the Debentures to sell
their Debentures or the price at which such holders may be able to sell
their Debentures. If such a market were to develop, the Debentures could
trade at prices that may be higher or lower than the initial offering
price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities.
The Initial Purchaser has advised the Company that it currently intends
to make a market in the Debentures. The Initial Purchaser is not
obligated to do so, however, and any market-making with respect to the
Debentures may be discontinued at any time without notice. Therefore,
there can be no assurance as to the liquidity of any trading market for
the Debentures or that an active public market for the Debentures will
develop.
The Common Stock of the Company is listed on the AMEX. The market
for the Common Stock has 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.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Debentures or shares of Common Stock offered pursuant to this
Prospectus. The Selling Security Holders will receive all of the net
proceeds from any sale of the Debentures or shares of Common Stock
offered hereby.
BUSINESS
General
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.
The Company is organized into three operating groups: Electronic
Systems Group ("ESG," 47.2% of fiscal 1996 revenues), Electro-Optical
Systems Group ("EOSG," 21.8% of fiscal 1996 revenues) and Media
Technology Group ("MTG,"31.0% of fiscal 1996 revenues). See "Business --
Company Organization and Products."
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 the nature of modern warfare has changed, dictating increasing
reliance on real-time, accurate battlefield information derived from
increasingly sophisticated defense systems and electronics.
Additionally, the nature of military procurement programs has changed,
requiring suppliers to become more efficient and adaptable to current
and future market needs.
Using COTS designs, the Company develops and delivers its products
with significantly less development time and expense compared to
traditional military product cycles, generally resulting in shorter lead
times, lower costs and the employment of the latest information and
computing technologies. The COTS process entails the purchasing,
refitting, upgrading (of both hardware and software) and "ruggedization"
(repackaging, remounting and stress testing to withstand harsh military
environments) of readily available commercial components. The design and
manufacture of COTS-based products is a complex process requiring
specific engineering capabilities, extensive knowledge of military
platforms to which the equipment will be applied and in-depth
understanding of military operating environments and requirements.
Strategy
In recent 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:
o designing new products and adapting existing products for
use by all branches of the military;
o transferring technologies developed in the defense sector to
commercial and industrial markets; and
o acquiring businesses that will further strengthen and
complement the technology, product and market reach in the
electronic systems, data storage systems and electro-optical
systems segments of the marketplaces targeted by the
Company.
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 Corporation) and Northrop-
Grumman (formerly, 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, 1996, the Company had revenues of $101.5 million, net earnings
of $4.1 million and fully diluted earnings per share of $.69, representing
increases of 45.2%, 57.6% and 38.0%, respectively, compared with the year ended
March 31, 1995. For the six months ended September 30, 1996, the Company
had revenues of $60.9 million, net earnings of $2.5 million and fully
diluted earnings per share of $.38, representing increases of 51.9%,
60.2% and 35.7%, respectively, compared with the same six-month period
ended September 30, 1995.
Acquisitions. In October 1993 the Company acquired Technology
Applications & Service Company ("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
Technologies ("Laurel"), then primarily an assembler of wire harness
products for aerospace customers. The addition of Laurel has provided
the Company with the opportunity to consolidate manufacturing operations
at ESG and enables the Company to solicit and bid effectively for
long-term system development and manufacturing contracts.
The Company acquired CMC Technology ("CMC") in December 1993 and
Ahead Technology Corporation ("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 of Opto Mechanik, Inc., which now
constitute OMI Corp. ("OMI"). This acquisition enables EOSG to expand
its electro-optical targeting products and manufacturing activities in a
lower cost manufacturing facility while adding backlog in complementary
product areas.
In February 1996, the Company acquired substantially all of the
assets of Mag-Head Engineering Company, Inc. ("MEC"), a manufacturer of
audio and flight recorder heads. This acquisition provides the Company
with an established manufacturing capability in the area of magnetic
recorder heads and, when coupled with CMC and Ahead, allows the Company
to apply its expertise in high-technology recorder head products in
select commercial markets.
In June 1996, the Company acquired substantially all of the assets
of Vikron, Inc. ("Vikron") through a subsidiary of the Company. Located
in St. Croix Falls, Wisconsin, Vikron is a leading manufacturer of
magnetic data and recording heads that write and retrieve data from
various magnetic media, such as magnetic cards, tapes and ink. It also
produces audio heads for cassette tape duplication, heads for airline
ticketing card readers, automated teller machines and security access
monitors, broadcast heads for radio stations, digital data tape heads
for computer hard disk back-up and other archival applications.
Vikron complements the Company's existing capabilities in the
defense and commercial magnetic recording systems market.
In October 1996, the Company acquired certain assets of Nortronics
Company, Inc. ("Nortronics") through a subsidiary of DRS. Located near
Minneapolis, Minnesota, Nortronics is a manufacturer of magnetic data
recording heads that write and retrieve data from various data storage
media, such as cards with magnetic strips and magnetic tapes and ink.
Its products include specialty heads for magnetic strip card readers
used in airline ticketing, automated teller machines, security access
systems, fare and toll collection, credit cards, airplane phones,
vending machines and currency validation devices. Nortronics also
produces tape heads utilized in cockpit flight data recorders, broadcast
audio heads, cassette duplication equipment, medical monitors used in
cardiology and in computer hard disk back-up applications. Nortronics is
a strategic component in the growth the Company seeks in the specialty
magnetic tape head business area.
Pacific Technologies, Inc. ("PTI") was also acquired in October
1996, through a merger with and into a subsidiary of the Company.
Located in San Diego, California, PTI provides software, engineering and
systems support to the U.S. Navy for the testing of shipboard combat
systems. For over 10 years, PTI has developed a wide range of simulation
software for the acceptance and validation testing of planned upgrades
for combat systems on board the Navy's surface ships.
In furtherance of its strategic plan, in February 1996, the
Company acquired a 90% interest in DRS Medical Systems, a partnership
formed to develop, manufacture and market medical ultrasound and
sonographic imaging equipment. The DRS Medical Systems partnership
provides a means for the Company to apply its expertise in sonar and
image processing technology to related commercial applications.
Strategic Relationships. The Company has established relationships
with other defense suppliers such as Lockheed-Martin Tactical Defense
Systems (formerly, Loral Corporation) and Northrop-Grumman (formerly,
Westinghouse Electric Corporation), among others. The Company acts as a
subcontractor to these major contractors and may also engage in other
development work with such contractors. This enables the Company to
diversify its program base and increase its opportunities to participate
in larger military procurement programs.
Adaptable Product Designs. The Company's recent focus has been on
the design and development of products that can be used by all branches
of the military. This enables the Company to increase revenues, reduce
product costs and decrease reliance on U.S. Navy procurement programs.
The Company's display systems, originally designed under a U.S. Navy
development contract, are open architecture information processing
workstations that can be applied for use in other branches of the
military. Similarly, the Company's boresight products, originally
designed for use with the U.S. Army's Apache attack helicopter, were
specifically designed to be adaptable to other air, sea or land-based
weapons platforms. The boresight system has been successfully applied to
the U.S. Marine Corps' Cobra helicopter and to the U.S. Air Force's
AC-130 Spectre gunship platforms; recently, proposals have been
submitted for its use on F-15 fixed-wing platforms.
Cost Reduction Programs. The Company continues to focus on
streamlining its operations and, during fiscal 1996, the Company
consolidated several of its manufacturing facilities.
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. The use of COTS
designs entails the purchasing, refitting, upgrading and "ruggedization"
(repackaging, remounting and stress testing to withstand harsh military
environments) of available commercial components. The Company strives to
apply COTS designs to most of its new products. Management believes that
the adaptation of available commercial components to existing as well as
to new military systems and applications offers two primary advantages
over traditional military systems development and procurement cycles:
(i) it has the potential to save significant amounts of time and
expenditures in the area of research and development and (ii) as
commercial product development and production cycles become shorter than
their military equivalents, the adaptation of commercial technology to
battlefield systems has the potential to shorten military product
cycles. As a result of some of these advantages, the use of COTS
computer hardware and software that can be integrated in common (open
architecture) applications and systems was mandated by the Joint Chiefs
of Staff in 1992.
Market Overview
The Company believes that the market for military electronics and
related equipment will be influenced by two primary factors:
First, the nature of modern warfare dictates increasing reliance
on timely and accurate battlefield information to ensure that
increasingly costly assets are efficiently deployed and to minimize
destruction of non-military targets. In general, military engagements
have evolved from large-scale undertakings, where numerical superiority
was the key to dominance, to "surgical strikes" where the ability to
observe and strike accurately and at will from afar has become a major
means of both deterrence and loss minimization. Advanced technology has
been a major factor enabling the increasing precision strike capability
of the U.S. military and has increased the "per shot" cost of arms.
These factors combine to produce a military, economic and political
environment requiring increased weapons efficiency and accuracy. In
addition, real time data is needed for in-theatre evaluation, damage
assessment and training, as well as to reduce and minimize incidents of
U.S. casualties due to friendly fire.
Second, it is often more cost-effective to refit and upgrade
existing weapons platforms than to replace them. With the development
and unit costs of new platforms increasing rapidly amid a political and
economic environment demanding decreasing overall military expenditures,
Congress and the military have delayed or canceled the implementation of
many proposed weapons systems, opting instead to improve the
performance, and extend the life, of existing weapons through improved
battlefield intelligence and equipment enhancements. This increasing
focus on cost efficiencies has manifested itself in the military's COTS
program.
Industry Consolidation
As the size of the overall defense industry has decreased in
recent years, there has been an increase in the number of consolidations
and mergers of defense suppliers and this trend is expected to continue.
As the industry consolidates, the large (first-tier) defense contractors
are narrowing their supplier base and awarding increasing portions of
projects to strategic second-and third-tier suppliers, and in the
process becoming oriented more toward system integration and assembly.
As an example of the changing nature of supplier relationships,
Photronics Corp. has been awarded increasing content in the infrared
detector assemblies of several missile systems by its prime contractors.
In 1988, Photronics Corp. supplied only the primary mirror for these
systems. Photronics Corp. now supplies the primary, secondary, tertiary
and fold mirrors, as well as the housing and nose domes for the
missiles, and is working directly with these prime contractors on the
electro-optical assemblies for the next generation missiles.
Company Organization and Products
The Company is organized into three operating groups: Electronic
Systems Group ("ESG," 47.2% of fiscal 1996 revenues), Electro-Optical
Systems Group ("EOSG," 21.8% of fiscal 1996 revenues) and Media
Technology Group ("MTG," 31.0% of fiscal 1996 revenues).
Electronic Systems Group ("ESG")
ESG consists of DRS Military Systems ("Military Systems"), located
in Oakland, New Jersey, TAS, located in Gaithersburg, Maryland, Laurel,
located in Johnstown, Pennsylvania, DRS Medical Systems, located in
Mahwah, New Jersey, and PTI, located in San Diego, California. Also,
under the direction of TAS is Technical Services Division ("TSD"),
located in Norfolk, Virginia and San Diego, California.
Military Systems designs, manufactures and markets signal
processors and display workstations which are installed on naval ships
for antisubmarine warfare (ASW) purposes and in land-based surveillance
systems used for underwater surveillance of harbors and coastal
locations. These workstations receive signals from a variety of
sonar-type sensors, processing the information and arranging it in a
display format enabling operators to quickly interpret the data and
inform command personnel of potential threats. Major product lines and
contracts include:
o AN/UYQ-65: The AN/UYQ-65 is the first COTS-based tactical
workstation to be qualified by the U.S. Navy and was
designed to comply with the stringent requirements of the
Aegis (DDG-51) shipbuilding program. Replacing the sensor
displays in the SQQ-89 ASW Combat Suite, it employs dual
processors enabling simultaneous I/O and graphics
processing. This new approach allows for required high
bandwidth processing while maintaining response times for
operator/machine interfaces. The system architecture can
be adapted to meet various interface, cooling, memory,
storage and processing requirements. See "Risk Factors --
Limited Term of Contracts."
o AN/SQR-17A(V)3: These Mobile In-Shore Undersea Warfare
(MIUW) systems are deployed in land-based vans, utilizing
sonobuoys and anchored passive detectors for harbor defense,
coastal defense and amphibious operations surveillance, as
well as to enhance drug interdiction efforts. This system is
currently being procured for utilization in 22 field
installations. Military Systems is under contract to provide
various upgrades to these field installations.
o AN/SQQ-TIA: These are portable training systems used onboard
MIUW vans to simulate actual sonar signal processing sets
currently used by the U.S. Navy and are employed primarily
for Navy Reserve training.
o Airborne Separation Video Systems ("ASVS"): In fiscal 1996,
Military Systems was selected as the prime contractor on the
tri-service (Army, Navy and Air Force) program to develop
ASVS for the test and evaluation of weapons separation
events on board various fixed-and rotary-wing military
aircraft. The systems include an electronically-shuttered,
fast-frame, high-resolution, digital imaging camera and a
high-density, digital data storage device. Military Systems
is also incorporating a color readiness capability and is
miniaturizing the system's high-speed, electronic camera to
assure compatibility with air platforms, such as the Air
Force's F-16.
TAS produces tactical (e.g., combat/attack) information systems and
training systems. Major product lines and contracts include:
o AN/UYQ-70: The AN/UYQ-70 is an advanced, open architecture
display system designed for widespread application through
software modification, and is to be deployed on Aegis and
other surface ships, submarines and airborne platforms. This
system was developed for the U.S. Navy under subcontract
with the Government Systems Group of Loral (Unisys)
Corporation (currently, 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 production phase. Based upon the size of the naval
surface fleet and the average number of workstations to be
deployed on each ship, the Company believes that the
potential market for this workstation product may be in
excess of 5,000 units over the next decade.
o Military Display Emulators: These are workstations that are
functionally identical to existing U.S. Navy shipboard
display consoles built to military specifications, but are
manufactured using low cost COTS components suitable for
land-based laboratory environments. These Military Display
Emulators are used in U.S. Navy development, test and
training sites as plug compatible replacements for the more
expensive shipboard qualified units. The Company is
currently delivering these Military Display Emulators for
use in the Aegis and other U.S. Navy programs.
Laurel, which is 80% owned by DRS through a partnership with
Laurel Technologies, Inc., and was purchased in December 1993, functions
as a cost efficient manufacturing facility and focuses on two areas.
First, Laurel provides manufacturing and product integration services
for Military Systems, TAS and Photronics Corp., a New York corporation
and wholly owned subsidiary of DRS ("Photronics Corp."). ESG's
workstation and simulator systems, among other products, are
manufactured in this facility. In addition, in fiscal 1996, Laurel was
awarded a subcontract to manufacture AN/UYQ-70 workstations for
Lockheed-Martin Tactical Defense Systems. 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.
DRS Medical Systems is 90% owned by the Company through a
partnership with Universal Sonics Corporation and was formed to develop,
manufacture and market high-quality, low-cost medical ultrasound
equipment. DRS Medical Systems currently manufactures ultrasound and
sonographic systems principally for original equipment manufacturers.
TSD performs field service and depot level repairs for ESG
products, as well as other manufacturers' systems. Principal locations
are in close proximity to U.S. Naval yards in Norfolk, Virginia and San
Diego, California. Services including equipment and field change
installation, configuration audit, repair, testing and maintenance, are
performed for the U.S. Navy and, to a lesser extent, commercial
customers. TSD has also performed work for foreign navies including
those of Australia, the Republic of China, Egypt, Turkey and Greece.
PTI provides software, engineering and systems support to the U.S.
Navy for the testing of shipboard combat systems. PTI has also developed
a wide range of simulation software used in acceptance and validation
testing of planned upgrades for combat systems on board the Navy's
surface ships.
Media Technology Group ("MTG")
MTG consists of Precision Echo, Inc. ("PE") located in Santa
Clara, California, Ahead and CMC located in San Jose, California, MEC,
located in Golden Valley, Minnesota, Vikron, located in St. Croix Falls,
Wisconsin, and Nortronics, located in Dassel, Minnesota. PE manufactures
a variety of digital and analog recording systems utilized for military
applications including reconnaissance, ASW and other information warfare
data storage requirements, and is a predominant U.S. manufacturer of 8
millimeter military recorders supplied to the U.S. armed forces. PE's
products include:
o AN/USH-42: This system was originally developed for
deployment in the U.S. Navy's A-6E attack aircraft. PE is
currently under contract to modify the USH-42 for use on the
Navy's S-3B ASW aircraft to record radar, infrared, bus,
navigation and voice data. These recorders provide a
high-resolution video record of mission data, operators'
displays and external imagery.
o WRR-818: This ruggedized video recorder has been selected
for use in U.S. F/A-18 aircraft and several foreign military
aircraft. It has also been selected by the U.S. Army for use
in its Kiowa warrior reconnaissance helicopters. A similar
recorder, the WRR-812, has been adapted for use in the
Canadian Army's light armored reconnaissance vehicles.
o 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 most major computer disk drive manufacturers.
CMC manufactures and refurbishes commercial video recording
products for broadcasters operating worldwide. CMC can refurbish
pre-1993 head assemblies located on these machines at a significant cost
savings compared to replacement. CMC is developing, in conjunction with
Ahead, the ability to refurbish post-1993 recorders used by its customer
base. Ahead also has the capability to manufacture recording heads for
CMC. In order to foster operational synergies and to allow space for
growth, Ahead and CMC moved into a new joint facility in fiscal 1996.
MEC designs, manufactures and refurbishes magnetic broadcast audio
heads, magnetic flight recorder heads and magnetic strip card readers
for the U.S. Government, defense and commercial markets.
Vikron manufacturers magnetic data and recording heads that write
and retrieve data from various magnetic media, such as magnetic cards,
tapes and ink. It also produces audio heads for cassette duplication,
heads for airline ticketing card readers, automated teller machines and
security access monitors, broadcast heads for radio stations, digital
tape heads for computer hard disk back-up and other archival
applications. Products are sold in the defense and commercial magnetic
recording systems market.
Nortronics is a manufacturer of magnetic data recording heads that
write and retrieve data from various data storage media, such as cards
with magnetic strips and magnetic tapes and ink. Its products include
specialty heads for magnetic strip card readers used in airline
ticketing, automated teller machines, security access systems, fare and
toll collection, credit cards, airplane phones, vending machines and
currency validation devices. Nortronics also produces tape heads
utilized in cockpit flight data recorders, broadcast audio heads,
cassette tape duplication equipment, medical monitors used in cardiology
and in computer hard disk back-up applications.
Electro-Optical Systems Group ("EOSG")
EOSG consists of Photronics Corp. located in Hauppauge, New York
and OMI located in Palm Bay, Florida.
Photronics Corp. produces boresighting equipment used to align and
harmonize the navigation, targeting and weapons systems on rotary-and
fixed-wing aircraft and armored vehicles. Multiple Platform Boresighting
Equipment ("MPBE") is Photronics Corp.'s main product line. These
products can be used on both rotary-and fixed-wing aircraft, as well as
on armored vehicles. MPBE currently is used on the Army's Apache
helicopters and Apache Longbow helicopters, the Marine Corps' Cobra
helicopters and on the Air Force's AC-130 Spectre gunship, the Company's
first award for this equipment involving fixed-wing aircraft. Proposals
have been submitted to employ the system on the F-15 fighter. This
technology is proprietary to the Company.
Until the latter part of fiscal 1996, Photronics Corp. also
produced electro-optical components used in Sidewinder, Stinger and new
generation air-to-air and surface-to-air missiles in its Hauppauge
facility. In order to reduce its production costs, Photronics Corp.
consolidated its missile component manufacturing operations to OMI's new
facility in Palm Bay, Florida. In addition, the move created space for
the expansion of Photronics Corp.'s MPBE programs in Hauppauge.
OMI designs and manufactures electro-optical targeting and
sighting systems and missile components. Major product programs at OMI
include:
o Night Vision Binoculars: OMI is currently under contract to
develop and manufacture 1,182 units for the Israeli
military. The Night Vision Binocular is a hand-held viewing
binocular that incorporates an image intensifier tube, laser
rangefinder and digital compass in a compact lightweight
system suited for infantry units, special forces and night
operations involving forward observers and reconnaissance
patrols. The Night Vision Binocular displays range and
asimuth data in soldier's eyepieces, allowing identification
of targets and providing essential fire support data for
nighttime engagement. These units have a range of 20 to
2,000 meters.
o 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.
o 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 antitank weapon
system.
o TOW Traversing Unit: This unit provides target tracking
accuracy for the TOW antitank weapon, acting as the mount
for the TOW Optical Sight and the missile launch tube. OMI
is currently the only qualified manufacturer of this tightly
toleranced assembly, and is currently working on
modification and retrofit programs. OMI has also been
contracted to modify a version for use by an overseas
customer.
o Improved TOW Acquisition System: Working with the primary
contractor for the TOW sighting system, this antitank system
was developed for the U.S. Army's HMVE vehicle.
o Day/Night Tank Sighting System: This system was developed in
concert with a major primary contractor. OMI is a major
subcontractor, currently supplying three of the major
assemblies.
o 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.
o Missile Components: The components originally consisted of
primary mirrors used in the nose mounted infrared seeker of
Sidewinder and Stinger missiles. Development efforts have
resulted in the ability to provide increased content to
include the secondary, tertiary and fold mirrors, housing
and nose dome. The Company is currently under contract to
produce infrared components and subassemblies on many of the
next-generation infrared missile systems.
Customers
A significant portion of the Company's products are sold to
agencies of the U.S. Government, primarily the Department of Defense, to
foreign government agencies or to prime contractors or subcontractors
thereof. Approximately 78%, 84% and 94% of total consolidated revenues
for fiscal 1996, 1995 and 1994, 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,
1996 1995 1994
------------ ------------- ------------
Government Products:
U.S. Government..... $120,000,000 $115,200,000 $123,700,000
Foreign Government.. 21,200,000 8,600,000 5,800,000
-------------- ------------- -------------
141,200,000 123,800,000 129,500,000
Commercial Products..... 4,400,000 2,200,000 5,100,000
----------- ------------ ------------
$145,600,000 $126,000,000 $134,600,000
============ ============ ============
Approximately 60% of the backlog at March 31, 1996 is expected to
result in revenues during the fiscal year ending March 31, 1997.
At March 31, 1996, the Company's backlog of orders was
approximately $145.6 million compared to $126.0 million at March 31,
1995. The increase in backlog for the fiscal year was due to the net
effect of bookings, partially offset by revenues, and the addition of
approximately $17 million of backlog from the OMI asset acquisition. New
contract awards of approximately $104.3 million were booked during the
fiscal year ended March 31, 1996.
"Backlog" refers to the aggregate revenues remaining to be earned
at the specified date under contracts held by the Company, including,
for U.S. Government contracts, the extent of the funded amounts
thereunder which have been appropriated by Congress and allotted to the
contract by the procuring Government agency. Fluctuations in backlog
amounts relate principally to the timing and amount of Government
contract awards.
Research and Development
The military electronics industry is subject to rapid
technological changes and the Company's future success will depend in
large part upon its ability to improve existing product lines and to
develop new products and technologies in the same or related fields.
Thus, the Company's technological expertise has been an important factor
in its growth. A portion of its research and development activities has
taken place in connection with customer-sponsored research and
development contracts. All such customer-sponsored activities are the
result of contracts directly or indirectly with the U.S. Government. The
Company also invests in Company-sponsored research and development. Such
expenditures were $600,000, $800,000 and $500,000 for fiscal 1996, 1995
and 1994, respectively. Revenues recorded by the Company for
customer-sponsored research and development were $12,100,000,
$18,800,000 and $27,500,000 for fiscal 1996, 1995 and 1994,
respectively.
Contracts
The Company's contracts are normally for production, service or
development. Production and service contracts are typically of the
fixed-price variety with development contracts currently of the
cost-type variety. Because of their inherent uncertainties and
consequent cost overruns, development contracts historically have been
less profitable than production contracts.
Fixed-price contracts may provide for a firm-fixed price or they
may be fixed-price-incentive contracts. Under the firm-fixed-price
contracts, the Company agrees to perform for an agreed-upon price and,
accordingly, derives benefits from cost savings, but bears the entire
risk of cost overruns. Under the fixed-price-incentive contracts, if
actual costs incurred in the performance of the contracts are less than
estimated costs for the contracts, the savings are apportioned between
the customer and the Company. However, if actual costs under such a
contract exceed estimated costs, excess costs are apportioned between
the customer and the Company up to a ceiling. The Company bears all
costs that exceed the ceiling.
Cost-type contracts typically provide for reimbursement of
allowable costs incurred plus a fee (profit). Unlike fixed-price
contracts in which the Company is committed to deliver without regard to
performance cost, cost-type contracts normally obligate the Company to
use its best efforts to accomplish the scope of work within a specified
time and a stated contract dollar limitation. In addition, U.S.
Government procurement regulations mandate lower profits for cost-type
contracts because of the Company's reduced risk. Under
cost-plus-incentive-fee contracts, the incentive may be based on cost or
performance. When the incentive is based on cost, the contract specifies
that the Company is reimbursed for allowable incurred costs plus a fee
adjusted by a formula based on the ratio of total allowable costs to
target cost. Target cost, target fee, minimum and maximum fee and
adjustment formula are agreed upon when the contract is negotiated. In
the case of performance-based incentives, the Company is reimbursed for
allowable incurred costs plus an incentive, contingent upon meeting or
surpassing stated performance targets. The contract provides for
increases in the fee to the extent that such targets are surpassed and
for decreases to the extent that such targets are not met. In some
instances, incentive contracts also may include a combination of both
cost and performance incentives. Under cost-plus-fixed-fee contracts,
the Company is reimbursed for costs and receives a fixed fee, which is
negotiated and specified in the contract. Such fees have statutory
limits.
The percentages of revenues during fiscal 1996, 1995 and 1994
attributable to the Company's contracts by contract type were as
follows:
Year Ended March 31,
1996 1995 1994
---- ---- ----
Firm-fixed-price..... 87% 74% 65%
Fixed-price-incentive. - - 1%
Cost-plus-incentive-fee. - 6% 17%
Cost-plus-fixed-fee.. 13% 20% 17%
The increased percentage and 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 $8.7 million, $7.9 million and
$5.9 million as of March 31, 1996, 1995 and 1994, respectively, consist
of costs and related profits, if any, in excess of progress payments for
contracts on which sales are recognized on a percentage-of-completion
basis.
Under generally accepted accounting principles, all U.S.
Government contract costs, including applicable general and
administrative expenses, are charged to work-in-progress inventory and
are written off to costs and expenses as revenues are recognized. The
Federal Acquisition Regulations ("FAR"), incorporated by reference in
U.S. Government contracts, provide that Company-sponsored research and
development costs are allowable general and administrative expenses. To
the extent that general and administrative expenses are included in
inventory, research and development costs also are included. Unallowable
costs, pursuant to the FAR, have been excluded from costs accumulated on
U.S. Government contracts. Work-in-process inventory included general
and administrative costs (which include Company-sponsored research and
development costs) of $9.9 million and $6.6 million at March 31, 1996
and 1995, respectively.
All domestic defense contracts and subcontracts to which the
Company is a party are subject to audit, various profit and cost
controls, and standard provisions for termination at the convenience of
the customer. Multi-year U.S. Government contracts and related orders
are subject to cancellation if funds for contract performance for any
subsequent year become unavailable. In addition, if certain technical or
other program requirements are not met in the developmental phases of
the contract, then the follow-on production phase may not be realized.
Upon termination other than for a contractor's default, the contractor
normally is entitled to reimbursement for allowable costs, but not
necessarily all costs, and to an allowance for the proportionate share
of fees or earnings for the work completed. Foreign defense contracts
generally contain comparable provisions relating to termination at the
convenience of the foreign government.
Marketing
The Company's marketing activities are conducted by its staff of
marketing personnel and engineers. The Company's domestic marketing
approach begins with the development of information concerning the
present and future requirements of its current and potential customers
for defense electronics, as well as those in the security and commercial
communities serviced by the Company's products. Such information is
gathered in the course of contract performance, research into the
enhancement of existing systems and inquiries into advances being made
in hardware and software development, and is then evaluated and
exchanged among marketing, research and engineering groups within the
Company to devise proposals responsive to the needs of customers. The
Company markets its products abroad through independent marketing
representatives.
Competition
The military electronics defense industry is characterized by
rapid technological change. The Company's products are sold in markets
containing a number of competitors which are substantially larger than
the Company, devote substantially greater resources to research and
development and generally have greater financial resources. Certain of
such competitors are also suppliers to the Company. The extent of
competition for any single project generally varies according to the
complexity of the product and the dollar volume of the anticipated
award. The Company believes that it competes on the basis of the
performance of its products, its reputation for prompt and responsive
contract performance, and its accumulated technical knowledge and
expertise. The Company's future success will depend in large part upon
its ability to improve existing product lines and to develop new
products and technologies in the same or related fields.
In the military sector, the Company competes with many first-and
second-tier defense contractors on the basis of product performance,
cost, overall value, delivery and reputation. As the size of the overall
defense industry has decreased in recent years, there has been an
increase in the number of consolidations and mergers of defense
suppliers, and this trend is expected to continue. As the industry
consolidates, the large (first-tier) defense contractors are narrowing
their supplier base and awarding increasing portions of projects to
strategic second-and third-tier suppliers, and in the process are
becoming oriented more toward system integration and assembly.
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. Similarly, the
Company and its subsidiaries have certain registered trademarks, none of
which are considered significant to current operations.
Manufacturing and Suppliers
The Company's manufacturing process for its products, excluding
optical products, consists primarily of the assembly of purchased
components and testing of the product at various stages in the assembly
process. Purchased components include integrated circuits, circuit
boards, sheet metal fabricated into cabinets, resistors, capacitors,
semiconductors and insulated wire and cables. In addition, many of the
Company's products use machined castings and housings, motors and
recording and reproducing heads. Many of the purchased components have
been fabricated to Company designs and specifications. The manufacturing
process for the Company's optics products includes the grinding,
polishing and coating of various optical materials and machining of
metal components.
Although materials and purchased components generally are
available from a number of different suppliers, several suppliers are
the Company's sole source of certain components. If a supplier should
cease to deliver such components, other sources probably would be
available; however, added cost and manufacturing delays might result.
The Company has not experienced significant production delays
attributable to supply shortages, but occasionally experiences
procurement problems with respect to certain components, such as
semiconductors and connectors. In addition, with respect to the
Company's optical products, certain exotic materials, such as germanium,
zinc sulfide and cobalt, may not always be readily available.
Export Sales
The Company currently sells several of its products and services
in the international marketplace to countries such as Canada, Germany,
Australia and the Republic of China. Foreign sales are derived under
export licenses granted on a case-by-case basis by the United States
Department of State. The Company's foreign contracts are generally
payable in United States' dollars.
Employees
As of December 31, 1996, the Company employed 1,153 employees.
None of the Company's employees are represented by labor unions, 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,
co-founders and former executive officers of the Company, 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. MEC
operates from a 7,000 square foot leased facility in Golden Valley,
Minnesota. This lease expires in January 1997.
Vikron's principal offices and manufacturing facilities are
located in a 18,500 square foot leased facility in St. Croix Falls,
Wisconsin. Nortronics operates principally from a 20,000 square foot
leased facility in Dassel, Minnesota. Vikron's and Nortronics' leases
expire in fiscal 2000 and 2002, respectively.
Photronics Corp.'s principal 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. OMI leases
approximately 54,000 square feet in a building at 2330 Commerce Park
Drive, Palm Bay, Florida, for its operations and administration offices.
These leases expire in fiscal 2006.
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. TAS's Technical Services Division, together with
PTI, conducts field service operations from locations in Virginia Beach,
Virginia and San Diego, California. These leased facilities, comprising
15,000 square feet and 5000 square feet, respectively, are covered by
leases, which, with respect to the Virginia location, expires in fiscal
1997, and for the California location, expires in fiscal 2001.
Laurel's primary manufacturing facilities and administrative
offices are located in a 38,000 square-foot building at 423 Walters
Avenue in Johnstown, Pennsylvania. The lease for this facility expires
in fiscal 1999. DRS Medical Systems operates from an 8,400 square foot
facility in Mahwah, New Jersey, under a month-to-month lease expiring in
April 1997. The Company also leases approximately 2,000 square feet of
office space in Arlington, Virginia under a lease which expires in
fiscal 1998.
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.
DESCRIPTION OF THE DEBENTURES
The Debentures were issued under an indenture (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"), a copy of which is available upon request from the Company.
The statements under this caption address the material terms of the
Debentures but are summaries and do not purport to be complete. The
summaries make use of terms defined in the Indenture and are qualified
in their entirety by reference to the Indenture, including the
definitions therein of certain terms. Whenever reference is made to
defined terms of the Indenture and not otherwise defined herein, such
defined terms are incorporated herein by reference.
General
The Debentures are general unsecured senior subordinated
obligations of the Company, are limited to $25,000,000 aggregate
principal amount and will mature on October 1, 2003. As of February 4,
1997, $25 million aggregate principal amount of the Debentures were
outstanding. The Debentures bear interest at the rate per annum shown on
the cover page hereof from the date of original issue, or from the most
recent Interest Payment Date (as defined below) to which interest has
been paid or duly provided for, and accrued but unpaid interest will be
payable semi-annually on April 1 and October 1 of each year commencing
April 1, 1996 (each, an "Interest Payment Date"). Interest will be paid
to Debentureholders of record ("Holders") at the close of business on
the March 15 or September 15, respectively, immediately preceding the
relevant Interest Payment Date (each, a "Regular Record Date"). Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Principal of and premium, if any, and interest on the Debentures
will be payable, the transfer of the Debentures will be registrable and
the Debentures will be exchangeable at the office or agency of the
Company maintained for that purpose in Jersey City, New Jersey (which
initially will be the corporate trust office of the Trustee), except
that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holder entitled thereto as it appears
in the Debenture Register on the related record date.
The Debentures were issued in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.
No service charge will be made for any transfer or exchange of
Debentures, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection
therewith.
All monies paid by the Company to the Trustee or any Paying Agent
for the payment of principal of and premium, if any, and interest on any
Debenture which remain unclaimed for two years after such principal,
premium or interest became due and payable may be repaid to the Company.
Thereafter the Holder of such Debenture may, as an unsecured general
creditor, look only to the Company for payment thereof.
The Trustee has been appointed to act as paying agent and
registrar of the Debentures. The Company may change any paying agent and
registrar without notice.
Conversion Rights
Holders are entitled, at any time and from time to time prior to
maturity (subject to earlier redemption or repurchase, as described
below), to convert their Debentures (or any portion thereof that is an
integral multiple of $1,000), at 100% of the principal amount thereof,
into Common Stock of the Company at the conversion price set forth on
the cover page hereof, subject to adjustment under certain circumstances
as described below. After a call for redemption of Debentures, through
optional redemption or otherwise, the Debentures or portion thereof
called for redemption will be convertible if duly surrendered on or
before, but not after, the business day preceding the date fixed for
redemption in respect thereof.
The conversion price is subject to adjustment upon certain events,
including: (i) the issuance of Common Stock (including a distribution of
Common Stock held in the Company's treasury) as a dividend or
distribution on any class of Capital Stock of the Company or any
Subsidiary which is not wholly owned by the Company; (ii) a subdivision,
combination or reclassification of outstanding shares of Common Stock;
(iii) the issuance or distribution of Capital Stock of the Company or of
rights or warrants to acquire Capital Stock of the Company at less than
the Current Market Price (as defined below) on the date of issuance or
distribution (provided that the issuance of Capital Stock upon the
exercise of warrants or options will not cause an adjustment in the
conversion price if no such adjustment would have been required at the
time such warrant or option was issued); and (iv) the distribution to
the holders of any class of Capital Stock of the Company generally and
to holders of Capital Stock of any Subsidiary which is not wholly owned
by the Company of evidences of indebtedness or assets (including cash
and securities, but excluding dividends or distributions payable in
shares of Common Stock and warrants and options for which adjustment is
made as described above and further excluding cash dividends paid out of
cumulative retained earnings of the Company arising after the date of
the Indenture).
Notwithstanding the foregoing, (a) if the rights or warrants
described in clause (iii) of the preceding paragraph are exercisable
only upon the occurrence of certain triggering events, then the
conversion price will not be adjusted until such triggering events occur
and (b) if rights or warrants expire unexercised, the conversion price
shall be readjusted to take into account only the actual number of such
rights or warrants which were exercised. In addition, the provisions of
the preceding paragraph will not apply to the issuance of Common Stock
upon the exercise of the Company's outstanding stock options under the
1981 Incentive Stock Option Plan, 1981 Non-Qualified Stock Option Plan
and 1991 Stock Option Plan, unless the exercise price thereof is changed
after the date of the Indenture (other than solely by operation of the
anti-dilution provisions thereof), or the issuance of Common Stock upon
the conversion of currently outstanding 1998 Debentures, unless the
conversion price thereof is changed after the date of the Indenture
(other than solely by operation of the anti-dilution provisions
thereof).
No adjustment will be made to the conversion price until
cumulative adjustments to the conversion price amount to at least 1% of
the conversion price, as last adjusted. Except as stated above, the
conversion price will not be adjusted for the issuance of Common Stock,
or any securities convertible into or exchangeable for Common Stock or
carrying the right to purchase any of the foregoing, or the payment of
dividends on the Common Stock.
Fractional shares of Common Stock will not be issued upon
conversion. A person otherwise entitled to a fractional share of Common
Stock upon conversion shall receive cash equal to the equivalent
fraction of the Current Market Price of a share of Common Stock on the
business day prior to conversion. The Company from time to time may, to
the extent permitted by law, reduce the conversion price by any amount
for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such reduction to each Holder, if the Board
of Directors of the Company has made a determination that such reduction
would be in the best interests of the Company, which determination shall
be conclusive. The Company is entitled to make such reductions in the
conversion price as it may in its discretion determine to be advisable
in order that any stock dividend, subdivision of shares, distribution of
rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock shall not be taxable to its
stockholders. If at any time the Company makes a distribution of
property to its stockholders which would be taxable to such stockholders
as a dividend for federal income tax purposes (e.g., distribution of
evidence of indebtedness or assets of the Company, but generally not
stock dividends or rights to subscribe for Common Stock) and, pursuant
to the anti-dilution provisions of the Indenture, the conversion price
of the Debentures is reduced or the conversion price of the Debentures
is reduced other than in connection with certain anti-dilution
adjustments, such a reduction may be considered as resulting in the
distribution of a dividend to Holders for federal income tax purposes.
A Holder who surrenders a Debenture (or portion thereof) for
conversion between the close of business on a Regular Record Date and
the next Interest Payment Date will receive interest on such Interest
Payment Date with respect to such Debenture (or portion thereof) so
converted through such Interest Payment Date. Subject to such payments
in the event of conversion after the close of business on a Regular
Record Date, no payment or adjustment shall be made upon any conversion
on account of any interest accrued but unpaid on the Debentures
surrendered for conversion.
Subject to any applicable right of the Holders to cause the
Company to purchase Debentures upon a Change of Control (as described
below), in case of any consolidation or merger to which the Company is a
party, other than a transaction in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation
of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with
another corporation or other entity, there will be no adjustment of the
conversion price, but each Holder will have the right thereafter to
convert such Holder's Debentures into the kind and amount of securities,
cash or other property which the Holder would have owned or have been
entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Debenture been converted
immediately prior to the effective date of such consolidation, merger,
statutory exchange, sale or conveyance. In the case of a cash merger of
the Company with another corporation or other entity or any other cash
transaction of the type mentioned above, the effect of these provisions
would be that the conversion features of the Debentures would thereafter
be limited to converting the Debentures at the conversion price then in
effect into the same amount of cash that such Holder would have received
had such Holder converted the Debentures into Common Stock immediately
prior to the effective date of such cash merger or transaction.
Depending upon the terms of such cash merger or transaction, the
aggregate amount of cash so received on conversion could be more or less
than the principal amount of the Debentures.
The Company has covenanted under the Indenture to reserve and keep
available at all times out of its authorized but unissued Common Stock,
for the purpose of effecting conversions of Debentures, the full number
of shares of Common Stock deliverable upon the conversion of all
outstanding Debentures.
Redemption
Optional Redemption by the Company. The Debentures are not
redeemable at the option of the Company prior to October 1, 1998.
Thereafter, the Debentures will be redeemable at any time prior to
maturity, at the option of the Company, in whole or from time to time in
part, upon not less than 30 days' nor more than 60 days' prior notice of
the redemption date, mailed by first class mail to each Holder's last
address as it appears in the Debenture Register, at the Redemption
Prices established for the Debentures, together with accrued but unpaid
interest, if any, to the date fixed for redemption. The Redemption
Prices for the Debentures (expressed as a percentage of the principal
amount) shall be as follows:
After October 1, Percentage
1998 105 %
1999 103.75
2000 102.50
2001 101.25
Selection of Debentures Redeemed. If less than all the Debentures
are to be redeemed, selection of the Debentures for redemption will be
made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Debentures are
listed, or, if the Debentures are not listed, on a pro rata basis by lot
or by such method that complies with applicable legal requirements and
that the Trustee considers fair and appropriate. The Trustee may select
for redemption portions of the principal of Debentures that have a
denomination larger than $1,000. Debentures and portions thereof will be
redeemed in the amount of $1,000 or integral amounts of $1,000. The
Trustee will make the selection from Debentures outstanding and not
previously called for redemption.
Change of Control
If a Change of Control occurs, the Company shall offer to
repurchase each Holder's Debentures pursuant to an offer as described
below (the "Change of Control Offer") at a purchase price equal to 100%
of the principal amount of such Holder's Debentures, plus accrued but
unpaid interest, if any, to the date of purchase. The Change of Control
purchase feature of the Debentures may in certain circumstances make
more difficult or discourage a takeover of the Company.
Under the Indenture, a "Change of Control" means the occurrence of
any of the following events: (i) any person (as the term "person" is
used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes the direct or indirect beneficial owner of shares of the
Company's Capital Stock representing greater than 50% of the total
voting power of all shares of Capital Stock of the Company entitled to
vote in the election of directors under ordinary circumstances; (ii) the
Company sells, transfers or otherwise disposes of all or substantially
all of the assets of the Company; or (iii) during any period of two
consecutive years (or, in the case this event occurs within the first
two years after the date of issue of the Debentures, such shorter period
as shall have commenced on the date of original issue), Continuing
Directors cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
Within 30 days after any Change of Control, unless the Company has
previously mailed a notice of optional redemption by the Company of all
of the Debentures, the Company shall mail a notice of the Change of
Control Offer to each Holder by first class mail at such Holder's last
address as it appears on the Debenture Register stating: (i) that a
Change of Control has occurred and that the Company is offering to
repurchase all of such Holder's Debentures; (ii) the circumstances and
relevant facts regarding such Change of Control (including, but not
limited to, information with respect to pro forma income, cash flow and
capitalization of the Company after giving effect to such Change of
Control); (iii) the repurchase price; (iv) the expiration date of the
Change of Control Offer, which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed; (v) the date
such purchase shall be effected, which shall be no later than 30 days
after expiration date of the Change of Control Offer; (vi) that any
Debentures not accepted for payment pursuant to the Change of Control
Offer shall continue to accrue interest; (vii) that, unless the Company
defaults in the payment of the Change of Control Payment, all Debentures
accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (viii) the
name and address of the paying agent; (ix) that Debentures must be
surrendered to the paying agent to collect the repurchase price; (x) any
other information required by applicable law to be included therein; and
(xi) the procedures determined by the Company, consistent with the
Indenture, that a Holder must follow in order to have such Debentures
repurchased.
In the event that the Company is required to make a Change of
Control Offer, the Company will comply with any applicable securities
laws and regulations, including, to the extent applicable, Section
14(e), Rule 14e-1 and any other tender offer rules under the Exchange
Act which may then be applicable in connection with any offer by the
Company to purchase Debentures at the option of the Holders thereof.
The Company, could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that
would not constitute a Change in Control under the Debentures, but that
would increase the amount of Senior Indebtedness (or any other
indebtedness) outstanding at such time. The Company's ability to create
any additional Senior Indebtedness or additional Subordinated
Indebtedness is limited as described in the Debentures and the Indenture
although, under certain circumstances, the incurrence of significant
amounts of additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the Debentures.
If a Change in Control were to occur, there can be no assurance that the
Company would have sufficient funds at the time of such event to pay the
Change in Control purchase price for all Debentures tendered by the
Holders. A default by the Company on its obligation to pay the Change in
Control purchase price could, pursuant to cross-default provisions,
result in acceleration of the payment of other indebtedness of the
Company outstanding at that time.
Certain of the Company's existing and future agreements relating
to its indebtedness could prohibit the purchase by the Company of the
Debentures pursuant to the exercise by a Holder of the foregoing option,
depending on the financial circumstances of the Company at the time any
such purchase may occur, because such purchase could cause a breach of
certain covenants contained in such agreements. Such a breach may
constitute an event of default under such indebtedness and thereby
restrict the Company's ability to purchase the Debentures. See
"--Ranking."
Maintenance of Consolidated Net Worth
The Company is required to maintain a Consolidated Net Worth of at
least $18 million. The Indenture provides that if the Company's
Consolidated Net Worth is less than $18 million at the end of any fiscal
quarter, the Company is required to furnish to the Trustee an Officer's
Certificate within 45 days after the end of such fiscal quarter (90 days
after the end of any fiscal year) notifying the Trustee that the
Company's Consolidated Net Worth has declined below $18 million. If, at
any time or from time to time, the Company's Consolidated Net Worth at
the end of each of any such two consecutive fiscal quarters (the last
day of the second fiscal quarter being referred to as a "Deficiency
Date") is less than $18 million, then the Company shall, in each such
event, no later than 50 days after each Deficiency Date (100 days if a
Deficiency Date is also the end of the Company's fiscal year), mail to
the Trustee and each Holder at such Holder's last address as it appears
on the Debenture Register a notice (the "Deficiency Notice") of the
occurrence of such deficiency, which shall include an offer by the
Company (the"Deficiency Offer") to repurchase Debentures as described
below. The Deficiency Notice shall state: (i) that a deficiency has
occurred; (ii) that the Company is offering to repurchase 10% of the
aggregate principal amount of Debentures originally issued (or such
lesser amount as may be outstanding at the time of the Deficiency
Notice) (the "Deficiency Repurchase Amount"); (iii) that the repurchase
price shall be 100% of the principal amount of the Debentures
repurchased plus accrued but unpaid interest, if any, to the date of
purchase; (iv) the expiration date of the Deficiency Offer, which shall
be no earlier than 30 days nor later than 45 days after the date such
notice is mailed; (v) the date such purchase shall be effected, which
shall be no later than 20 days after expiration date of the Deficiency
Offer; (vi) that Debentures not accepted for payment pursuant to the
Deficiency Offer shall continue to accrue interest; (vii) that, unless
the Company defaults in payment of the Deficiency Repurchase Amount, all
Debentures accepted for payment pursuant to the Deficiency Offer shall
cease to accrue interest after the Deficiency Payment Date; (viii) that
if any Debenture is repurchased in part, a new Debenture or Debentures
in principal amount equal to the unrepurchased portion will be issued;
(ix) the name and address of the paying agent; (x) that Debentures to be
repurchased must be surrendered to the paying agent to collect the
repurchase price; (xi) any other information required by applicable law
to be included therein; and (xii) the procedures determined by the
Company, consistent with the Indenture, that a Holder must follow in
order to have such Debentures repurchased.
The Company shall purchase the Deficiency Repurchase Amount of
Debentures or, if less than the Deficiency Repurchase Amount has been
delivered for repurchase, all Debentures delivered for repurchase in
response to the Deficiency Offer. If the aggregate principal amount of
Debentures delivered for repurchase exceeds the Deficiency Repurchase
Amount, the Company will purchase the Debentures delivered to it pro
rata (in $1,000 increments only) among the Debentures delivered based on
principal amount. The Company will comply with all applicable securities
laws and regulations in connection with each Deficiency Offer. In no
event shall the failure to meet the minimum Consolidated Net Worth
requirement set forth above at the end of any fiscal quarter be counted
toward the making of more than one Deficiency Offer.
The Company may credit against the principal amount of Debentures
to be repurchased in any Deficiency Offer 100% of the principal amount
(excluding premium) of Debentures acquired by the Company subsequent to
the Deficiency Date through purchase (otherwise than pursuant to this
provision or a Change of Control Offer), optional redemption, conversion
or exchange and surrendered for cancellation.
If a Consolidated Net Worth deficiency were to occur, there can be
no assurance that the Company would have sufficient funds at the time of
such event to purchase the Deficiency Repurchase Amount of Debentures. A
default by the Company to so purchase the Deficiency Repurchase Amount
of Debentures could, pursuant to cross-default provisions, result in
acceleration of the payment of other indebtedness of the Company
outstanding at that time.
Certain of the Company's existing and future agreements relating
to its indebtedness could prohibit the purchase by the Company of the
Debentures pursuant to the exercise by a Holder of the foregoing option,
depending on the financial circumstances of the Company at the time any
such purchase may occur, because such purchase could cause a breach of
certain covenants contained in such agreements. Such a breach may
constitute an event of default under such indebtedness and thereby
restrict the Company's ability to purchase the Debentures. See
"--Ranking."
Ranking
The payment of principal of and premium, if any, and interest on
the Debentures will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all
Senior Indebtedness (as defined below). Upon any payment or distribution
of assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshalling
of assets, whether voluntary, involuntary or in receivership,
bankruptcy, insolvency or similar proceedings, the holders of all Senior
Indebtedness will be first entitled to receive payment in full of all
amounts due or to become due thereon before any payment is made on
account of principal of and premium, if any, and interest on the
Debentures or on account of any other monetary claims under or in
respect of the Debentures, and before any distribution is made to
acquire any of the Debentures for any cash, property or securities. No
payments on account of principal of and premium, if any, and interest on
the Debentures shall be made if at the time thereof: (i) there is a
default in the payment of all or any portion of the obligations under
any Senior Indebtedness or (ii) there shall exist a default in any
covenant with respect to the Senior Indebtedness (other than as
specified in clause (i) of this sentence), and, in such event, such
default shall not have been cured or waived or shall not have ceased to
exist, the Trustee and the Company shall have received written notice
from any holder of such Senior Indebtedness stating that no payment
shall be made with respect to the Debentures and such default would
permit the maturity of such Senior Indebtedness to be accelerated,
provided that no such default will prevent any payment on, or in respect
of, the Debentures for more than 120 days unless the maturity of such
Senior Indebtedness has been accelerated.
The Holders will be subrogated to the rights of the holders of the
Senior Indebtedness to the extent of payments made on Senior
Indebtedness upon any distribution of assets in any such proceedings out
of the distributive share of the Debentures.
"Senior Indebtedness" is defined to mean the principal of and
premium, if any, and interest on (a) the Debt of the Company or any of
its Subsidiaries which is outstanding on the date of the Indenture and
has been provided by a bank that is not an Affiliate of the Company or
by any State or local government or agency thereof, (b) any Debt
incurred after the date of the Indenture by the Company or any of its
Subsidiaries which expressly states that it is senior in right of
payment to the Debentures and is provided by a bank that is not an
Affiliate of the Company, (c) any Debt, whether outstanding on the date
of the Indenture or thereafter incurred, which evidences the Company's
obligation to refund any progress payments or deposits to the United
States or any foreign government or any instrumentality thereof or any
prime contractor for any such government or instrumentality and (d)
amendments, renewals, extensions, modifications and refundings of any
such Debt, whether any such Debt described in (a), (b) or (c) is
outstanding on the date of the Indenture or thereafter created, incurred
or assumed, unless in any case, the instrument creating or evidencing
any such Debt pursuant to which the same is outstanding provides that
such Debt is not superior in right of payment to the Debentures. The
Company's ability to incur Senior Indebtedness after the date of the
Indenture is limited. See "-- Certain Covenants of the Company -
Limitation of Debt and Senior Indebtedness." Only indebtedness of the
Company that is Senior Indebtedness will rank senior to the Debentures
in accordance with the provisions of the Indenture. The Company has
agreed that it will not issue or incur any Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) unless such Debt (other
than Senior Indebtedness or Capitalized Lease Obligations) will be
subordinate in right of payment to the Debentures at least to the same
extent that the Debentures are subordinate to Senior Indebtedness. The
Company has also agreed that it will not permit any of its Subsidiaries
to issue or incur any Debt (other than Senior Indebtedness or
Capitalized Lease Obligations) unless such Debt (other than Senior
Indebtedness or Capitalized Lease Obligations) shall provide that such
Debt (other than Senior Indebtedness or Capitalized Lease Obligations)
will be subordinate in right of payment to distributions and dividends
from such Subsidiary to the Company in an amount sufficient to satisfy
the Company's obligations under the Debentures at least to the same
extent the Debentures are subordinate to Senior Indebtedness. The
Debentures are senior in right of payment to the Company's 1998
Debentures.
The Debentures are unsecured obligations of the Company, and,
accordingly, will rank pari passu with all trade debt and obligations of
the Company and its Subsidiaries that arise by operation of law or are
imposed by any judicial or governmental authority, except that any such
trade debt or other obligation may be senior in right of payment to the
Debentures to the extent the same is entitled to any security interest
arising by operation of law.
The Debentures are obligations exclusively of the Company, and the
Debentures, as a practical matter, will be effectively subordinated to
all indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of the Subsidiaries. The right of the
Company, and, therefore, the right of creditors of the Company
(including Holders) to receive assets of any such Subsidiary upon the
liquidation or reorganization of such Subsidiary or otherwise, as a
practical matter, will be effectively subordinated to the claims of such
Subsidiary's creditors, except to the extent the Company is itself
recognized as a creditor of such Subsidiary or such other creditors have
agreed to subordinate their claims to the payment of the Debentures, in
which case the claims of the Company would still be subordinate to any
secured claim on the assets of such Subsidiary and any indebtedness of
such Subsidiary senior to that held by the Company.
At September 30, 1996, Senior Indebtedness (excluding current
installments) was approximately $2.5 million and the indebtedness
(excluding liability for income taxes) of the Company's subsidiaries was
approximately $19.3 million. The Company expects that it will from time
to time incur additional indebtedness constituting Senior Indebtedness.
Certain Covenants of the Company
The Indenture contains, among others, the covenants summarized
below, which are applicable (unless waived or amended) so long as any of
the Debentures are outstanding.
Limitation on Debt and Senior Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, create, incur, assume or
directly or indirectly guarantee or in any other manner become directly
or indirectly liable for ("incur") any Debt (including Acquired Debt) or
Senior Indebtedness other than Permitted Debt (as defined); provided,
however, that the Company and, subject to the other limitations set
forth herein, its Subsidiaries may incur Debt or Senior Indebtedness if
the Debt to Operating Cash Flow Ratio of the Company and its
Subsidiaries at the time of incurrence of such Debt, after giving pro
forma effect thereto, is 6.5:1 or less; provided that any such Debt
incurred by the Company that is not Senior Indebtedness shall have a
Weighted Average Life to Maturity longer than the Weighted Average Life
to Maturity of the Debentures. Notwithstanding the foregoing, at any
time the Debt to Operating Cash Flow Ratio of the Company exceeds 6.5:1,
the Company will be permitted to incur additional Senior Indebtedness
pursuant to lines of credit for working capital of up to $5 million.
For purposes of the foregoing limitations "Permitted Debt" means
(i) Debt evidenced by the Debentures in an aggregate principal amount
not to exceed $25.0 million, (ii) Debt owed by the Company to any wholly
owned Subsidiary of the Company, (iii) Debt owed by any wholly owned
Subsidiary of the Company to the Company or any other wholly owned
Subsidiary of the Company, (iv) Debt owed to Leonard Newman pursuant to
the Newman Agreement, (v) Capitalized Lease Obligations not in excess of
an aggregate of $2 million at any one time outstanding, plus any
Capitalized Lease Obligations from an acquisition outstanding on the
date of such acquisition, (vi) performance bonds or letters of credit
incurred in the ordinary course of business or in connection with
government contracts, (vii) deferred income taxes as defined in
accordance with GAAP, (viii) Debt constituting inter-company payables or
receivables between or among the Company and its Subsidiaries incurred
in the ordinary course of business or (ix) Refinancing Debt.
A calculation of the Debt to Operating Cash Flow Ratio as required
by this covenant shall be made, in each case, for the period of four
full consecutive fiscal quarters next preceding the date on which Debt
is proposed to be incurred ("Reference Period"). In addition, for
purposes of the pro forma calculations required to be made above, (i)
(x) the amount of Debt to be incurred (plus all other Debt previously
incurred during such Reference Period), and the amount (valued at its
liquidation value and including any accrued but unpaid dividends) of
Disqualified Stock to be issued (plus all other Disqualified Stock
previously issued during such Reference Period) will be presumed to have
been incurred or issued on the first day of such Reference Period and
(y) the amount of any Debt redeemed, refinanced or repurchased with the
proceeds of the Debt referred to in clause (x) will be presumed to have
been redeemed, refinanced or repurchased on the first day of such
Reference Period, (ii) if any Asset Disposition occurred during such
Reference Period, the calculations included in the computation of the
Debt to Operating Cash Flow Ratio shall be adjusted to give effect to
such Asset Disposition on a pro forma basis as if such Asset Disposition
had occurred on the first day of such Reference Period, (iii) if an
acquisition of a business or entity occurred during such Reference
Period, the calculations included in the computation of the Debt to
Operating Cash Flow Ratio will be adjusted to give effect to such
acquisition on a pro forma basis as if such acquisition had occurred on
the first day of such Reference Period and (iv) if such new Debt is
being incurred in connection with an acquisition, no pro forma effect
will be given to negative operating cash flow or losses attributable to
the assets or business so acquired.
Limitation on Additional Debt After Default. The Company will not,
and will not permit any of its Subsidiaries to, incur any additional
Debt (other than Permitted Debt) or Senior Indebtedness following the
occurrence of an Event of Default (as defined below) unless such Event
of Default (and all other Events of Default then pending) is cured or
waived.
Limitation on Preferred Stock. The Company will not, and will not
permit any of its Subsidiaries to, issue any shares of Disqualified
Stock.
Limitation on Dividend Restrictions Affecting Subsidiaries. The
Company may not, and may not permit any of its Subsidiaries to, create
or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Subsidiary
of the Company to (a) pay to the Company dividends or make to the
Company any other distribution on its Capital Stock, (b) pay any Debt
owed to the Company or any of its Subsidiaries, (c) make loans or
advances to the Company or any of the Company's Subsidiaries or (d)
transfer any of its property or assets to the Company or any of its
Subsidiaries, other than such encumbrances or restrictions existing or
created under or by reason of (i) applicable law, (ii) the Indenture,
(iii) covenants or restrictions contained in any instrument governing
Debt of the Company or any of its Subsidiaries existing on the date of
the Indenture, (iv) customary provisions restricting subletting,
assignment and transfer of any lease governing a leasehold interest of
the Company or any of its Subsidiaries or in any license or other
agreement entered into in the ordinary course of business, (v) any
agreement governing Debt of a person acquired by the Company or any of
its Subsidiaries in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrances or restrictions
are not applicable to any person, or the property or assets of any
person, other than the person, or the property or assets of the person
so acquired, (vi) any restriction with respect to a Subsidiary imposed
pursuant to an agreement entered into in accordance with the terms of
the Indenture for the sale or disposition of Capital Stock or property
or assets of such Subsidiary, pending the closing of such sale or
disposition, (vii) with respect to any Subsidiary, the terms of any
contract with the United States or any foreign government or any
instrumentality thereof or any prime contractor for any such contract
pertaining to retention of funds by such Subsidiary equivalent to any
progress payments or deposits made pursuant to such contract or (viii)
any Refinancing Debt; provided, however, that the encumbrances or
restrictions contained in the agreements governing any such Refinancing
Debt shall be no more restrictive than the encumbrances or restrictions
set forth in the agreements governing the Debt being refinanced as in
effect on the date of the Indenture.
Limitation on Liens. The Company will not, and will not permit any
of its Subsidiaries, directly or indirectly, to create, incur, assume or
permit to exist any Lien (other than Permitted Liens) upon or with
respect to any of the Property of the Company or any such Subsidiary,
whether owned on the date of the Indenture or thereafter acquired, or on
any income or profits therefrom, to secure any Debt which is pari passu
with or subordinate in right of payment to the Debentures.
Limitation on Restricted Payments and Investments. The Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, (i) declare or pay any distribution or dividend on or in
respect of any class of its Capital Stock (except dividends or
distributions payable by wholly owned Subsidiaries of the Company and
dividends or distributions payable in Qualified Stock of the Company or
in options, warrants or other rights to purchase Qualified Stock of the
Company); (ii) purchase, repurchase, prepay, redeem, defease or
otherwise acquire or retire for value (other than in Qualified Stock of
the Company or in options, warrants or other rights to purchase
Qualified Stock of the Company) any Capital Stock in the Company or any
of its Subsidiaries (other than a wholly owned Subsidiary of the
Company); (iii) make or permit any Subsidiary to make an Investment
(other than Permitted Investments) in any of its or their Affiliates or
any Related Person, or any payment on a guaranty of any obligation of
any of its or their Affiliates or any Related Person (other than (a) of
any wholly owned Subsidiary or (b) of any other Subsidiary in an amount
equal to the amount of the obligation with respect to which such
guaranty relates multiplied by the fraction whose numerator is the
ownership percentage of such Subsidiary by the Company and its wholly
owned Subsidiaries and whose denominator is 100%); or (iv) repay,
prepay, redeem, defease, retire or refinance, prior to scheduled
maturity or scheduled sinking fund payment, any other Debt which is pari
passu with, or subordinate to, the Debentures (other than (x) by the
payment of Qualified Stock of the Company or of options, warrants or
other rights to purchase Qualified Stock of the Company or (y) up to
$10.0 million aggregate principal amount of the 1998 Debentures) except,
in the case of this clause (iv), if the proceeds used for such
repayment, prepayment, redemption, defeasance, retirement or refinancing
are generated from the issuance of Refinancing Debt (any such
declaration, payment, distribution, purchase, repurchase, prepayment,
redemption, defeasance or other acquisition or retirement or Investment
referred to in clauses (i) through (iv) above being hereinafter referred
to as a "Restricted Payment"); unless at the time of and after giving
effect to a proposed Restricted Payment (the value of any such payment,
if other than cash, as determined by the Board of Directors, including
the affirmative vote of the Independent Directors, whose determination
shall be conclusive and evidenced by a board resolution) (a) no Event of
Default (and no event that, after notice or lapse of time, or both,
would become an Event of Default) shall have occurred and be continuing
and, (b) the Company could incur an additional $1.00 of Debt pursuant to
the first sentence under "Limitation on Debt and Senior Indebtedness"
above.
Limitation on Stock Splits, Consolidations and Reclassifications.
The Company will not effect a stock split, consolidation or
reclassification of any class of its Capital Stock unless (a) an
equivalent stock split, consolidation or reclassification is
simultaneously made with respect to each other class of Capital Stock of
the Company and all securities exchangeable or exercisable for or
convertible into any Capital Stock of the Company, and (b) after such
stock split, consolidation or reclassification all of the relative
voting, dividend and other rights and preferences of each class of
Capital Stock of the Company are identical to those in effect
immediately preceding such stock split, consolidation or
reclassification. Notwithstanding the foregoing, the Company may combine
its Class A Common Stock and Class B Common Stock into a single class of
Common Stock, such that the holder of each share of Class A Common Stock
or Class B Common Stock outstanding immediately prior to such
combination shall, from and after such combination, be entitled to the
same voting, dividend, liquidation and other rights and preferences with
respect to such share as every other holder of Class A Common Stock or
Class B Common Stock.
Limitation on Sales of Assets and Subsidiary Stock. The Company
will not, and will not permit any of its Subsidiaries to, make any Asset
Disposition having a fair market value or resulting in gross proceeds to
the Company or any such Subsidiary in excess of $1.0 million in any
single transaction or series of related transactions or $5.0 million in
the aggregate over the life of the Debentures, unless the Company or any
such Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (as determined by
the Board of Directors of the Company and evidenced by a board
resolution) of the interests and assets subject to such Asset
Disposition.
Transactions with Related Persons. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter
into any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets,
property or services) with (a) any beneficial owner of 20% or more of
the outstanding voting securities of the Company (as determined in
accordance with Section 13(d) of the Exchange Act) at the time of such
transaction, (b) any officer, director or employee of the Company, of
any of its Subsidiaries or of any such beneficial owner of 20% or more
of the outstanding voting securities of the Company as described in
clause (a) above or (c) any Related Person unless such transaction or
series of transactions (i) involves an amount of $250,000 or less or
(ii)(A) is on terms that are no less favorable to the Company or any
such Subsidiary, as the case may be, than would be available in a
comparable transaction with an unrelated third party and (B)(x) if such
transaction or series of related transactions involve aggregate payments
in excess of $400,000, the Company delivers an officers' certificate to
the Trustee certifying that such transaction complies with clause
(ii)(A) above and such transaction or series of transactions is approved
by a majority of the Board of Directors of the Company including the
approval of each of the Independent Directors or (y) if such transaction
or series of related transactions involve aggregate payments in excess
of $1.5 million, the Company obtains an opinion as to the fairness to
the Company or such Subsidiary from a financial point of view issued by
an investment banking firm, appraisal firm or accounting firm, in each
case of national standing. Notwithstanding the foregoing, this provision
will not apply to (i) any transaction entered into between the Company
and Subsidiaries of the Company (but excluding transactions with any
Subsidiary of which more than 20% of the outstanding voting securities
(as determined in accordance with Section 13(d) under the Exchange Act)
are beneficially owned by Persons who are (a) officers, directors or
employees of the Company, of any of its Subsidiaries or of any
beneficial owner of 20% or more of the outstanding voting securities of
the Company (as determined in accordance with Section 13(d) under the
Exchange Act) at the time of such transaction, (b) a beneficial owner of
20% or more of the outstanding voting securities of the Company (as
determined in accordance with Section 13(d) under the Exchange Act) or
(c) Related Persons), (ii) the payment of compensation and provision of
benefits to officers and employees of the Company and loans and advances
to such officers and employees in the ordinary course of business, or
any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise (including the grant of stock options or similar
rights to officers, employees and directors of the Company or any
Subsidiary) pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans or other benefit plans approved
by the Independent Directors, (iii) the Newman Agreement and the Gross
Agreement and (iv) transactions with any Person who is a director of the
Company or of any of its Subsidiaries and, who is not (a) the beneficial
owner of 20% or more of the outstanding voting securities of the Company
(as determined in accordance with Section 13(d) under the Exchange Act)
or (b) an officer or employee of the Company, of any of its Subsidiaries
or of any such beneficial owner of 20% or more of the outstanding voting
securities of the Company at the time of such transaction.
Limitation of Payments to Affiliates after Default. The Company
shall not enter into any transaction with any Person who is an officer
or director of the Company, or of any of its Subsidiaries, or of any
beneficial owner of 20% or more of the outstanding voting securities of
the Company (as determined in accordance with Section 13(d) under the
Exchange Act) at the time of such transaction (but excluding the Persons
identified below) unless it is provided that the Company's monetary
obligations with respect thereto are subordinate in right of payment to
the Debentures at least to the same extent as the Debentures are
subordinate to Senior Indebtedness. The Company shall not permit any of
its Subsidiaries to enter into any transaction with any Person who is an
officer or director of the Company, or of any of its Subsidiaries or of
any beneficial owner of 20% or more of the outstanding voting securities
of the Company (as determined in accordance with Section 13(d) under the
Exchange Act) at the time of such transaction (but excluding the Persons
identified below) unless it is provided that such Subsidiary's monetary
obligations with respect thereto are subordinate in right of payment to
distributions and dividends from such Subsidiary to the Company in an
amount sufficient to satisfy the Company's obligations under the
Debentures at least to the same extent that the Debentures are
subordinate to Senior Indebtedness. Notwithstanding the foregoing, such
limitation shall not apply to (i) the regular compensation payable to
any person who is an employee of the Company, (ii) payments made
pursuant to any pension or other plan made available to employees
(including officers) of the Company and either existing on the date of
the Indenture or thereafter approved by the Independent Directors, (iii)
payments pursuant to the Newman Agreement or the Gross Agreement or (iv)
any payment made to a director of the Company or of any of its
Subsidiaries who is not (a) the beneficial owner of 20% or more of the
outstanding voting securities of the Company (as determined in
accordance with section 13(d) under the Exchange Act) or (b) an officer
or employee of the Company, of any of its Subsidiaries or of any such
beneficial owner of 20% or more of the outstanding voting securities of
the Company at the time of such transaction.
Consolidation, Merger and Sale of Assets
The Company, without the consent of the Holders of any of the
Debentures, may consolidate with or merge into any other entity or
convey, transfer, sell or lease its assets substantially as an entirety
to any person or entity, provided that: (i) either (a) the Company is
the continuing corporation or (b) the corporation or other entity formed
by such consolidation or into which the Company is merged or the person
or entity to which such assets are conveyed, transferred, sold or leased
is organized under the laws of the United States or any state thereof or
the District of Columbia and expressly assumes all obligations of the
Company under the Debentures and the Indenture, (ii) immediately after
and giving effect to such merger, consolidation, conveyance, transfer,
sale or lease no Event of Default, and no event which, after notice or
lapse of time, would become an Event of Default, under the Indenture
shall have occurred and be continuing, (iii) upon consummation of such
consolidation, merger, conveyance, transfer, sale or lease, the
Debentures and the Indenture will be a valid and enforceable obligation
of the Company or such successor and (iv) the Company has delivered to
the Trustee an officer's certificate and an opinion of counsel, each
stating that such consolidation, merger, conveyance, transfer, sale or
lease complies with the provisions of the Indenture.
Events of Default
The following will be Events of Default under the Indenture: (a)
failure to pay principal of or premium, if any, on any Debenture when
due and payable at maturity, upon redemption, upon a Change of Control
Offer, Deficiency Offer or otherwise, whether or not such payment is
prohibited by the subordination provisions of the Indenture; (b) failure
to pay any interest on any Debenture when due and payable, which failure
continues for 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (c) failure to perform the
other covenants of the Company in the Indenture, which failure continues
for 60 days after written notice as provided in the Indenture; (d) a
default occurs (after giving effect to any applicable grace periods or
any extension of any maturity date) in the payment when due of principal
of and or acceleration of, any indebtedness for money borrowed by the
Company or any of its Subsidiaries in excess of $1.0 million,
individually or in the aggregate, if such indebtedness is not
discharged, or such acceleration is not annulled, within 10 days after
written notice as provided in the Indenture; and (e) certain events of
bankruptcy, insolvency or reorganization of the Company or any
Subsidiary. Subject to the provisions of the Indenture relating to the
duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of
any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Debentures will have the right to
direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power
conferred on the Trustee.
If an Event of Default shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of
the then outstanding Debentures may accelerate the maturity of all
Debentures; provided, however, that after such acceleration, but before
a judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of the then outstanding Debentures may, under
certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Indenture. For information as to
waiver of defaults, see "Modification and Waivers."
No Holder of any Debenture will have any right to institute any
proceeding with respect to the Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder unless (i) such
Holder shall have previously given to the Trustee written notice of a
continuing Event of Default, (ii) the Holders of at least 25% in
aggregate principal amount of the then outstanding Debentures shall have
made written request, and offered indemnity satisfactory to the Trustee
to institute such proceeding as trustee, (iii) the Trustee shall have
failed to institute such proceeding within 60 days after the receipt of
such notice and (iv) no direction inconsistent with such request shall
have been given to the Trustee during such 60-day period by the Holders
of a majority in aggregate principal amount of the then outstanding
Debentures.
The Company will be required to furnish annually to the Trustee a
statement as to the performance by the Company of certain of its
obligations under the Indenture and as to any default in such
performance.
Modifications and Waivers
Modifications and amendments of the Indenture may be made by the
Company and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the then outstanding
Debentures held by persons other than Affiliates of the Company;
provided, however, that no such modification or amendment may, without
the consent of the Holder of each outstanding Debenture affected
thereby, (i) change the stated maturity of, or any installment of
interest on, any Debenture, (ii) reduce the principal amount of any
Debenture or reduce the rate or extend the time of payment of interest
on any Debenture, (iii) increase the conversion price (other than in
connection with a reverse stock split as provided in the Indenture),
(iv) change the place or currency of payment of principal of, or premium
or repurchase price, if any, or interest on, any Debenture, (v) impair
the right to institute suit for the enforcement of any payment on or
with respect to any Debenture, (vi) adversely affect the right to
exchange or convert Debentures, (vii) reduce the percentage of the
aggregate principal amount of outstanding Debentures, the consent of the
Holders of which is necessary to modify or amend the Indenture, (viii)
reduce the percentage of the aggregate principal amount of outstanding
Debentures, the consent of the Holders of which is necessary for waiver
of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (ix) modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to
the Holders, (x) modify the provisions of the Indenture with respect to
the right to require the Company to repurchase Debentures in a manner
adverse to the Holders or (xi) modify the provisions of the Indenture
with respect to the vote necessary to amend this provision.
The Holders of a majority in aggregate principal amount of the
outstanding Debentures held by persons other than Affiliates of the
Company may, on behalf of all Holders, waive any past default under the
Indenture or Event of Default, except a default in the payment of
principal, premium, if any, or interest on any of the Debentures or in
respect of a provision which under the Indenture cannot be modified
without the consent of the Holder of each outstanding Debenture.
Discharge of Indenture
The Indenture provides that the Company may defease and be
discharged from its obligations in respect of the Debentures while the
Debentures remain outstanding (except for certain obligations to convert
the Debentures into Common Stock, register the transfer, substitution or
exchange of Debentures, to replace stolen, lost or mutilated Debentures
and to maintain an office or agency and the rights, obligations and
immunities of the Trustee), if all outstanding Debentures will become
due and payable at their scheduled maturity within one year and the
Company has irrevocably deposited, or caused to be deposited, with the
Trustee (or another trustee satisfying the requirements of the
Indenture), in trust for such purpose, (a) money in an amount, (b) U.S.
Government Obligations (as defined below) which through the payment of
principal, premium, if any, and interest in accordance with their terms
will provide money in an amount, or (c) a combination thereof,
sufficient in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of, premium, if any, and
interest on the outstanding Debentures at maturity or upon redemption,
together with all other amounts payable by the Company under the
Indenture. Such defeasance will become effective 91 days after such
deposit only if, among other things, (x) no Default or Event of Default
with respect to the Debentures has occurred and is continuing on the
date of such deposit or occurs as a result of such deposit or at any
time during the period ending on the 91st day after the date of such
deposit, (y) such defeasance does not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to
which the Company is a party or by which it is bound, and (z) the
Company has delivered to the Trustee (A) either a private Internal
Revenue Service ruling or an opinion of counsel that Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
federal income tax on the same amount, in the same manner, and at the
same times, as would have been the case if such deposit, defeasance and
discharge had not occurred, (B) an opinion of counsel to the effect that
the deposit shall not result in the Company, the Trustee or the trust
being deemed to be an "investment company" under the Investment Company
Act of 1940, as amended, and (C) an officers' certificate and an opinion
of counsel, each stating that all conditions precedent relating to a
defeasance have been complied with. Notwithstanding the foregoing, the
Company's obligations to pay principal, premium, if any, and interest on
the Debentures shall continue until the Internal Revenue Service ruling
or opinion of counsel referred to in clause (z) (B) above is provided.
Reports to Holders
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act it will continue to furnish the
information required thereby to the Commission. The Indenture provides
that even if the Company is entitled under the Exchange Act not to
furnish such information to the Commission or to the Holders, it will
nonetheless continue to furnish information under Section 13 of the
Exchange Act to the Commission and the Trustee as if it were subject to
such periodic reporting requirements.
Governing Law
The Indenture and the Debentures are governed by, and construed in
accordance with, the laws of the State of New York, without giving
effect to such State's conflicts of law principles.
Information Concerning the Trustee
The Company and its Subsidiaries may maintain deposit accounts and
conduct other banking transactions with the Trustee or its affiliates in
the ordinary course of business, and the Trustee and its affiliates may
from time to time in the future provide the Company and its Subsidiaries
with banking and financial services in the ordinary course of their
businesses.
Certain Definitions
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of
all such terms and for the definitions of other defined terms used in
the Prospectus and not defined below.
"Acquired Debt" of any specified person means Debt of any other
person existing at the time such other person merged with or into or
became a Subsidiary of such specified person, including Debt incurred in
connection with, or in contemplation of, such other person becoming a
Subsidiary of such specified person.
"Affiliate" of any specified Person means (i) any other Person
who, directly or indirectly, is in control of, is controlled by or is
under common control with such specified Person or (ii) any Person who
is a director or officer (a) of such specified Person, (b) of any
Subsidiary of such specified Person or (c) of any Person described in
clause (i) above. For purpose of this definition, control of a person
means the power, directly or indirectly, to direct or cause the
direction of the management and policies of such person whether by
contract or otherwise; and the terms "controlling" or "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or
dispositions) of Capital Stock of a Subsidiary, property or other asset
(each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries other than (i)
any disposition by any Subsidiary of the Company to the Company or by
the Company or any Subsidiary of the Company to a wholly owned
Subsidiary of the Company, (ii) a disposition of property or assets in
the ordinary course of business and (iii) any issuance or sale by the
Company of its Capital Stock, including any disposition by means of a
merger, consolidation or similar transaction.
"Capital Stock" of any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in the common or preferred equity (however
designated) of such person, including, without limitation, partnership
interests.
"Capitalized Lease Obligation" means, with respect to any person
for any period, an obligation of such person to pay rent or other
amounts under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP; and the amount of such
obligation shall be the capitalized amount shown on the balance sheet of
such person as determined in accordance with GAAP.
"Common Stock" as applied to the Capital Stock of any corporation,
means the common equity (however designated) of such Person; and with
respect to the Company, means the Common Stock, par value $.01 per
share, or any successor class of common equity into which such common
stock may thereafter be converted.
"Consolidated Net Income" means, for any fiscal period, the Net
Income or loss of the Company and its Subsidiaries as the same would
appear on a consolidated statement of earnings of the Company for such
fiscal period prepared in accordance with GAAP, provided that (i) any
extraordinary gain (but not loss) and any gain (but not loss) on sales
of assets outside the ordinary course of business, in each case together
with any related provisions for taxes, realized during such period shall
be excluded, (ii) the results of operations of any person acquired in a
pooling of interests transaction for any period prior to the date of
such acquisition shall be excluded, (iii) Net Income attributable to any
person other than a Subsidiary that is at least 50% owned by the Company
shall be included only to the extent of the amount of cash dividends or
distributions actually paid to the Company or a Subsidiary of the
Company during such period, (iv) any extraordinary charge resulting from
the repurchase of the Debentures shall be excluded and (v) the
cumulative effect of a change in accounting principles based upon the
implementation of a change required by the Financial Accounting
Standards Board shall be excluded.
"Consolidated Net Worth" means, for any fiscal period, the net
stockholders' equity of the Company and its Subsidiaries as the same
would appear on the consolidated balance sheet of the Company as at the
end of such fiscal period prepared in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors
of the Company who (i) is a member of that Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to
the Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of the Board at the time of such
nomination or election.
"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in case
no such sale takes place on such date, the average of the closing bid
and asked prices, regular way, in either case as reported for
consolidated transactions on the New York Stock Exchange or, if the
security is not listed or admitted to trading on the New York Stock
Exchange, as reported for consolidated transactions with respect to
securities listed on the principal national securities exchange on which
such security is listed or admitted to trading or, if the security is
not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid
and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use or, if the security is not
quoted by any such organization, the average of the closing bid and
asked prices furnished by a New York Stock Exchange member firm selected
by the Company. "Current Market Price" means, when used with respect to
any Property other than a security as of any date, the market value of
such Property on such date as determined by the Board of Directors of
the Company in good faith, which shall be entitled to rely for such
purposes on the advice of any firm of investment bankers or appraisers
having familiarity with such Property.
"Debt" of any person as of any date means and includes, without
duplication, (i) the principal of and premium, if any, in respect of
indebtedness of such person, contingent or otherwise, for borrowed
money, including, without limitation, all interest, fees and expenses
owed with respect thereto (whether or not the recourse of the lender is
to the whole of the assets of such person or only to a portion thereof),
or evidenced by bonds, notes, debentures or similar instruments, or
representing the deferred and unpaid balance of the purchase price of
any property or interest therein or services, if and to the extent such
indebtedness would appear as a liability (other than a liability for
accounts payable and accrued expenses incurred in the ordinary course of
business) upon a balance sheet of such person prepared on a consolidated
basis in accordance with GAAP, (ii) all obligations issued or contracted
for as payment in consideration of the purchase by such person of the
Capital Stock or substantially all of the assets of another person or as
a result of a merger or a consolidation (other than any earn-outs or
installment payments), (iii) all Capitalized Lease Obligations of such
person, (iv) all obligations of such person in respect of letters of
credit or similar instruments or reimbursement of letters of credit or
similar instruments (whether or not such items would appear on the
balance sheet of such person), (v) all net obligations of such person in
respect of interest rate protection and foreign currency hedging
arrangements, (vi) all guarantees by such person of items that would
constitute Debt under this definition (whether or not such items would
appear on such balance sheet), and (vii) the amount of all obligations
of such person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock, but only to the extent such
obligations arise on or prior to January 1, 2004; provided, however,
that Debt issued at a discount from par shall be treated as if issued at
par. The amount of Debt of any person at any date shall be the
outstanding balance on such date of all unconditional obligations as
described above and the maximum determinable liability, upon the
occurrence of the liability giving rise to the obligation, of any
contingent obligations referred to in clauses (i), (iv), (vi) and (vii)
above at such date.
"Debt to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (i) (a) the aggregate principal amount of
all outstanding Debt of the Company and its Subsidiaries as of such date
on a consolidated basis plus (b) the aggregate par or stated value of
all outstanding Preferred Stock of the Company and its Subsidiaries as
reflected on the Company's most recent consolidated balance sheet
prepared in accordance with GAAP (excluding any such Preferred Stock
held by the Company or a wholly owned Subsidiary of the Company) or, if
greater with respect to any class of Capital Stock which is Disqualified
Stock, the aggregate redemption amount thereof as reflected on the
Company's most recent consolidated balance sheet (excluding any such
Disqualified Stock held by the Company or a wholly owned Subsidiary of
the Company) to (ii) Operating Cash Flow of the Company and its
Subsidiaries on a consolidated basis for the four most recent full
fiscal quarters ending immediately prior to such date, determined on a
pro forma basis as set forth in the covenant "Limitation on Debt and
Senior Indebtedness."
"Disqualified Stock" means any Capital Stock which, by its terms
or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder thereof or
mandatorily (except to the extent that such exchange or conversion right
cannot be exercised or such mandatory conversion cannot occur prior to
January 1, 2004), is, or upon the happening of an event or the passage
of time would be, (a) required to be redeemed or repurchased by the
Company or any of its Subsidiaries, including at the option of the
holder, in whole or in part, or has, or upon the happening of an event
or passage of time would have, a redemption or similar payment due prior
to January 1, 2004 or (b) exchangeable or convertible into debt
securities of the Company or any of its Subsidiaries at the option of
the holder thereof or mandatorily, except to the extent that such
exchange or conversion right cannot be exercised or such mandatory
conversion cannot occur on or prior to January 1, 2004.
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any interpretations
or regulations that have been proposed but that have not become
effective.
"Independent Directors" means directors that (i) are not 20% or
greater stockholders of the Company or the designee of any such
stockholder, (ii) are not officers or employees of the Company, any of
its Subsidiaries or of a stockholder referred to above in clause (i),
(iii) are not Related Persons and (iv) do not have relationships that,
in the opinion of the Board of Directors, would interfere with their
exercise of independent judgment in carrying out the responsibilities of
the directors.
"Investment" means any loan or advance to any person, any
acquisition of any interest in any other person (including (i) with
respect to a corporation, any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock, including any
Preferred Stock and any securities convertible or exchangeable for any
of the foregoing, bonds, notes, debentures, loans or other securities or
Debt of such other person and (ii) with respect to a partnership or
similar person, any and all units, interests, rights to purchase,
warrants, options, participations or other equivalents of or other
partnership interests in (however designated) such person and any
securities convertible or exchangeable for any of the foregoing), any
capital contribution to any other person, or any other investment in any
other person, other than (a) advances to officers and employees in the
ordinary course of business, (b) creation of receivables in the ordinary
course of business and (c) negotiable instruments endorsed for
collection in the ordinary course of business.
"Lien" means any mortgage, lien, pledge, charge, security interest
or other encumbrance of any nature whatsoever (including any conditional
sale or other title retention agreement, any lease in the nature thereof
and any agreement to give any security interest).
"Net Income" of any person means the net income (or loss) of such
person, determined in accordance with GAAP, excluding, however, from the
determination of Net Income any extraordinary gain (but not loss) and
any gain (but not loss) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to sale-leaseback
transactions) of any real property or equipment of such person, which is
not sold or otherwise disposed of in the ordinary course of business, or
of any Capital Stock of a Subsidiary of such person.
"Operating Cash Flow" means, with respect to the Company and its
Subsidiaries for any period, the Consolidated Net Income of the Company
and its Subsidiaries for such period, plus (i) extraordinary net losses
and net losses on sales of assets other than in the ordinary course of
business during such period, to the extent such losses were deducted in
computing Consolidated Net Income, plus (ii) provision for taxes based
on income or profits, to the extent such provision for taxes was
included in computing such Consolidated Net Income, and any provision
for taxes utilized in computing the net losses under clause (i) hereof,
plus (iii) to the extent deducted in calculating Consolidated Net
Income, Total Interest Expense of the Company and its Subsidiaries for
such period, plus (iv) depreciation, amortization and all other non-cash
charges, to the extent such depreciation, amortization and other
non-cash charges (excluding any such non-cash charges to the extent that
they require an accrual of or reserve for cash charges for any future
periods) were deducted in calculating such Consolidated Net Income
(including amortization of goodwill and other intangibles).
"Permitted Investments" means (i) Investments in the Company or in
a Subsidiary of the Company; (ii) Investments by the Company or any
Subsidiary of the Company in a person, if as a result of such Investment
(a) such person becomes or is a wholly owned Subsidiary of the Company
or the Subsidiary making such Investment or (b) such person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company,
the Subsidiary making such Investment or a wholly owned Subsidiary of
either the Company or such Subsidiary making such Investment (provided
that any subsequent issuance or transfer of any interests or other
transaction which results in any such wholly owned Subsidiary ceasing to
be a wholly owned Subsidiary of the Company, the Subsidiary making such
Investment or another wholly owned Subsidiary of either the Company or
such Subsidiary making such Investment, or any subsequent transfer of
such Permitted Investment (other than to the Company, the Subsidiary
making such Investment or another wholly owned Subsidiary of either the
Company or such Subsidiary making such Investment) shall be deemed for
the purposes hereof to constitute the making of a new Investment by the
maker thereof and therefore subject to a new determination of whether
such Investment qualifies as a Permitted Investment); (iii) U.S.
Government Obligations maturing within one year of the date of
acquisition thereof; (iv) certificates of deposit maturing within one
year of the date of acquisition thereof issued by a bank or trust
company that is organized under the laws of the United States or any
state thereof having capital, surplus and undivided profits aggregating
in excess of $100,000,000; (v) repurchase agreements with respect to
U.S. Government Obligations; and (vi) Investments in commercial paper
rated at least A1 or the equivalent thereof by Standard & Poor's
Corporation or P1 or the equivalent thereof by Moody's Investor
Services, Inc. and maturing not more than 90 days from the date of the
acquisition thereof.
"Permitted Liens" means (i) Liens for taxes, assessments or
governmental charges or claims that either (a) are not yet delinquent or
(b) are being contested in good faith by appropriate proceedings and as
to which appropriate reserves have been established or other provisions
have been made in accordance with GAAP; (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other Liens imposed by law and arising in
the ordinary course of business and with respect to amounts that, to the
extent applicable, either (a) are not yet delinquent by more than 30
days or (b) are being contested in good faith by appropriate proceedings
and as to which appropriate reserves have been established or other
provisions have been made in accordance with GAAP; (iii) Liens (other
than any Lien imposed by the Employee Retirement Income Security Act of
1974, as amended) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) judgment or other
similar Liens arising in connection with court proceedings, provided
that (a) the execution or enforcement of each such Lien is effectively
stayed within 30 days after entry of such judgment (or such judgment has
been discharged within such 30 day period), the claims secured thereby
are being contested in good faith by appropriate proceedings timely
commenced and diligently prosecuted and the aggregate amount of the
claims secured thereby does not exceed $1,000,000 at any time or (b) the
payment of which is covered in full by insurance and the insurance
company has not denied or contested coverage thereof; (v) Liens existing
on property or assets of any entity at the time it becomes a Subsidiary
or existing on property or assets at the time of the acquisition thereof
by the Company or any of its Subsidiaries, which Liens were not created
or assumed in contemplation of, or in connection with, such entity
becoming a Subsidiary or such acquisition, as the case may be, and which
attach only to such property or assets, provided that the Debt secured
by such Liens is not thereafter increased; (vi) Liens incurred in
connection with Capitalized Lease Obligations otherwise permitted under
the Indenture; (vii) Liens securing Refinancing Debt, provided that such
Liens only extend to the property or assets securing the Debt being
refinanced, such Refinanced Debt was previously secured by similar Liens
on such property or assets and the Debt or other obligations secured by
such Liens is not increased; (viii) Liens securing the advance of
progress payments or deposits made by the United States or any foreign
government or any instrumentality thereof or any prime contractor for
any such government or instrumentality and received by the Company in
the ordinary course of its business; (ix) the Lien created by the Master
Security Agreement between General Electric Capital Corporation and OMI
Acquisition Corporation dated as of August 28, 1995; and (x) any other
Liens existing on the date of the Indenture.
"Preferred Stock" means, with respect to any person, Capital Stock
of such person of any class or classes (however designated) which is
preferred as to the payments of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such person, over any other class of the Capital Stock of
such person.
"Property" of any person means all types of real, personal,
tangible, intangible or mixed property owned by such person whether or
not included on the most recent consolidated balance sheet of such
person in accordance with GAAP.
"Qualified Stock" means Capital Stock of the Company that is not
Disqualified Stock.
"Refinancing Debt" means Debt that refunds, refinances or extends
any Debentures, or other Debt existing on the date of the Indenture or
thereafter incurred by the Company or its Subsidiaries pursuant to the
terms of the Indenture, but only to the extent that (i) the Refinancing
Debt is subordinated to the Debentures to the same extent as the Debt
being refunded, refinanced or extended, if at all, (ii) the Refinancing
Debt is scheduled to mature either (a) no earlier than the Debt being
refunded, refinanced or extended, or (b) after the maturity date of the
Debentures, (iii) the portion, if any, of the Refinancing Debt that is
scheduled to mature on or prior to the maturity date of the Debentures
has a Weighted Average Life to Maturity at the time such Refinancing
Debt is incurred that is equal to or greater than the Weighted Average
Life to Maturity of the portion of the Debt being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date
of the Debentures, (iv) such Refinancing Debt is in an aggregate
principal amount that is equal to or less than the aggregate principal
amount then outstanding under the Debt being refunded, refinanced or
extended, plus customary fees and expenses associated with refinancing
and (v) such Refinancing Debt is incurred by the same person that
initially incurred the Debt being refunded, refinanced or extended,
except that (a) the Company may incur Refinancing Debt to refund,
refinance or extend Debt of any Subsidiary of the Company, and (b) any
Subsidiary of the Company may incur Refinancing Debt to refund,
refinance or extend Debt of any other wholly owned Subsidiary of the
Company.
"Related Person" means an individual related to an officer,
director or employee of the Company or any of its Affiliates which
relation is by blood, marriage or adoption and not more remote than
first cousin.
"Subsidiary" of any person means a corporation or other entity a
majority of whose Capital Stock with voting power, under ordinary
circumstances, entitling holders of such Capital Stock to elect the
board of directors or other governing body, is at the time, directly or
indirectly, owned by such person and/or a Subsidiary or Subsidiaries of
such person.
"Total Interest Expense" means, for any period, the interest
expense of the Company and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP, whether paid or accrued
(including amortization of original issue discount, non-cash interest
payments and the interest component of capital leases, but excluding
amortization of debt and Preferred Stock issuance costs).
"U.S. Government Obligations" means non-callable (i) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States for which its full faith and credit
are pledged and (ii) obligations of a person controlled or supervised
by, and acting as an agency or instrumentality of, the United States,
the payment of which is unconditionally guaranteed as a full faith and
credit obligation of the United States.
"Weighted Average Life to Maturity" means, when applied to any
Debt or Preferred Stock or portions thereof (if applicable) at any date,
the number of years obtained by dividing (i) the then outstanding
principal amount or liquidation amount of such Debt or Preferred Stock
or portions thereof (if applicable) into (ii) the sum of the products
obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment.
Book-Entry; Delivery and Form
Except as set forth below, the Debentures were initially issued in
the form of registered debentures in global form without coupons (each,
a "Global Debenture"). The Global Debentures were deposited on the date
of the closing of the sale of the Debentures (the "Closing Date") with,
or on behalf of, the Depository Trust Company (the "Depository") and
registered in the name of Cede & Co., as nominee of the Depository.
Interests in the Global Debentures were available for purchase pursuant
to the Debenture Offering only by "qualified institutional buyers," as
defined in Rule 144A under the Securities Act ("QIBs"). The Debentures
to be resold as set forth herein will be initially issued in global form
(the "New Global Debentures").
Debentures that were (i) originally issued to or transferred to
institutional "accredited investors," as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act (an "Institutional Accredited
Investor"), who are not QIBs or to any other persons who are not QIBs or
(ii) issued as described below under "-- Certificated Debentures," were
issued in registered form without coupons (the "Certificated
Debentures").
The Depository has advised the Company that it is (i) a limited
purpose trust company organized under the laws of the State of New York,
(ii) a member of the Federal Reserve System, (iii) a "clearing
corporation" within the meaning of the Uniform Commercial Code, as
amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A
of the Exchange Act. The Depository was created to hold securities for
its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes to the accounts of its
Participants, thereby eliminating the need for physical transfer and
delivery of certificates. The Depository's Participants include
securities brokers and dealers (including the Initial Purchaser), banks
and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Debentures or New Global
Debentures, the Depository will credit the accounts of Participants with
an interest in the Global Debenture or New Global Debentures, as
applicable, and (ii) ownership of the Debentures will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interest of
Participants), the Participants and the Indirect Participants. The laws
of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interest
in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to
transfer Debentures or to pledge the Debentures as collateral will be
limited to such extent.
So long as the Depository or its nominee is the registered owner
of the Global Debentures or the New Global Debentures, as the case may
be, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the Debentures represented by the
Global Debentures or the New Global Debentures, as the case may be, for
all purposes under the Indenture. Except as provided below, owners of
beneficial interests in the Global Debentures or the New Global
Debentures, as the case may be, will not be entitled to have Debentures
represented by such Global Debentures or New Global Debentures,
registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Debentures, and will not be considered
the owners or Holders thereof under the Indenture for any purpose,
including with respect to giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in Debentures represented by a Global
Debenture or a New Global Debenture, as the case may be, to pledge such
interest to persons or entities that do not participate in the
Depository's system or to otherwise take action with respect to such
interest, may be affected by the lack of a physical certificate
evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global
Debenture or a New Global Debenture, as the case may be, must rely on
the procedures of the Depository and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the
Participant through which such holder owns its interest, to exercise any
rights of a Holder under the Indenture or such Global Debenture or New
Global Debenture. The Company understands that under existing industry
practice, in the event the Company requests any action of Holders that
is an owner of a beneficial interest in a Global Debenture or a New
Global Debenture, as the case may be, desires to take any action that
the Depository, as the Holder of such Global Debenture or New Global
Debenture, is entitled to take, the Depository would authorize the
Participants to take such action and the Participant would authorize
holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither the Company
nor the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of Debentures by
the Depository, or for maintaining, supervising or reviewing any records
of the Depository relating to such Debentures.
Payments with respect to the principal of, premium, if any, and
interest on any Debentures represented by a Global Debenture or a New
Global Debenture, as the case may be, registered in the name of the
Depository or its nominee on the applicable record date will be payable
by the Trustee to or at the direction of the Depository or its nominee
in its capacity as the registered Holder of the Global Debenture or a
New Global Debenture, as the case may be, representing such Debentures
under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Debentures,
including the Global Debentures or the New Global Debentures, as the
case may be, are registered as the owners thereof for the purpose of
receiving such payment and for any and all other purposes whatsoever.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to
beneficial owners of Debentures (including principal, premium, if any,
and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interest in the
Global Debentures or the New Global Debentures, as the case may be, as
shown on the records of the Depository. Payments by the Participants and
the Indirect Participants to the beneficial owners of Debentures will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants.
Certificated Debentures
If (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Debentures in definitive form under the
Indenture, then, upon surrender by the Depository of its Global
Debentures or the New Global Debentures, as the case may be,
Certificated Debentures will be issued to each person that the
Depository identifies as the beneficial owner of the Debentures
represented by the Global Debentures or the New Global Debentures, as
the case may be. In addition, subject to certain conditions, any person
having a beneficial interest in a Global Debenture or a New Global
Debenture, as the case may be, may, upon request to the Trustee,
exchange such beneficial interest for Certificated Debentures. Upon any
such issuance, the Trustee is required to register such Certificated
Debentures in the name of such person or persons (or the nominee of any
thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay
by the Depository or any Participant or Indirect Participant in
identifying the beneficial owners of the related Debentures and each
such person may conclusively rely on, and shall be protected in relying
on, instructions from the Depository for all purposes (including with
respect to the registration and delivery, and the respective principal
amounts, of the Debentures to be issued).
Registration Rights; Liquidated Damages
The Company and the Initial Purchaser entered into the
Registration Rights Agreement dated as of September 22, 1995. Pursuant
to the Registration Rights Agreement, the Company has agreed to file
with the Securities and Exchange Commission (the "Commission") a
registration statement under the Securities Act (the "Shelf Registration
Statement") to cover public resales of the Debentures by Holders and of
the Common Stock issuable upon conversion of the Debentures by holders
thereof, in each case who satisfy certain conditions relating to the
providing of information in connection with the Shelf Registration
Statement. The Company has agreed to use its reasonable best efforts to
(a) cause the Shelf Registration Statement to be filed with the
Commission within 90 days after September 29, 1995 (the "Closing Date");
(b) cause the Shelf Registration Statement to be declared effective by
the Commission within 150 days after the Closing Date; and (c) keep the
Shelf Registration Statement effective until at least the third
anniversary of the Closing Date or such shorter period that will
terminate when all the shares of the Common Stock and the Debentures
covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement. The Company has filed a Registration
Statement of which this Prospectus is a part in compliance with its
obligation under the Registration Rights Agreement to file a Shelf
Registration Statement. Notwithstanding the foregoing, the Company will
be permitted to suspend the use of the Shelf Registration Statement
during certain periods under certain conditions.
The Registration Rights Agreement provides that, if (i) the Shelf
Registration Statement is not filed with the Commission or is not
declared effective by the Commission within the time periods set forth
above or (ii) at any time during which the Shelf Registration Statement
is required to be kept effective, it shall cease to be effective (other
than as a result of the effectiveness of a successor registration
statement) and such effectiveness is not restored within 45 days
thereafter (each such event referred to in clause (i) or (ii), a
"Registration Default"), the Company will pay liquidated damages (the
"Liquidated Damages") to each Holder of Debentures or holder of Class A
Common Stock which are "restricted" securities under the Securities Act
intended to be eligible for resale under the Shelf Registration
Statement and who has complied with its obligations under the
Registration Rights Agreement. During the first 90-day period
immediately following the occurrence of a Registration Default, such
Liquidated Damages shall be in an amount equal to $.05 per week per
$1,000 principal amount of Debentures and $.01 per week per share
(subject to adjustment in the event of stock splits or consolidations,
stock dividends and the like) of Common Stock constituting restricted
securities held by such person. The amount of the Liquidated Damages
will increase by an additional $.05 per week per $1,000 principal amount
and $.01 per week per share (subject to adjustment as set forth above)
of Common Stock constituting restricted securities for each subsequent
90-day period until the applicable Registration Default is cured, up to
a maximum amount of liquidated damages of $.20 per week per $1,000
principal amount of Debentures and $.04 per week per share (subject to
adjustment as set forth above) of Common Stock constituting restricted
securities. All accrued Liquidated Damages shall be paid by wire
transfer of immediately available funds or by federal funds check by the
Company on each Damages Payment Date (as defined in the Registration
Rights Agreement). Following the cure of all Registration Defaults, the
payment of Liquidated Damages will cease.
In addition, for so long as the Debentures are outstanding and
during any period in which the Company is not subject to the Exchange
Act, the Company will provide to holders of Debentures and to
prospective purchasers of the Debentures the information required by
Rule 144A(d)(4) under the Securities Act. The Company will provide a
copy of the Registration Rights Agreement to prospective investors upon
request.
DESCRIPTION OF 1998 DEBENTURES
The following summary describes certain provisions of the
indenture governing the 1998 Debentures (the "1998 Indenture") and the
1998 Debentures. The following summary does not purport to be complete
and is subject to and is qualified in its entirety by reference to the
1998 Indenture and the form of the 1998 Debentures.
The Company's 1998 Debentures were issued on August 1, 1983 in an
aggregate principal amount of $25,000,000. As of February 4, 1997,
$4,992,000 aggregate principal amount of the 1998 Debentures 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 Indebtedness or any other indebtedness by the Company or by any
of its subsidiaries.
The 1998 Debentures bear interest at a rate of 8-1/2% per annum
payable semiannually on February 1 and August 1 of each year and mature
on August 1, 1998. Mandatory sinking fund payments sufficient to retire
$2.5 million principal amount of the 1998 Debentures annually, which
commenced on August 1, 1990, are calculated to retire 80% of the issue
prior to maturity. See "Capitalization."
The 1998 Debentures are redeemable on not less than 30 days'
notice at the option of the Company, in whole or in part, at a
redemption price of 100% of the principal amount, plus accrued interest
to the date of redemption. The 1998 Debentures are convertible at any
time prior to maturity, unless previously redeemed, into shares of
Common Stock of the Company at a conversion price of $15.00 per share,
subject to adjustment under certain conditions.
The 1998 Indenture contains certain limitations on the Company's
right to distribute dividends or purchase, redeem or otherwise acquire
or retire any of its capital stock and to merge or consolidate unless it
meets the criteria set forth therein.
Senior Indebtedness is defined in the 1998 Indenture to include
the principal of (and premium, if any) and interest on (a) all
indebtedness of the Company, whether outstanding on the date of the 1998
Indenture or thereafter created, incurred, assumed or guaranteed, for
borrowed money (other than the 1998 Debentures), whether short-term or
long-term and whether secured or unsecured (including all indebtedness
evidenced by notes, bonds, debentures or other securities sold by the
Company for money), (b) indebtedness incurred by the Company in the
acquisition (whether by way of purchase, merger, consolidation or
otherwise and whether by the Company or another person) of any business,
real property or other assets (except assets acquired in the ordinary
course of the conduct of the acquirer's usual business), (c) guarantees
by the Company of indebtedness for borrowed money, whether short-term or
long-term and whether secured or unsecured, of any corporation in which
the Company owns, directly or indirectly, 50% or more of the stock
having general voting power and (d) renewals, extensions, refundings,
deferrals, restructurings, amendments and modifications of any such
indebtedness, obligation or guarantee, unless in each case by the terms
of the instrument creating or evidencing such indebtedness, obligation
or guarantee or such renewal, extension, refunding, deferral,
restructuring, amendment or modification it is provided that such
indebtedness, obligation or guarantee is not superior in right of
payment of the 1998 Debentures.
DESCRIPTION OF CAPITAL STOCK
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 Certificate"), which amended
and restated the Company's certificate of incorporation (i) to 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) 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 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 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
February 4, 1997, there were 5,584,093 shares of Common Stock issued and
outstanding (exclusive of 420,893 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 preferences,
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 Directors. 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 directors 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 assessments.
Holders of Common Stock will be entitled, after satisfaction of the
Company's liabilities and payment of the liquidation preferences, if
any, of any outstanding shares of Preferred Stock, to share the
remaining assets of the Company, if any, equally in proportion to the
number of shares 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. Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New York 10004, 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 Security Holders may sell all or a portion of the
Debentures and shares of Common Stock offered hereby from time to time
on terms to be determined at the times of such sales. The Debentures and
shares of Common Stock may be sold from time to time to purchasers
directly by any of the Selling Security Holders. Alternatively, any of
the Selling Security Holders may from time to time offer the Debentures
or shares of Common Stock through underwriters, including the Initial
Purchaser, dealers or agents, who may receive compensation in the form
of underwriting discounts, commissions or concessions from the Selling
Security Holders and the purchasers of the Debentures or shares of
Common Stock for whom they may act as agent. To the extent required, the
aggregate principal amount of Debentures and number of shares of Common
Stock to be sold, the names of the Selling Security Holders, the
purchase price, the name of any such agent, dealer or underwriter and
any applicable commissions with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this
Prospectus is a part. There is no assurance that the Selling Security
Holders will sell any or all of the Debentures or shares of Common Stock
offered hereby. The Selling Security Holders and any broker-dealers,
agents or underwriters that participate with the Selling Security
Holders in the distribution of the Debentures or shares of Common Stock
may be deemed to be "underwriters" within the meaning of the Securities
Act, in which event any discounts, commissions or concessions received
by such broker-dealers, agents or underwriter and any profit on the
resale of the Debentures or shares of Common Stock purchased by them may
be deemed to be underwriting commissions or discounts under the
Securities Act.
The Debentures and the shares of Common Stock issued upon
conversion of the Debentures may be sold from time to time in one or
more transactions at fixed offering prices, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices.
Such prices will be determined by the holders of such securities or by
agreement between such holders and underwriters or dealers who may
receive fees or commissions in connection therewith.
To comply with the securities laws of certain states, if
applicable , the Debentures and shares of Common Stock will be sold in
such jurisdictions only through registered or licensed brokers or
dealers. In addition in certain states the Debentures and shares of
Common Stock may not be offered or sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied
with.
The Debentures were originally sold to the Initial Purchaser on
September 29, 1995 in a private placement (including the over-allotment
option for $5,000,000 aggregate principal amount of the Debentures which
was exercised on November 3, 1995) at a purchase price of 95% of their
principal amount. The Company agreed to indemnify the Initial Purchaser
against certain liabilities in connection with the offer and sale of the
Debentures, including liabilities under the Securities Act, and to
contribute to payments that the Initial Purchaser may be required to
make in respect thereof.
The Company will pay substantially all expenses incident to the
offering and sale of the Debentures and Common Stock to the public other
than underwriting discounts and selling commissions and fees. The
Company and the Selling Security Holders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. In
addition, any underwriter utilized by the Selling Security Holders may
be indemnified against certain liabilities, including liabilities under
the Securities Act. See "Selling Security Holders."
Prior to this offering there has not been any public market for
the Debentures and there can be no assurance regarding the future
development of a market for the Debentures. The Debentures and the
shares of Common Stock which are issuable upon conversion of the
Debentures are listed on the AMEX. The Debentures are eligible for
trading in the PORTAL Market; however, no assurance can be given as to
the liquidity of, or trading market for, the Debentures. The Company has
been advised by the Initial Purchaser that it intends to make a market
in the Debentures. However, it is not obligated to do so and any
market-making activities with respect to the Debentures may be
discontinued at any time without notice. See "Description of the
Debentures -- Registration Rights; Liquidated Damages." Accordingly, no
assurance can be given as to the liquidity of or the trading market for
the Debentures. See "Risk Factors -- Lack of Public Market for the
Debentures; Restrictions on Resale."
SELLING SECURITY HOLDERS
The following table sets forth information concerning the
principal amount of Debentures beneficially owned by each Selling
Security Holder which may be offered from time to time pursuant to this
Prospectus. Other than as a result of the ownership or placement of
Debentures or Common Stock, none of the Selling Security Holders has had
any material relationship with the Company within the past three years,
except as noted herein. The table has been prepared based upon
information furnished to the Company by or on behalf of the Selling
Security Holders.
Principal
Principal Amount
Amount of of De- Percent
Debentures bentures of Out-
Beneficially Being standing
Name Owned Registered Debentures
- ------------------------------------------ ----------- --------- ----------
BT Holdings................................ $1,650,000 $1,650,000 6.9%
Botta Trading Inc.......................... 200,000 200,000 *
Calamos Asset Management Inc............... 2,692,000 2,692,000 11.3
Castle Convertible Fund Inc................ 500,000 500,000 2.1
Catholic Mutual Relief Society of America.. 250,000 250,000 1.0
CNA Income Shares, Inc..................... 250,000 250,000 1.0
Convertible Securities, Inc................ 1,000,000 1,000,000 4.2
First Delta................................ 200,000 200,000 *
First Pacific Advisers, Inc.1.............. 4,500,000 4,500,000 18.9
Forest Fulcrum Ltd......................... 682,000 682,000 2.9
Forest Fulcrum Fund........................ 222,000 223,000 1
Forest Performance Domestic Fund........... 125,000 125,000 *
Forest Performance Ltd..................... 125,000 125,000 *
Franklin Investors Securities
Trust Convertible Securities Fund...... 750,000 750,000 3.1
Hull Capital Corp.......................... 200,000 200,000 *
ICI American Holdings...................... 250,000 250,000 1.0
Laterman Strategies 90's L.P............... 270,000 270,000 1.1
Laterman & Co.............................. 180,000 180,000 *
Nalco Chemical Retirement.................. 100,000 100,000 *
Nesbitt Burns.............................. 400,000 400,000 1.7
Noddings & Associates, Inc................. 320,000 320,000 1.3
Offshore Strategies Ltd.................... 750,000 750,000 3.1
The Putnam Advisory Company, Inc.
on behalf of Boston College
Endowment................................ 200,000 200,000 *
The Putnam Advisory Company, Inc.
on behalf of New Hampshire
Retirement System........................ 525,000 525,000 2.2
The Putnam Advisory Company, Inc.
on behalf of The Museum of
Fine Art, Boston......................... 90,000 90,000 *
Putnam Convertible Income-Growth
Trust.................................... 1,850,000 1,850,000 7.7
Putnam Convertible Opportunities and
Income Trust............................. 485,000 485,000 2.0
Putnam High Income Convertible
and Bond Fund............................ 600,000 600,000 2.5
Select Capital Management Inc.............. 197,000 197,000 *
Soundshore Partners........................ 1,321,000 1,321,000 5.5
State of Delaware.......................... 400,000 400,000 1.7
United National Insurance Company.......... 150,000 150,000 *
Winchester Convertible Plus Limited........ 1,000,000 1,000,000 4.2
Zazove Convertible Fund, L.P............... 1,200,000 1,200,000 5.0
Zeneca Holdings............................ 250,000 250,000 1
----------- ----------- --------
Total................................. $23,884,000 $23,884,000 92.4%
- --------
1* Less than 1%.
First Pacific Advisers, Inc. may be deemed to be the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of
more than ten percent of the Common Stock of the Company. Such
information has been derived from statements on Schedule 13D and
13G filed with the SEC by First Pacific Advisers, Inc.
Because the Selling Security Holders may sell all or some of the
Debentures which they hold and shares of Common Stock issued upon
conversion thereof pursuant to the offering contemplated by this
Prospectus, no estimate can be given as to the aggregate amount of
Debentures or shares of Common Stock that are to be offered hereby or
that will be owned by the Selling Security Holders upon completion of
this offering to which this Prospectus relates. Accordingly, the
aggregate principal amount of Debentures offered hereby may decrease. In
addition, the Selling Security Holders identified above may have sold,
transferred or otherwise disposed of all or a portion of their
Debentures and shares of Common Stock issued upon conversion thereof
since the date on which they provided the information regarding their
Debentures and shares of Common Stock, in transactions exempt from the
registration requirements of the Securities Act. As of the date of this
Prospectus, the aggregate principal amount of Debentures outstanding is
$25,000,000. See "Plan of Distribution."
LEGAL MATTERS
Certain legal matters in connection with this offering will be
passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP,
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 LLP.
EXPERTS
The consolidated financial statements and consolidated financial
statement schedule of the Company as of March 31, 1996 and 1995, and for
each of the years in the three-year period ended March 31, 1996, have
been incorporated by reference in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
No person is authorized to give
any information or to make any
representation not contained or
incorporated by reference in this
Prospectus, and any information or
representation not contained or $25,000,000
incorporated by reference herein must
not be relied upon as having been
authorized by the Company or any
Underwriter. This Prospectus does not DIAGNOSTIC/RETRIEVAL
constitute an offer of any security SYSTEMS, INC.
other than the registered securities to
which it relates or an offer to any
person in any jurisdiction where such
offer would be unlawful. Neither the 9% Senior Subordinated Convertible
delivery of this Prospectus nor any sale Debentures Due 2003
made hereunder shall, under any
circumstances, create any implication
that there has been no change in the
affairs of the Company since the date
hereof.
------------- ---------------
TABLE OF CONTENTS PROSPECTUS
--------------
Page
Available Information................2
Incorporation of Certain Documents by
Reference...........................
Prospectus Summary...................4
Risk Factors.........................8
Use of Proceeds.....................14
Business............................14
Description of the Debentures..... 27
Description of 1998 Debentures.... 48 _________, 1997
Description of Capital Stock...... 49
Plan of Distribution.............. 51
Selling Security Holders.......... 53
Legal Matters..................... 55
Experts........................... 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses (other than
underwriting discounts and commissions) payable by the Company in
connection with the sale of the Debentures and the Common Stock being
registered. All amounts (other than the registration fee) are estimated.
Item Amount
Securities and Exchange Commission registration fee $ 8,620.69
AMEX listing fee................................ 22,500.00
Blue Sky fees and expenses...................... 2,500.00
Accountants' fees and expenses.................. 120,000.00
Legal fees and expenses......................... 350,000.00
Trustee's fees.................................. 12,500.00
Transfer agent and registrar fees and expenses.. 2,500.00
Miscellaneous................................... 106,379.31
Total...................................... $625,000.00
===========
- -------------------------------------
Item 15. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of the
Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate of Incorporation"), the 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 Certificate of Incorporation, Bylaws, and the General
Corporation Law of the State of Delaware.
The Company's Restated Certificate of Incorporation provides that
the Company shall, to the full extent permitted by Sections 102 and 145
of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify all persons whom it may indemnify pursuant
thereto and eliminates the personal liability of its directors to the
full extent permitted by Section 102(b)(7) of the General Corporation
Law of the State of Delaware, as amended from time to time.
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties,
if such directors or officers acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably
incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to
which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person
shall have been adjudged liable for negligence or misconduct in the
performance of his respective duties to the corporation, although the
court in which the action or suit was brought may determine upon
application that the defendant officers or directors are reasonably
entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the General Corporation Law of the State of
Delaware provides that a corporation may eliminate or limit the personal
liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided
that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. No such provision shall eliminate or limit
the ability of a director for any act or omission occurring prior to the
date when such provision becomes effective.
Item 16. Exhibits.
Certain of the following exhibits, designated with an asterisk
(*), 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.
Exhibit No. Description
*1.1 - Purchase Agreement, dated September 22, 1995
between the Company and Forum Capital Markets
L.P.
3.1 - Restated Certificate of Incorporation of
the Company [Registration Statement No.
2-70062-NY, Amendment No. 1, Exhibit 2(a)]
3.2 - Certificate of Amendment of the Restated
Certificate of Incorporation of the
Company, as filed July 7, 1983
[Registration Statement on Form 8-A of the
Company, dated July 13, 1983, Exhibit 2.2]
3.3 - Composite copy of the Restated Certificate of
Incorporation of the Company, as amended
[Registration Statement No. 2-85238, Exhibit
3.3]
*3 .4 - Amended and Restated Certificate of
Incorporation of the Company, as filed
April 1, 1996
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
*4.1 - Indenture, dated as of September 22, 1995,
between the Company and The Trust Company of
New Jersey, as Trustee, in respect of the
Company's 9% Senior Subordinated Convertible
Debentures Due 2003
*4.2 - Form of 9% Senior Subordinated Convertible
Debenture Due 2003 (included as part of Exhibit
4.1)
*4.3 - Registration Rights Agreement, dated as of
September 22, 1995 between the Company and
Forum Capital Markets L.P.
4.4 - Indenture, dated as of August 1, 1983, between
the Company and Bankers Trust Company, as
Trustee [Form 10-Q, quarter ended September 30,
1983, File No. 1-8533, Exhibit 4.2]
4.5 - Indenture of Trust, dated December 1, 1991,
among Suffolk County Industrial Development
Agency, Manufacturers and Traders Trust
Company, as Trustee and certain bondholders
[Form 10-K, fiscal year ended March 31, 1992,
File No. 1-8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated December 1,
1991, among Photronics Corp., the Company and
Morgan Guaranty Trust Company of New York [Form
10-K, fiscal year ended March 31, 1992, File
No. 1-8533, Exhibit 4.3]
*4.7 - Registration Rights Agreement, dated as of
March 27, 1996, by and between the Company and
Palisade Capital Management L.L.C., acting as
investment adviser to the accounts named
therein
*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 the Indenture, dated as of August
1, 1983, between the Company and Bankers Trust
Company, as Trustee [Registration Statement,
File No. 333-04929]
*5.1 - Opinion of Skadden, Arps, Slate, Meagher &
Flom LLP
**23.1 - Consent of KPMG Peat Marwick LLP
*23.2 - Consent of Skadden, Arps, Slate, Meagher &
Flom LLP, contained in their opinion filed as
Exhibit 5.1
*24.1 - Power of Attorney (included in signature page
to Registration Statement)
*25.1 - Form T-1 Statement of Eligibility and
Qualification of the Trustee under the Trust
Indenture Act of 1939
- ------------------------
* Previously filed.
** Filed herewith.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold as
of the termination of the offering.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement 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.
The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause
to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim information.
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York, State of New York
on, February 7, 1997.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/ Mark S. Newman
__________________________________
Mark S. Newman
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to the 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 February 7, 1997
______________________ Officer, Chairman of the
Mark S. Newman Board and Director (Principal
Executive Officer)
/s/ Nancy R. Pitek Vice President - Finance, February 7, 1997
_______________________ Treasurer and Secretary
Nancy R. Pitek (Principal Financial
Officer and Principal
Accounting Officer)
* Vice President, President of February 7, 1997
_______________________ Precision Echo and Director
Stuart F. Platt
* Director February 7, 1997
_______________________
Leonard Newman
* Director February 7, 1997
_______________________
Theodore Cohn
* Director February 7, 1997
_______________________
Donald C. Fraser
* Director February 7, 1997
________________________
Mark N. Kaplan
* Director February 7, 1997
________________________
Jack Rachleff
*By /s/Mark S. Newman
_____________________
Mark S. Newman
Attorney-in-Fact
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk
(*), 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 No. Description in This Filing
Exhibit No. Description Page No.
in This Filing
*1.1 - Purchase Agreement, dated September 22, 1995
between the Company and Forum Capital Markets
L.P.
3.1 - Restated Certificate of Incorporation of
the Company [Registration Statement No.
2-70062-NY, Amendment No. 1, Exhibit 2(a)]
3.2 - Certificate of Amendment of the Restated
Certificate of Incorporation of the
Company, as filed July 7, 1983
[Registration Statement on Form 8-A of the
Company, dated July 13, 1983, Exhibit 2.2]
3.3 - Composite copy of the Restated Certificate of
Incorporation of the Company, as amended
[Registration Statement No. 2-85238, Exhibit
3.3]
*3 .4 - Amended and Restated Certificate of
Incorporation of the Company, as filed
April 1, 1996
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
*4.1 - Indenture, dated as of September 22, 1995,
between the Company and The Trust Company of
New Jersey, as Trustee, in respect of the
Company's 9% Senior Subordinated Convertible
Debentures Due 2003
*4.2 - Form of 9% Senior Subordinated Convertible
Debenture Due 2003 (included as part of Exhibit
4.1)
*4.3 - Registration Rights Agreement, dated as of
September 22, 1995 between the Company and
Forum Capital Markets L.P.
4.4 - Indenture, dated as of August 1, 1983, between
the Company and Bankers Trust Company, as
Trustee [Form 10-Q, quarter ended September 30,
1983, File No. 1-8533, Exhibit 4.2]
4.5 - Indenture of Trust, dated December 1, 1991,
among Suffolk County Industrial Development
Agency, Manufacturers and Traders Trust
Company, as Trustee and certain bondholders
[Form 10-K, fiscal year ended March 31, 1992,
File No. 1-8533, Exhibit 4.2]
4.6 - Reimbursement Agreement, dated December 1,
1991, among Photronics Corp., the Company and
Morgan Guaranty Trust Company of New York [Form
10-K, fiscal year ended March 31, 1992, File
No. 1-8533, Exhibit 4.3]
*4.7 - Registration Rights Agreement, dated as of
March 27, 1996, by and between the Company and
Palisade Capital Management L.L.C., acting as
investment adviser to the accounts named
therein
*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 the Indenture, dated as of August
1, 1983, between the Company and Bankers Trust
Company, as Trustee [Registration Statement,
File No. 333-04929]
*5.1 - Opinion of Skadden, Arps, Slate, Meagher &
Flom LLP
**23.1 - Consent of KPMG Peat Marwick LLP
*23.2 - Consent of Skadden, Arps, Slate, Meagher &
Flom LLP, contained in their opinion filed as
Exhibit 5.1
*24.1 - Power of Attorney (included in signature page
to Registration Statement)
*25.1 - Form T-1 Statement of Eligibility and
Qualification of the Trustee under the Trust
Indenture Act of 1939
- -------------------
* Previously filed.
** Filed herewith.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Diagnostic/Retrieval Systems, Inc.:
We consent to the use of our reports dated May 17, 1996, on the
consolidated financial statements and related schedule of Diagnos-
tic/Retrieval Systems, Inc. and subsidiaries as of March 31, 1996 and
1995, and for each of the years in the three-year period ended March 31,
1996, which reports appear or are incorporated by reference in the March
31, 1996 Annual Report on Form 10-K of Diagnostic/Retrieval Systems,
Inc., incorporated herein by reference and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 7, 1997
