PROSPECTUS
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DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
885,924 Shares of Common Stock
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This Prospectus relates to 885,924 shares of Common Stock, $.01 par
value (the "Common Stock") of Diagnostic/Retrieval Systems, Inc. (the
"Company"). The Common Stock may be offered from time to time for the
account of holders named herein (the "Selling Stockholders"). The Company
will not receive any proceeds from this offering. The Company's Common
Stock is listed on the American Stock Exchange (the "AMEX") under the
symbol "DRS." On February 4, 1997, the last reported sale price of the
Common Stock on the AMEX was $11-1/4 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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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.
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The Company has been advised by the Selling Stockholders that the
Selling Stockholders, each acting as a principal for its own account,
directly, through agents designated from time to time, or through dealers
or underwriters also to be designated, may sell all or a portion of the
Common Stock offered hereby from time to time, depending on market
conditions and other factors, in one or more transactions on the AMEX or
otherwise, at market prices prevailing at the time of sale, at negotiated
prices or at fixed prices. To the extent required, the number of shares of
Common Stock to be sold, the names of the Selling Stockholders, the
offering price, the name of any such agent, dealer or underwriter and any
applicable commissions with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this
Prospectus is a part. The aggregate proceeds to the Selling Stockholders
from the sale of Common Stock offered by the Selling Stockholders hereby
will be the offering price of such Common Stock less any commissions. For
information concerning indemnification arrangements between the Company
and the Selling Stockholders see "Plan of Distribution."
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the
distribution of the shares of Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), in which event any commissions received by
such broker-dealers, agents or underwriters and any profit on the resale
of the shares of Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
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The date of this Prospectus is February 24, 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 Common Stock is listed.
The Company has filed with the SEC a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect
to the shares of Common Stock offered pursuant to this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the 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 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 Communication, 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
Common Stock Offered................ 885,924 shares
Common Stock to be outstanding after
the offering...................... 5,584,093 shares (1)
Reclassification.................... On February 7, 1996, the Board of
Directors of the Company approved
and recommended for submission to
the stockholders of the Company
by a majority vote the
consideration and approval of an
Amended and Restated Certificate
of Incorporation (the "Restated
Certificate"), which amended and
restated the Company's
certificate to (i) effect a
reclassification (the
"Reclassification") of each share
of Class A Common Stock, $.01 par
value per share (the "Class A
Common Stock"), and each share of
Class B Common Stock, $.01 par
value per share (the "Class B
Common Stock"), into one share of
Common Stock of the Company, (ii)
provide that action by the stock-
holders may be taken only at a
duly called annual or special
meeting, and not by written
consent, and (iii) provide that
the stockholders of the Company
would have the right to make,
adopt, alter, amend, change or
repeal the by-laws of the Company
only upon the affirmative vote of
not less than 662/3% of the out-
standing capital stock of the
Company entitled to vote thereon.
On March 26, 1996, the
stockholders approved the
Restated Certificate. The
Restated Certificate was filed
with the Secretary of State of
the State of Delaware and became
effective on April 1, 1996. As a
result of the Reclassification,
the Company's 9% Senior
Subordinated Convertible
Debentures due October 1, 2003
(the "Debentures") and the 8 1/2%
Convertible Subordinated
Debentures due August 1, 1998
(the "1998 Debentures") are
convertible into shares of Common
Stock. In addition, each option
issued or issuable pursuant to
the Company's stock option plan
is now exercisable for an equal
number of shares of the Common
Stock.
The purpose of the Reclassifica-
tion was to simplify the
Company's capital structure,
streamline the Company's voting
procedures and enhance the
marketability and liquidity of
and maximize investor interest in
the Company's capital stock. In
addition, the Company believes
that, as a result of the Reclas-
sification, the Company is in a
more flexible position to raise
capital and effect mergers and
acquisitions using its common
stock. However, there can be no
assurance that the
Reclassification will have such
effects.
Voting Rights....................... Holders of Common Stock are
entitled to one vote per share on
all matters submitted for approval
of stockholders. See "Description
of Capital Stock."
AMEX symbol for Common Stock........ "DRS"
Registration Rights................. Pursuant to a registration rights
agreement (the "Registration
Rights Agreement") between the
Company and Palisade Capital
Management L.L.C. ("Palisade"),
acting as investment adviser to
the Selling Stockholders, the
Company has agreed to file a
shelf registration statement (the
"Shelf Registration Statement")
relating to the shares of Common
Stock offered hereby. The Company
has agreed to use its reasonable
best efforts to maintain the
effectiveness of the Shelf
Registration Statement until the
earlier of the disposition of the
shares offered hereby or the
third anniversary of the
effective date of the Shelf
Registration Statement, except
that it will be permitted to
suspend the use of the Shelf
Registration Statement during
certain periods under certain
circumstances.
Use of Proceeds..................... The Company will not receive any
proceeds from the sale of shares
of Common Stock offered pursuant
to this Prospectus. The Selling
Stockholders will receive all of
the net proceeds from any sale of
shares of Common Stock offered
hereby. See "Use of Proceeds" and
"Selling Stockholders."
(1) Based upon 5,584,093 shares of Common Stock outstanding as of February
4, 1997 (exclusive of 420,893 shares held in treasury).
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
purchasing the Common Stock offered hereby.
AMOUNT AND RISKS OF GOVERNMENT BUSINESS
Substantially all the Company's revenues are derived from contracts
or subcontracts with domestic and foreign government agencies of which a
significant portion is attributed to United States Navy (the "U.S. Navy")
procurements. The development and success of the Company's business in the
future will depend upon the continued willingness of the U.S. Government
to commit substantial resources to such U.S. Navy programs and, in
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.
SUBSTANTIAL INDEBTEDNESS
The Company has indebtedness that is substantial in relation to its
stockholders' equity. The indenture (the "Indenture") relating to the
Debentures 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, 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 Common Stock and could impair the Company's ability to raise
additional capital through the sale of its securities. 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. The
Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock, at a
conversion price of $8.85 per share, subject to adjustment under certain
circumstances. In addition, the 1998 Debentures are convertible into an
additional 332,800 shares of Common Stock at $15 per share, subject to
adjustment under certain circumstances.
LACK OF PUBLIC MARKET; RESTRICTIONS ON RESALE
At present, the Company's Common Stock is owned by a small number of
institutional investors. The Common Stock, the Debentures, the 1998
Debentures and the shares of Common Stock which are issuable upon
conversion of the Debentures and the 1998 Debentures (hereinafter, the
Company's "Listed Securities") are listed on the AMEX. The markets for the
Listed Securities have historically been characterized by limited trading
volume and a limited number of holders. There can be no assurance that a
more active trading market for the Common Stock will develop.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock offered pursuant to this Prospectus. The Selling Stockholders
will receive all of the net proceeds from any sale of the shares of Common
Stock offered hereby.
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. Founded in 1979, 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
and is expected to favorably impact future operating results.
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, microprocessor-based unit
complete with mainframe interface software offering advanced
computing and graphic capabilities. These units replace
previous generation units that are dependent upon a ship-board
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 world-wide. CMC can refurbish pre-1993 head
assemblies located on these machines at a significant cost savings
compared to replacement. CMC is developing, in conjunction with Ahead, the
ability to refurbish post-1993 recorders used by its customer base. Ahead
also has the capability to manufacture recording heads for CMC. In order
to foster operational synergies and to allow space for growth, Ahead and
CMC 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..... 2,200,000 5,100,000
------------ ------------ ------------
4,400,000
$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.
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 the Indenture dated as of September
22, 1995, and as supplemented as of April 1, 1996, between the Company and
The Trust Company of New Jersey, as trustee (the "Trustee"). The following
summary does not purport to be complete and is subject to and is qualified
in its entirety by reference to the Indenture and the form of the
Debentures.
The Debentures were issued on September 29, 1995 in an aggregate
principal amount of $20,000,000. On November 3, 1995, pursuant to the exercise
of an overallotment option by Forum, an additional $5,000,000 aggregate
principal amount was issued. The Debentures are general unsecured senior
subordinated obligations of the Company, are limited to $25,000,000 aggregate
principal amount and will mature on October 1, 2003. As of February 4, 1997,
$25 million aggregate principal amount of the Debentures were outstanding. The
Debentures bear interest at 9% per annum, and accrued but unpaid interest is
payable semi-annually on April 1 and October 1 of each year commencing April
1, 1996 (each, an "Interest Payment Date"). Interest is paid to
Debentureholders of record ("Holders") at the close of business on the March
15 or September 15, respectively, immediately preceding the relevant Interest
Payment Date (each, a "Regular Record Date"). Interest is computed on the
basis of a 360-day year of twelve 30-day months.
Holders are entitled, at any time and from time to time prior to
maturity (subject to earlier redemption or repurchase, as described below), to
convert their Debentures (or any portion thereof that is an integral multiple
of $1,000), at 100% of the principal amount thereof, into Common Stock of the
Company at the conversion price of $8.85, subject to adjustment under certain
circumstances.
The Debentures are not redeemable at the option of the Company prior
to October 1, 1998. Thereafter, the Debentures will be redeemable at any
time prior to maturity, at the option of the Company, in whole or from
time to time in part, upon not less than 30 days' nor more than 60 days'
prior notice of the redemption date, at the redemption prices established
for the Debentures, together with accrued but unpaid interest, if any, to
the date fixed for redemption. If a Change of Control occurs (as defined
in the Indenture), the Company shall offer to repurchase each Holder's
Debentures at a purchase price equal to 100% of the principal amount of
such Holder's Debentures, plus accrued but unpaid interest, if any, to the
date of purchase. The Change of Control purchase feature of the Debentures
may in certain circumstances make more difficult or discourage a takeover
of the Company.
In addition, in the event the Company's Consolidated Net Worth (as
defined in the Indenture) at the end of any two consecutive fiscal
quarters is below $18.0 million, the Company will offer to repurchase up
to 10% of the aggregate principal amount of Debentures at 100% of the
principal amount thereof plus accrued but unpaid interest to the date of
repurchase.
The Indenture limits (i) the issuance of additional debt by the
Company, (ii) the payment of dividends on the capital stock of the Company
and investments by the Company, (iii) certain transactions with
affiliates, (iv) incurrence of liens, (v) issuance of preferred stock by
the Company or its subsidiaries, (vi) stock splits, consolidations and
reclassifications, and (vii) sales of assets and subsidiary stock. The
Indenture also prohibits certain restrictions on distributions from
subsidiaries. However, all these limitations and prohibitions are subject
to a number of qualifications, as set forth therein.
Senior Indebtedness is defined in the Indenture to mean the principal
of and premium, if any, and interest on (a) the Debt (as defined in the
Indenture) of the Company or any of its Subsidiaries (as defined in the
Indenture) which is outstanding on the date of the Indenture and has been
provided by a bank that is not an Affiliate (as defined in the Indenture)
of the Company or by any State or local government or agency thereof, (b)
any Debt incurred after the date of the Indenture by the Company or any of
its Subsidiaries which expressly states that it is senior in right of
payment to the Debentures and is provided by a bank that is not an
Affiliate of the Company, (c) any Debt, whether outstanding on the date of
the Indenture or thereafter incurred, which evidences the Company's
obligation to refund any progress payments or deposits to the United
States or any foreign 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.
DESCRIPTION OF 1998 DEBENTURES
The following summary describes certain provisions of the indenture
governing the 1998 Debentures, as supplemented as of April 1, 1996 (the
"1998 Indenture"), and the 1998 Debentures. The following summary does not
purport to be complete and is subject to and is qualified in its entirety
by reference to the 1998 Indenture and the form of the 1998 Debentures.
The Company's 1998 Debentures were issued on August 1, 1983 in an
aggregate principal amount of $25,000,000. As of 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 re-
demption. 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 to (i) effect a reclassification of
each share of Class A Common Stock and each share of Class B Common Stock
into one share of Common Stock, (ii) provide that action by the
stockholders may be taken only at a duly called annual or special meeting,
and not by written consent and (iii) provide that the stockholders of the
Company would have the right to make, adopt, alter, amend, change or
repeal the By-Laws of the Company only upon the affirmative vote of not
less than 66 2/3% of the 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 Stockholders may sell all or a portion of the shares of Common
Stock offered hereby from time to time on terms to be determined at the
times of such sales. The shares of Common Stock may be sold from time to
time to purchasers directly by any of the Selling Stockholders.
Alternatively, any of the Selling Stockholders may from time to time offer
the shares of Common Stock through underwriters, dealers or agents, who
may receive compensation in the form of underwriting discounts,
commissions or concessions from the Selling Stockholders and the
purchasers of the shares of Common Stock for whom they may act as agent.
To the extent required, the number of shares of Common Stock to be sold,
the names of the Selling Stockholders, the offering price, the name of any
such agent, dealer or underwriter and any applicable commissions with
respect to a particular offer will be set forth in an accompanying
Prospectus Supplement or, if appropriate, a post-effective amendment to
the Registration Statement of which this Prospectus is a part. There is no
assurance that the Selling Stockholders will sell any or all of the shares
of Common Stock offered hereby. The Selling Stockholders and any
broker-dealers, agents or underwriters that participate with the Selling
Stockholders in the distribution of the shares of Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act, in
which event any discounts, commissions or concessions received by such
broker-dealers, agents or underwriter and any profit on the resale of the
shares of Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The shares of Common Stock may be sold from time to time in one or
more transactions, depending on market conditions and other factors, in
one or more transactions on the AMEX or otherwise, at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices.
Such prices may be determined by the holders of such securities or by
agreement between such holders and underwriters or dealers who may receive
fees or commissions in connection therewith. In addition, the Selling
Stockholders may from time to time sell the shares of Common Stock in
transactions under Rule 144 promulgated under the Securities Act.
To comply with the securities laws of certain states, if applicable,
the shares of Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition in certain states
the shares of Common Stock may not be offered or sold unless they have
been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available
and is complied with.
Pursuant to the Registration Rights Agreement, the Company agreed to
indemnify the Selling Stockholders against certain liabilities in
connection with the offer and sale of the Common Stock, including
liabilities under the Securities Act, and to contribute to payments that
the Selling Stockholders may be required to make in respect thereof.
The Company will pay substantially all expenses incident to the
offering and sale of the Common Stock to the public to the extent provided
for in the Registration Rights Agreement other than underwriting discounts
and selling commissions and expenses, and the fees and disbursements of
the Selling Stockholders' counsel, accountants and experts. The Company
and the Selling Stockholders have agreed to indemnify each other against
certain liabilities arising under the Securities Act. In addition, any
underwriter utilized by the Selling Stockholders may be indemnified
against certain liabilities, including liabilities under the Securities
Act. See "Selling Stockholders."
The Common Stock is listed on the AMEX and has historically been
characterized by limited trading volume and a limited number of holders.
No assurance can be given as to the liquidity of or the trading market for
the Common Stock. See "Risk Factors -- Lack of Public Market; Restrictions
on Resale."
SELLING STOCKHOLDERS
The following table sets forth information concerning the number of
shares of Common Stock beneficially owned by each Selling Stockholder
which may be offered from time to time pursuant to this Prospectus. Other
than as a result of the ownership of Common Stock, none of the Selling
Stockholders has had any material relationship with the Company within the
past three years, except as noted herein. The table has been prepared
based upon information furnished to the Company by or on behalf of the
Selling Stockholders.
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF PERCENT OF
BENEFI- SHARES BEING OUTSTANDING
NAME CIALLY OWNED REGISTERED SHARES
- ----------------------------------------- ------------ ----------- ----------
<S> <C> <C> <C>
Chrysler Corp. Emp. # 1 Pension Plan Dtd. 292,300 292,300 33%
4-1-89....................................
IBM Corp. Retirement Plan Trust Dtd. 319,024 319,024 36%
12-18-45..................................
G.E. Pension Trust........................ 212,600 212,600 24%
NYNEX Master Pension Trust Dtd. 1-1-84.... 62,000 62,000 7%
------------ ----------- ----------
Total................................ 885,924 885,924 100%
</TABLE>
Because the Selling Stockholders may sell all or some of the Common
Stock which they hold pursuant to the offering contemplated by this
Prospectus, no estimate can be given as to the aggregate amount of shares
of Common Stock that are to be offered hereby or that will be owned by the
Selling Stockholders upon completion of this offering to which this
Prospectus relates. Accordingly, the aggregate principal amount of Common
Stock offered hereby may decrease. In addition, the Selling Stockholders
identified above may have sold, transferred or otherwise disposed of all
or a portion of their Common Stock since the date on which they provided
the information regarding their Common Stock, in transactions exempt from
the registration requirements of the Securities Act. As of February 4,
1997, 5,584,093 shares of Common Stock, including the shares being offered
hereby, were issued and outstanding (exclusive of 420,893 shares held in
treasury). See "Plan of Distribution."
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for the Company by Skadden, Arps, Slate, Meagher & Flom 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 885,924 SHARES
INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE HEREIN
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR
ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF
ANY SECURITY OTHER THAN THE REGIS- DIAGNOSTIC/RETRIEVAL
TERED SECURITIES TO WHICH IT SYSTEMS, INC.
RELATES OR AN OFFER TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH
OFFER WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. COMMON STOCK
-------------
TABLE OF CONTENTS
Page
Available Information............ 2
Incorporation of Certain
Documents by................... 2
Prospectus Summary............... 4
Use of Proceeds...................9
Business..........................9
Description of the Debentures....23 ---------------
Description of 1998 Debentures...25
Description of Capital Stock.....26 PROSPECTUS
Plan of Distribution.............28
Selling Stockholders.............29 --------------
Legal Matters....................30
Experts..........................30
February 24, 1997
==================================== ================================
