0000950110-95-000570.txt : 19950810 0000950110-95-000570.hdr.sgml : 19950810 ACCESSION NUMBER: 0000950110-95-000570 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950705 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950809 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAGNOSTIC RETRIEVAL SYSTEMS INC CENTRAL INDEX KEY: 0000028630 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 132632319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08533 FILM NUMBER: 95560251 BUSINESS ADDRESS: STREET 1: 16 THORNTON RD CITY: OAKLAND STATE: NJ ZIP: 07436 BUSINESS PHONE: 2013373800 MAIL ADDRESS: STREET 1: 16 THORNTON RD CITY: OAKLAND STATE: NJ ZIP: 07436 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K File No. 1-8533 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K AMENDMENT TO APPLICATION OR REPORT Filed pursuant to Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. ---------------------------------- (Exact name of registrant as specified in charter) AMENDMENT NO. 1 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Current Report, dated July 5, 1995, on Form 8-K as set forth in the pages attached hereto: (List all such items, financial statements, exhibits or other portions amended) Item 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (a) Financial Statements (b) Pro Forma Financial Information (c) Exhibits Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. --------------------------------- (Registrant) By /s/ NANCY R. PITEK ------------------------------ Nancy R. Pitek Controller and Treasurer Date: August 8, 1995 The Current Report on Form 8-K, dated July 5, 1995, of Diagnostic/Retrieval Systems, Inc. (Commission File No. 1-8533) is hereby amended by filing herewith the following financial statements, pro forma financial information and exhibits: Item 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (a) Financial Statements: --------------------- 1. Audited consolidated balance sheets of Opto Mechanik, Inc. and subsidiary as of June 30, 1994 and 1993 and audited consolidated statements of operations, shareholders' equity and cash flows for the fiscal years ended June 30, 1994, 1993 and 1992. (b) Pro Forma Financial Information: -------------------------------- 1. Unaudited pro forma condensed consolidated balance sheet of Diagnostic/Retrieval Systems, Inc. and subsidiaries and Opto Mechanik, Inc. and subsidiary as of March 31, 1995. 2. Unaudited pro forma condensed consolidated statements of earnings (loss) of Diagnostic/Retrieval Systems, Inc. and subsidiaries and Opto Mechanik, Inc. and subsidiary for the fiscal year ended March 31, 1995. (c) Exhibits: --------- 1. Amendment to Agreement for Acquisition of Assets, dated July 5, 1995, between Photronics Corp. and Opto Mechanik, Inc. Item 7(a) Financial Statements OPTO MECHANIK, INC. CONSOLIDATED FINANCIAL STATEMENTS (Audited) FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- INDEPENDENT AUDITORS' REPORT .............................................. 1 FINANCIAL STATEMENTS: Consolidated Balance Sheets, June 30, 1994 and 1993 ............................................. 2 Consolidated Statements of Operations, Years Ended June 30, 1994, 1993 and 1992 ....................................... 4 Consolidated Statements of Shareholders' Equity, Years Ended June 30, 1994, 1993 and 1992 ....................................... 5 Consolidated Statements of Cash Flows, Years Ended June 30, 1994, 1993 and 1992 ....................................... 6 Notes to Consolidated Financial Statements ........................... 8 INDEPENDENT AUDITORS' REPORT Board of Directors Opto Mechanik, Inc.: We have audited the accompanying consolidated balance sheets of Opto Mechanik, Inc. and subsidiary (the "Company") as of June 30, 1994 and 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1994. Our audits also included the financial statement schedules listed in the index at item 14(A)(2). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. The accompanying consolidated financial statements for the year ended June 30, 1994 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company was not in compliance with certain covenants of its long-term loan agreements. The Company is attempting to renegotiate the terms and covenants of its loan agreements and is also seeking other sources of long-term financing. The Company's loan agreement covenant noncompliance, its substantial loss from operations and its working capital deficiency discussed in Note 2, raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP Orlando, Florida September 30, 1994 1 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30, 1994 AND 1993 ASSETS 1994 1993 ----------- ----------- Current Assets: Cash ............................................ $ 132,508 $ 150,516 Contract receivables (Notes 8 and 9) ............ 3,877,226 2,394,172 Costs and estimated earnings in excess of billings on uncompleted contracts (Notes 1 and 5) .............................. 9,930,322 13,396,777 Inventories (Notes 1, 3, 8 and 9) ............... 1,875,171 1,797,584 Other current assets ............................ 43,222 ----------- ----------- Total current assets ........................ 15,815,227 17,782,271 ----------- ----------- Property, plant and equipment (Notes 1, 6, 8 and 9) ........................................ 18,770,340 16,411,130 Less accumulated depreciation ..................... (9,149,488) (7,834,859) ----------- ----------- Property, plant and equipment--net .......... 9,620,852 8,576,271 ----------- ----------- Other assets ...................................... 555,292 286,379 ----------- ----------- Total assets ...................................... $25,991,371 $26,644,921 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 2 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30, 1994 AND 1993 LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 ----------- ----------- Current liabilities: Accounts payable ................................. $ 3,676,194 $ 2,379,951 Billings in excess of costs and estimated earnings on uncompleted contracts (Notes 1 and 5) ....... 199,737 Notes payable--current (Note ..................... 13,785,549 146,058 Revolving line of credit (Note 8) ................ 1,487,495 1,226,804 Accrued liabilities (Note 7) ..................... 2,629,461 877,616 Estimated losses on uncompleted contracts (Notes 1 and 5) ................................ 356,569 9,066 Deferred compensation (Note 13) .................. 19,812 106,343 Income taxes payable (Note 11) ................... 188,000 ----------- ----------- Total current liabilities .................... 22,154,817 4,933,838 ----------- ----------- Long-term liabilities: Deferred income taxes (Notes 1 and 11) ........... 898,767 Deferred compensation (Note 13) .................. 56,166 156,074 Notes payable--noncurrent (Note 9) ............... 229,832 9,177,940 ----------- ----------- Total long-term liabilities .................. 285,998 10,232,781 ----------- ----------- Commitments and Contingency (Notes 13 and 14) Shareholders' equity (Note 10): Common Stock--$.10 par value; 5,000,000 shares authorized; 2,189,102 shares issued and outstanding ......................... 218,910 218,910 Additional paid-in capital ....................... 5,670,362 5,670,362 Retained earnings (deficit) ...................... (2,338,716) 5,589,030 ----------- ----------- Total shareholders' equity ................... 3,550,556 11,478,302 ----------- ----------- Total liabilities and shareholders' equity ......... $25,991,371 $26,644,921 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1994, 1993 AND 1992 1994 1993 1992 ----------- ----------- ----------- Operating revenues (Note 1) .......... $18,923,323 $37,198,808 $32,621,687 ----------- ----------- ----------- Cost of sales (Note 1) ............. 21,252,962 30,858,826 27,836,735 General and administrative expenses ......................... 6,064,743 3,922,264 3,143,707 ----------- ----------- ----------- Total costs and expenses ....... 27,317,705 34,781,090 30,980,442 ----------- ----------- ----------- Income (loss) from operations ...... (8,394,382) 2,417,718 1,641,245 ----------- ----------- ----------- Other income (expense): Miscellaneous income ............. 539,276 12,150 14,968 Other income (expense), net (Note 9) ........................ (971,407) (856,550) (642,768) ----------- ----------- ----------- Other expense, net ............. (432,131) (844,400) (627,800) ----------- ----------- ----------- Income (loss) before income taxes .. (8,826,513) 1,573,318 1,013,445 Provision (benefit) for income taxes (Notes 1 and 11) ........... (898,767) 535,497 293,899 ----------- ----------- ----------- Net income (loss) .................. $(7,927,746) $ 1,037,821 $ 719,546 =========== =========== =========== Earnings (loss) per Common Share (Note 1) ........................... $ (3.62) $ .47 $ .33 =========== =========== =========== Weighted average shares outstanding (Note 1) ........................... 2,189,102 2,189,102 2,189,102 =========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED JUNE 30, 1994, 1993 AND 1992 Number Common Additional Retained of Stock Paid-in Earnings Shares At Par Capital (Deficit) --------- -------- ---------- ----------- Balance, June 30, 1991 ......... 2,189,102 $218,910 $5,670,362 $ 3,831,663 Net income ................... 719,546 --------- -------- ---------- ----------- Balance, June 30, 1992 ......... 2,189,102 218,910 5,670,362 4,551,209 Net income ................... 1,037,821 --------- -------- ---------- ----------- Balance, June 30, 1993 ......... 2,189,102 218,910 5,670,362 5,589,030 Net loss ..................... (7,927,746) --------- -------- ---------- ----------- Balance, June 30, 1994 ......... 2,189,102 $218,910 $5,670,362 $(2,338,716) ========= ======== ========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1994, 1993 AND 1992
1994 1993 1992 ------------ ----------- ----------- S> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ....................................... $ (7,927,746) $ 1,037,821 $ 719,546 Adjustments to reconcile net income (loss) to net cash provided from (used by) operating activities: Depreciation .......................................... 1,314,629 1,162,505 895,391 (Gain) loss on sale of assets ......................... 450 (Decrease) increase in deferred income taxes .......... (898,767) 347,497 274,398 (Decrease) increase in deferred compensation .......... (186,439) 164,784 97,633 Changes in assets and liabilities--net of effect of business acquired: Decrease (increase): Contracts receivable .............................. (1,483,054) 1,971,875 (990,860) Costs and estimated earnings in excess of billings on uncompleted contracts ............... 3,466,455 (2,531,546) (2,646,544) Inventories ....................................... (77,587) (169,522) 653,197 Other current assets .............................. 43,222 2,562 45,352 Other assets ...................................... (68,913) (259,855) 30,000 Increase (decrease): Accounts payable .................................. 1,296,243 (1,010,770) (473,264) Billings in excess of costs and estimated earnings on uncompleted contracts ............... 199,737 (1,973) Accrued liabilities ............................... 1,751,845 96,318 (113,422) Income taxes payable .............................. (188,000) 188,000 19,501 Estimated losses on uncompleted contracts ....................................... 347,503 9,066 (2,599) ------------ ----------- ----------- Net cash provided from (used by) operating activities ............................. (2,410,872) 1,008,735 (1,493,194) ------------ ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for business acquired--net of cash acquired .... (196,625) Capital expenditures ................................... (2,359,210) (2,213,213) (357,713) Proceeds from sale of machinery ........................ 470 ------------ ----------- ----------- Net cash used by investing activities ............ (2,359,210) (2,409,368) (357,713) ------------ ----------- -----------
6 OPTO MECHANIK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in revolving line of credit ....... $ 260,691 $ 1,226,804 Proceeds from borrowings on notes payable ...... 18,782,451 18,397,140 $20,663,110 Repayments of borrowings on notes payable ...... (14,291,068) (18,095,961) (18,718,743) Payment of long-term debt assumed in acquisition .................................. (256,904) ----------- ----------- ----------- Net cash provided from financing activities 4,752,074 1,271,079 1,944,367 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH .................. (l8,008) (129,554) 93,460 CASH AT BEGINNING OF YEAR ........................ 150,516 280,070 186,610 ----------- ----------- ----------- CASH AT END OF YEAR .............................. $ 132,508 $ 150,516 $ 280,070 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest ................................... $ 923,000 $ 777,000 $ 741,000 =========== =========== =========== Income taxes ............................... $ 104,000 $ -- $ -- =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In connection with the Company's acquisition of Universal Vision Systems, Inc. on July 1, 1992 (see Note 1), the Company entered into a note payable with the former owners for $250,000. In connection with the Company's purchase of a competing product line from another company in fiscal 1994, the Company entered into a note payable with this company for $200,000 and recorded other assets of $200,000. The accompanying notes are an integral part of these consolidated financial statements. 7 OPTO MECHANIK, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1994, 1993 AND 1992 1. Summary of Business and Significant Accounting Policies Business: Opto Mechanik, Inc. ("OMI") is primarily engaged in the development, manufacture and sale of sophisticated sighting systems designed for military application as part of the fire control system on tanks and howitzers, and through its subsidiary, Defense Marketing and Trading, Inc. ("DMT"), was a consultant and sales representative to companies selling to foreign governments. The Company began phasing out the operations of DMT during the fiscal year ended June 30, 1993 and dissolved DMT on July 1, 1993. On July 1, 1992, the Company purchased all of the outstanding stock of Universal Vision Systems, Inc. ("UVS"), of Alliance, Ohio for $450,000 (consisting of cash of $200,000 and a note payable of $250,000 [see Note 9]) and the assumption of UVS' outstanding debt of approximately $225,000. UVS is engaged in the manufacture and sale of day vision periscopes used in multiples on tracked and wheeled vehicles by the military. The Company's consolidated financial statements for the fiscal years ended June 30, 1994 and 1993 include the results of operations of UVS. Pro forma results of operations for the fiscal year ended June 30, 1992 are not included because prior to the Company's acquisition, UVS was a start-up company and had not commenced full production under its contracts. The Company's primary customers are the United States military and the armed forces of several foreign governments. During the fiscal years ended June 30, 1994, 1993 and 1992, approximately 86%, 93% and 78%, respectively, of the Company's revenues were derived directly or indirectly from contracts with United States Government agencies. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Revenues, uncompleted contracts: Revenues on contracts are recognized using the percentage of completion method based on the ratio of costs incurred and work performed to date on the contracts to total estimated contract costs. Estimates of the effects of changes in total estimated contract costs are recognized in the period determined. Losses, if any, are recognized fully when identified. Revenues recognized in excess of amounts billed are classified under current assets as costs and estimated earnings in excess of billings on uncompleted contracts. Amounts billed in excess of revenues recognized to date are classified under current liabilities as billings in excess of costs and estimated earnings on uncompleted contracts. 8 1. Summary of Business and Significant Accounting Policies (continued) Inventories: Inventories are valued at the lower of cost or market. Cost is determined generally on a first-in, first-out (FIFO) basis. Research and development: Research and development costs are charged to operations when incurred and included in operating expenses. Such costs totaled approximately $298,000, $20,000 and $29,000 for the years ended June 30, 1994, 1993 and 1992, respectively. Depreciation: The Company provides depreciation on the straight-line method over the following estimated useful lives of the various classes of depreciable assets: Leasehold improvements ..................................... 20 years Machinery and equipment .................................... 10 years Tooling .................................................... 10 years Office furniture and equipment ............................. 10 years Automobiles and trucks ..................................... 3 years Income taxes: Effective July 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." Under FAS 109, the Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements. The principal differences result from the use of accelerated depreciation methods for tax purposes and the effect of purchase accounting adjustments related to the acquisition of UVS. FAS 109 requires the current recognition of the benefit of future utilization of net operating loss and minimum tax credit carryforwards. The benefit is subject to the recording of a valuation allowance to the extent that realization of the carryforwards does not meet the standard of "more likely than not." The adoption of FAS 109 had no effect on the fiscal 1993 consolidated financial statements. Earnings (loss) per common share: The computation of earnings (loss) per common share is based on the weighted average number of shares outstanding during the year. Shares which were issuable upon the exercise of stock options have not been included in the per share computation at June 30, 1994, 1993 and 1992 because the effect of their inclusion would be anti-dilutive. 9 2. Going Concern Considerations The accompanying consolidated financial statements for the year ended June 30, 1994, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the consolidated financial statements during the year ended June 30, 1994, the Company incurred a loss from operations of $8,394,382, a net loss of $7,927,746 and the Company's current liabilities (as a result of the factors discussed below) exceeded its current assets by $6,339,590. These factors among others indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As described in Notes 8 and 9, the Company is not in compliance with various provisions of its loan agreements and, because the lenders have not waived these provisions, the balance of such outstanding debt has been classified as a current liability. Further, such outstanding debt is subject to demand for repayment at anytime. In the event demand for repayment is made by the lenders, the Company does not currently have the ability to repay such debt. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain profitable operations. Management is continuing its efforts to obtain funds through either additional or refinanced debt, subordinated debt, equity, or a combination thereof so that the Company can meet its obligations and sustain its operations. 3. Inventories Inventories consist of spare parts and supplies and are valued at $1,875,171 and $1,797,584 at June 30, 1994 and 1993 respectively. 4. Contract Claims Two contract claims were filed on completed contracts in fiscal 1981 which were comprised of costs which the Company incurred and expected to recover from the U.S. Government. On June 27, 1990, the Company received notice that the claims were denied by the Armed Forces Board of Contract Appeals. The Company had suspended action against a supplier, pending the outcome of the suit against the Army. Immediately upon receipt of the denial of the claims against the Army, the Company reactivated the suit against the supplier. During the fiscal year ended June 30, 1993, the Company collected $100,000 from the supplier in full settlement of the claims. 10 5. Contracts in Process Comparative information with respect to uncompleted contracts is as follows: 1994 1993 ----------- ----------- Expenditures on uncompleted contracts ........... $53,953,449 $46,485,628 Estimated earnings thereon ...................... 6,167,679 10,809,059 ----------- ----------- Total of costs and estimated earnings ........... 60,121,128 57,294,687 Less applicable billings ........................ 50,390,543 43,897,910 ----------- ----------- Total ....................................... $ 9,730,585 $13,396,777 =========== =========== These amounts are included in the accompanying balance sheet under the following captions: 1994 1993 ---------- ----------- Costs and estimated earnings in excess of billings on uncompleted contracts .............. $9,930,322 $13,396,777 Billings in excess of costs and estimated earnings on uncompleted contracts .............. 199,737 ---------- ----------- $9,730,585 $13,396,777 ========== =========== The Company has provided for estimated losses on uncompleted contracts in the following amounts: 1994 1993 1992 ----------- -------- -------- Estimated losses ....... $ 356,569 $ 9,066 $ -- Contract value ......... $14,890,961 $348,908 $ -- The balances billed, but not paid by customers are due upon completion of performance tests or contract milestones. All balances billed are due upon receipt by the customer, as the Company invoices upon reaching these milestones. There are no unpaid billed balances under retainage provisions. Costs and estimated earnings in excess of billings on uncompleted contracts comprise principally amounts of revenue recognized on contracts for which billings had not been presented to the contract owners because the amounts were not billable at the balance sheet date. It is anticipated that such unbilled amounts receivable at June 30, 1994 will be billed over the next 150 days as units are delivered or upon completion of contract milestones or performance tests. 11 6. Property, Plant and Equipment Property, plant and equipment are stated at cost and include the following: 1994 1993 ----------- ----------- Land .................................... $ 382,000 $ 382,000 Leasehold improvements .................. 2,795,563 2,581,904 Machinery and equipment ................. 8,918,114 7,578,731 Tooling ................................. 5,095,859 4,504,592 Office furniture and equipment .......... 1,512,202 1,297,301 Leased equipment ........................ 15,845 15,845 Automobiles and trucks .................. 50,757 50,757 ----------- ----------- Total Cost .......................... $18,770,340 $16,411,130 =========== =========== Depreciation expense for the years ended June 30, 1994, 1993 and 1992 was $1,314,629, $1,162,505 and $895,391, respectively. 7. Accrued Liabilities Accrued liabilities are as follows: 1994 1993 ---------- -------- Payroll ................................. $ 325,492 $299,815 Vacation pay ............................ 262,399 254,829 Interest ................................ 107,752 59,842 Payroll taxes ........................... 25,545 63,592 Property taxes .......................... 97,610 113,646 Advance deposits ........................ 1,095,904 Other ................................... 714,759 85,892 ---------- -------- $2,629,461 $877,616 ========== ======== 8. Revolving Line of Credit The Company's subsidiary, UVS, has a revolving line of credit with a banking institution. Borrowings under the revolving line of credit are due on demand, interest is payable monthly at the prime rate (7.25% at June 30, 1994) plus 2.25%. The agreement provides for maximum borrowings of $1,500,000. At June 30, 1994, credit available under the line was $12,505. The line of credit is collateralized by substantially all assets of UVS and is guaranteed by OMI. As of June 30, 1994, the Company is not in compliance with various covenants, including required tangible net worth and ratio of debt to net worth, of the revolving line of credit agreement. See further discussion in Note 2. 12 9. Notes Payable Notes payable are as follows: 1994 1993 ----------- ----------- Revolving line of credit/term loan facility with a bank, interest only payable quarterly at the prime rate (7.25% at June 30, 1994) plus 2%, maximum borrowings allowed of $10,000,000, principal due October 1995 ................... $ 8,363,955 $ 8,999,170 Note payable to a finance company, interest at 6.9%, payable in 84 monthly principal and interest installments of $45,131 through November 2000 ................................ 2,801,501 Note payable to a finance company, interest at 6.96%, payable in 60 monthly principal and interest installments of $9,037 through December 1998 ................................ 417,924 Note payable to a bank, interest at the bank's prime rate (7.25% at June 30, 1994), interest payable monthly, principal payable over a term of 33 months as per the agreement, guaranteed by a director of the Company ...... 1,026,809 Revolving line of credit with a bank, interest only payable monthly at the prime rate (7.25% at June 30, 1994) plus 1.75%, maximum borrowings allowed of $1,000,000, principal due in October 1995, collateralized by an irrevocable standby letter of credit from another bank which was provided by a director of the Company ............................... 930,000 Note payable to two individuals, interest at 6.5%, payable in 12 quarterly principal and interest installments of $18,479 through November 1996 ........................ 169,294 Note payable to former owners of UVS, interest at 6%, payable in two annual principal installments of $125,000 plus accrued interest, matures June 1996 ............................ 125,000 250,000 Other notes payable .......................... 180,898 74,828 ----------- ----------- Total ........................................ 14,015,381 9,323,998 Less current portion ......................... 13,785,549 146,058 ----------- ----------- Long-term portion ............................ $ 229,832 $ 9,177,940 =========== =========== 13 9. Notes Payable (continued) Notes payable mature as follows: 1995 ................ $13,785,549 1996 ................ 193,756 1997 ................ 36,076 ----------- $14,015,381 =========== The revolving line of credit/term loan facility is collateralized by contract receivables, inventory, substantially all equipment and a first mortgage on real property. The notes payable to a finance company are collateralized by specific equipment. Interest expense was $971,407, $733,718 and $642,768 for the three years ended June 30, 1994, 1993, and 1992, respectively. The revolving line of credit/term loan facility and the revolving line of credit with a bank require compliance with certain covenants. The Company was not in compliance with various of these covenants, including required tangible net worth and ratio of debt to net worth, as of June 30, 1994. The notes payable to a finance company and the note payable to a bank are cross-defaulted with the Company's other loan agreements. The lenders have not waived the events of default and, accordingly, all such notes payable have been classified as current liabilities as of June 30, 1994. See further discussion in Note 2. 10. Stock Options The Company has various stock option plans which provide for grants of options for up to ten years, exercisable one year from the date of grant, for key officers and employees upon approval by the shareholders. Exercise prices range from $2.75 to $4.50 per share, the fair market value of the stock at the date of grant. A summary of the option transactions for the years ended June 30, 1994, 1993 and 1992 is as follows: 1994 1993 1992 ------- ------- ------- Options outstanding, beginning of year ..... 355,800 436,000 443,000 Options issued ............................. 25,000 Options cancelled .......................... (143,800) (39,200) (3,000) Options forfeited, subject to reissuance ... (79,157) (41,000) (4,000) ------- ------- ------- Options outstanding at end of year, 132,843 of which were exercisable at June 30, 1994 ......................... 157,843 355,800 436,000 ======= ======= ======= l1. Income Taxes The components of the provision (benefit) for income taxes are as follows: 1994 1993 1992 --------- -------- -------- Currently payable: State .............................. $ 38,000 $ 19,501 Federal ............................ 150,000 Deferred ............................. $(898,767) 347,497 274,398 --------- -------- -------- $(898,767) $535,497 $293,899 ========= ======== ======== 14 11. Income Taxes (continued) The Company's effective tax rate differs from the statutory federal income tax rate for the following reasons: 1994 1993 1992 ---------- --------- -------- Computed statutory amount ............. $(3,001,014) $ 542,691 $344,571 Increase (decreases): State income tax, net of federal income tax benefit ................ (369,546) 25,799 18,708 Valuation allowances ................ 2,365,330 Nondeductible expenses .............. 8,206 4,301 5,011 Utilization of net operating loss carryforward ...................... 999 35,687 Benefit of graduated income tax rate structure (101,018) Other, net .......................... 98,257 (38,293) (9,060) ---------- --------- -------- $ (898,767) $ 535,497 $293,899 ========== ========= ======== Effective rate ........................ (10)% 34% 29% ========== ========= ======== The principal items in deferred tax expenses (benefits) are as follows: 1994 1993 1992 ---------- --------- -------- Excess of tax over book depreciation .. $ 3,235 $(232,755) $ 10,150 Effect of purchase accounting adjustment .......................... (22,372) 223,720 Effect of tax losses used (carried forward) ............................ (930,669) 428,250 345,100 Estimated losses on uncompleted contracts ........................... (121,233) Deferred compensation ................. 63,389 (56,027) (28,314) Other, net ............................ 108,883 (15,691) (52,538) ---------- --------- -------- $ (898,767) $ 347,497 $274,398 ========== ========= ======== Net deferred tax liabilities are comprised of the following: 1994 1993 ---------- -------- Noncurrent assets: Net operating loss carryforwards and alternative minimum tax credits ................................. $3,555,518 $259,519 Estimated losses on uncompleted contracts ................................... 121,233 Deferred compensation ......................... 25,833 89,222 Other ......................................... 74,093 183,044 ---------- -------- Total noncurrent assets ......................... $3,776,677 $531,785 ---------- -------- 15 11. Income Taxes (continued) 1994 1993 ----------- ----------- Noncurrent liabilities: Depreciation ................................ $(1,210,067) $(1,206,832) Purchase accounting adjustments ............. (201,280) (223,720) ----------- ----------- Total noncurrent liabilities .................. (1,411,347) (1,430,552) ----------- ----------- Noncurrent deferred tax assets (liabilities), net .......................... 2,365,330 (898,767) ----------- ----------- Valuation allowance ........................... (2,365,330) ----------- ----------- Total ......................................... $ 0 $ (898,767) =========== =========== The Company has approximately $8,626,000 of federal and $5,743,000 of state net operating loss carryforwards and approximately $253,000 of alternative minimum tax credits remaining at June 30, 1994, which give rise to a deferred tax asset. Utilization of the net operating loss carryforwards and alternative minimum tax credits to offset future taxable income within the carryforward period under existing tax laws and regulations is not considered likely. Therefore, a valuation allowance against the deferred tax asset is necessary at June 30, 1994. The net operating loss carryforwards expire in 2007. The alternative minimum tax credits do not expire. 12. Supplemental Profit and Loss Information Included in costs and expenses are the following: 1994 1993 1992 -------- -------- -------- Taxes, other than payroll taxes (principally property taxes) .......... $508,992 $358,191 $344,220 Research and development ................ $297,507 $ 20,317 $ 28,700 Advertising and maintenance and repairs are less than 1% of revenues for all periods presented. 13. Retirement Plan The Company has a defined contribution 401(k) retirement plan for all employees who have been employed for a minimum of six months. Under the terms of the plan, the Company, at the discretion of the Board of Directors, contributes up to 50% of the employees' voluntary contributions which are limited to 6% of gross salaries. The Company's matching contributions to the plan for the years ended June 30, 1994, 1993 and 1992 were $147,000, $143,000 and $94,000, respectively. During 1992, the Company entered into employment and consulting agreements with its four senior officers, which provide for post-employment deferred compensation benefits and consulting fees upon expiration of the employment term for periods ranging from 4 to 7-1/2 years. The Company is accruing the deferred compensation element of the contracts over the employment periods. Costs charged to operations for the years ended June 30, 1994, 1993 and 1992 were $19,458, $164,784 and $97,633, respectively. The Company is not presently funding this liability. 16 13. Retirement Plan (continued) As of June 30, 1994, three of the officers have retired. Two of the officers are presently receiving payments under the employment and consulting agreements totaling approximately $18,000 per month. The third officer received a lump sum settlement of his employment and consulting agreement of $125,000 in May 1994. If the employment periods are not extended at the end of their terms, the aggregate commitments under the agreements are as follows for subsequent years ended June 30: 1995 .................. $ 238,914 1996 .................. 282,816 1997 .................. 251,196 1998 .................. 153,690 1999 .................. 87,804 Thereafter ............ 263,412 ---------- Total ................. $1,277,832 ========== 14. Commitments and Contingency Leases: ------- The Company leases its current office and manufacturing facility in Melbourne, Florida under a 20-year operating lease agreement at an annual rent of approximately $982,000 at June 30, 1994. The agreement contains renewal options and a provision for annual rental increases contingent on increases in the Consumer Price Index. The Alliance, Ohio facility is under a 5-year operating lease agreement at an annual rent of approximately $150,000 at June 30, 1994. The agreement also contains renewal options. Rent expense for the years ended June 30, 1994, 1993 and 1992 was approximately $1,171,000, 1,066,000 and $951,000, respectively. Contingency: ------------ UVS is the subject of a U.S. Government investigation of certain business and reporting practices from which civil, criminal or administrative proceedings could result. Those proceedings, if pursued, could involve claims by the Government for damages as well as fines and penalties. Based upon Government procurement regulations, a contractor can be suspended or debarred from Government contracts if proceedings result from such investigation. The Company is not able to determine, at this early stage of the investigation, whether the outcome of the Govemment's investigation will have a materially adverse effect on its consolidated financial statements. 17 I5. Business Segments and Geographic Region Information Opto Mechanik, Inc. and Universal Vision Systems, Inc. are engaged in the development, manufacture and sale of sophisticated sighting systems and day vision periscopes designed for military application and use. Defense Marketing and Trading, Inc. was a consulting and sales representative to companies desirous of making sales of products and services to foreign governments. All significant intercompany accounts and transactions have been eliminated. Identifiable assets include primarily accounts receivable, inventories, and property and equipment. Amounts shown as operating income of the various industry segments reflect allocations of corporate general and administrative expenses. Opto Mechanik, Inc. and Universal Vision Systems, Inc. [in 1994 and 1993} ------------------------------------------------- 1994 1993 1992 ----------- ----------- ----------- Revenues .............................. $18,923,323 $35,315,784 $25,647,049 Operating income (loss) ............... $(8,394,382) $ 2,486,614 $ 1,404,263 Depreciation .......................... $ 1,314,629 $ 1,162,505 $ 895,391 Capital expenditures .................. $ 2,359,210 $ 2,213,213 $ 357,713 Identifiable assets (excluding intercompany payable/receivable) .... $25,991,371 $26,631,532 $21,347,741 Defense Marketing and Trading, Inc. (dissolved in 1994} --------------------------------- Revenues ........................................... $ 1,883,024 $ 6,974,638 Operating income (loss) ............................ $ (68,896) $ 236,982 Depreciation ....................................... $ -- $ -- Capital expenditures ............................... $ -- $ -- Identifiable assets (excluding intercompany payable/receivable) ................. $ 13,389 $ 2,293,053 The risks of doing business outside the United States, which management believes are minimal, included expropriation and restrictive action by local governments. 18 15. Business Segments and Geographic Region Information (continued) Revenues and gross profit by geographic region for the years ended June 30, are as follows: 1994 1993 1992 ----------- ----------- ----------- Sales: United States ................... $13,987,593 $34,766,549 $25,557,567 Middle East ..................... 3,614,388 2,295,528 7,003,671 Canada .......................... 32,269 47,374 8,869 Europe .......................... 876,972 89,357 51,580 Asia ............................ 412,101 ----------- ----------- ----------- TOTAL ......................... $18,923,323 $37,198,808 $32,621,687 =========== =========== =========== Gross profit (loss): United States ................... $(3,437,445) $ 6,371,225 $ 4,339,233 Middle East ..................... 784,945 (90,415) 435,655 Canada .......................... 14,669 19,442 5,897 Europe .......................... 166,081 39,730 4,167 Asia ............................ 142,111 ----------- ----------- ----------- TOTAL ......................... $(2,329,639) $ 6,339,982 $ 4,784,952 =========== =========== =========== 19 16. Quarterly Data (Unaudited)
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 1994 1994 1993 1993 1993 1993 1992 1992 (3) (2) (1) ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Operating revenues $6,171,146 $4,078,160 $3,784,709 $4,889,308 $10,122,365 $9,902,894 $9,219,347 $7,954,202 Cost and Expenses 6,861,792 5,107,825 8,126,476 7,221,612 9,160,658 9,347,675 8,732,763 7,539,994 ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Income (loss) from operations ............. (690,646) (1,029,665) (4,341,767) (2,332,304) 961,707 555,219 486,584 414,208 ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Other income (expense) .... 537,958 1,318 (120,102) 1,000 7,510 910 Interest expense ......... (241,528) (173,880) (316,759) (239,240) (191,454) (184,469) (180,140) (177,655) ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Other income (expense)-- net .................... 296,430 (173,880) (315,441) (239,240) (311,556) (183,469) (172,630) (176,745) ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Income (loss) before income taxes ........... (394,216) (1,203,545) (4,657,208) (2,571,544) 650,151 371,750 313,954 237,463 Provision for income taxes (tax benefit) .... (178,767) (720,000) 241,434 106,581 109,119 78,363 ---------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- Net income (loss) ........ $ (394,216) $(1,203,545) $(4,478,441) $(1,851,544) $ 408,717 $ 265,169 $ 204,835 $ 159,100 ========== =========== =========== =========== =========== ========== ========== ========== Earnings (loss) per common share ........... $ (.18) $ (.55) $ (2.04) $ (.85) $ .19 $ .12 $ .09 $ .07 ========== =========== =========== =========== =========== ========== ========== ========== Average weighted shares outstanding ............ 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 2,189,102 ========== =========== =========== =========== =========== ========== ========== ========== ----------- (1) Operating revenues for the September 30, 1993 quarter have been reduced by approximately $516,000 from the amount previously reported on Form 10-Q to correct errors in revenue recognition. The September 30, 1993 Form 10-Q will be amended to correct these errors. (2) Operating revenues for the December 31, 1993 quarter have been reduced by approximately $1,412,000 from the amount previously reported on Form 10-Q to correct errors in revenue recognition. Tax benefit for this quarter has been increased by approximately $151,000 from the amount previously reported on Form 10-Q to correct errors in the computation of the tax benefit. The December 31, 1993 Form 10-Q will be amended to correct these errors. (3) Operating revenues for the March 31, 1994 quarter have been reduced by approximately $1,293,000 from the amount previously reported on Form 10-Q to correct errors in revenue recognition. The March 31, 1994 Form 10-Q will be amended to correct these errors.
20 Item 7(b) Pro Forma Financial Information DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY Pro Forma Financial Information (Unaudited) The following unaudited pro forma financial information is based on the historical consolidated financial statements of Diagnostic/Retrieval Systems, Inc. and subsidiaries ("DRS") and Opto Mechanik, Inc. and subsidiary ("OMI") giving effect to the acquisition by DRS of substantially all of the assets of OMI on July 5, 1995. OMI had filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code for the Middle District of Florida, Orlando Division on October 14, 1994 and the acquisition by DRS was approved by such court on June 23, 1995. OMI designs and manufactures electro-optical sighting and targeting systems used primarily in military fire control devices and in various weapons systems. The price paid by DRS totaled $5,640,000 consisting of $3,890,000 in cash and $1,750,000 in principal amount of notes. In addition, DRS incurred professional fees and other costs related to the acquisition of approximately $250,000. The unaudited pro forma financial information has been prepared using the assumptions that, with respect to the unaudited pro forma condensed consolidated balance sheet, the transaction had occurred on March 31, 1995, and with respect to the pro forma condensed consolidated statement of earnings (loss), the transaction had occurred on April 1, 1994. The unaudited pro forma financial information also reflects giving effect to the transaction under the purchase method of accounting based upon the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements. Certain accounts in the OMI historical financial statements have been reclassified to conform to the DRS financial statement presentation and OMI's reported amounts related to reorganization items and discontinued operations are not included in the historical OMI statement of operations in the pro forma consolidated statement of earnings (loss). It should be understood that the unaudited pro forma condensed consolidated financial statements do not necessarily reflect the actual consolidated financial position or results of operations since, among other factors, actual expenses may be lower or higher than amounts assumed or estimated. The unaudited pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if the transaction had taken place on the dates indicated nor do they represent a basis for assessing future performance. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements of DRS and OMI. 1
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET Historical ------------------------------- Pro Forma DRS OMI Pro Forma Consolidated -------------- -------------- Adjustments -------------- March 31, 1995 March 31, 1995 Add (Deduct) March 31, 1995 -------------- -------------- ------------ -------------- Assets Current assets: Cash $ 11,197,000 132,000 (A) (132,000) $ 7,307,000 (A) (3,890,000) Accounts receivable 17,432,000 7,088,000 (A) (7,088,000) 17,822,000 (A) 390,000 Inventories, net of progress payments 11,724,000 1,708,000 (A) (1,708,000) 13,759,000 (A) 2,035,000 Other current assets 2,445,000 135,000 (A) (135,000) 2,535,000 (A) 90,000 ------------ ---------- -------------- ------------ Total current assets 42,798,000 9,063,000 (10,438,000) 41,423,000 Property, plant and equipment, at cost 33,661,000 16,629,000 (A)(16,629,000) 37,766,000 (A) 4,105,000 Less accumulated depreciation and amortization (23,812,000) (9,480,000) (A) 9,480,000 (23,812,000) ------------ ---------- -------------- ------------ Net equipment and improvements 9,849,000 7,149,000 (3,044,000) 13,954,000 Intangible assets 12,377,000 12,377,000 Less accumulated amortization (3,457,000) (3,457,000) ------------ ---------- -------------- ------------ Net intangible assets 8,920,000 8,920,000 Other assets 3,023,000 669,000 (A) (669,000) 3,023,000 ------------ ---------- -------------- ------------ $ 64,590,000 16,881,000 (14,151,000) $ 67,320,000 ============ ========== ============== ============ See accompanying notes to unaudited pro forma condensed consolidated financial statements.
2
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET Historical ------------------------------- Pro Forma DRS OMI Pro Forma Consolidated -------------- -------------- Adjustments -------------- March 31, 1995 March 31, 1995 Add (Deduct) March 31, 1995 -------------- -------------- ------------ -------------- Liabilities and Stockholders' Equity Current liabilities: Current installments of long-term debt $ 2,492,000 (A) 332,000 $ 3,124,000 (A) 300,000 Accounts payable and other 19,989,000 3,484,000 (A) (3,484,000) 20,969,000 (A) 980,000 ----------- ---------- -------------- ------------ Total current liabilities 22,481,000 3,484,000 (1,872,000) 24,093,000 Long-term debt, excluding current installments 11,732,000 (A) 1,118,000 12,850,000 Deferred income taxes 4,605,000 4,605,000 Other liabilities 3,263,000 16,549,000 (A)(16,549,000) 3,263,000 ----------- ---------- -------------- ------------ Total liabilities 42,081,000 20,033,000 (17,303,000) 44,811,000 Stockholders' equity: Class A Common Stock 37,000 219,000 (A) (219,000) 37,000 Class B Common Stock 22,000 22,000 Additional paid-in capital 13,435,000 5,670,000 (A) (5,670,000) 13,435,000 Retained earnings 10,919,000 (9,041,000) (A) 9,041,000 10,919,000 ----------- ---------- -------------- ------------ 24,413,000 (3,152,000) 3,152,000 24,413,000 Treasury stock, at cost (1,617,000) (1,617,000) Unamortized restricted stock compensation (287,000 (287,000) ----------- ---------- -------------- ------------ Net stockholders' equity 22,509,000 (3,152,000) 3,152,000 22,509,000 ----------- ---------- -------------- ------------ $64,590,000 16,881,000 (14,151,000) $ 67,320,000 =========== ========== ============== ============ See accompanying notes to unaudited pro forma condensed consolidated financial statements.
3
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS) Historical ------------------------------- Pro Forma DRS OMI Consolidated -------------- -------------- Pro Forma -------------- Year Ended Year Ended Adjustments Year Ended March 31, 1995 March 31, 1995 Add (Deduct) March 31, 1995 -------------- -------------- ------------ -------------- Revenues $69,930,000 13,933,000 $83,863,000 Costs and expenses 64,836,000 20,583,000 (B) (247,000) 85,172,000 ----------- ---------- -------------- ----------- Operating income (loss) 5,094,000 (6,650,000) 247,000 (1,309,000) Interest and related expenses (1,372,000) (603,000) (C) 603,000 (1,487,000) (D) (115,000) Other income, net 534,000 605,000 (E) (232,000) 607,000 (F) (300,000) ----------- ---------- -------------- ----------- Earnings (loss) before income taxes, restructuring items and discontinued operations 4,256,000 (6,648,000) 203,000 (2,189,000) Income taxes (benefit) 1,652,000 (G) (2,527,000) (875,000) ----------- ---------- -------------- ----------- Earnings (loss) before restructuring items and discontinued operations $ 2,604,000 (6,648,000) 2,730,000 $(1,314,000) =========== ========== ============== =========== Earnings (loss) per share of Class A and Class B Common Stock before restructuring items and discontinued operations $ .50 $ (.25) =========== =========== Weighted average number of shares of Class A and Class B Common Stock outstanding 5,231,000 5,231,000 =========== =========== See accompanying notes to unaudited pro forma condensed consolidated financial statements.
4 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements (A) On July 5, 1995, DRS acquired substantially all of the assets of OMI pursuant to an Agreement for Acquisition of Assets dated May 24, 1995, as amended July 5, 1995, between Photronics Corp., a wholly-owned subsidiary of DRS, and OMI, and approved by the United States Bankruptcy Court for the Middle District of Florida on June 23, 1995. OMI, located in Melbourne, Florida, designs and manufactures electro-optical sighting and targeting systems used primarily in military fire-control devices and in various weapons systems. The price paid by DRS consisted of $3,890,000 in cash and $1,750,000 in principal amount of notes. In addition, DRS incurred professional fees and other costs related to the acquisition of approximately $250,000. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. The excess of the fair market value of net assets over the cost of the acquisition of approximately $395,000 has been recorded as a reduction to property, plant and equipment, at cost. (B) To recognize an adjustment to depreciation expense arising from the calculation of depreciation based on the estimated useful lives of the fair market value of the property, plant and equipment acquired, as adjusted by the excess of the fair market value of the assets acquired over the cost of the acquisition. (C) To recognize a decrease in interest expense arising from the assumption that exisiting OMI debt would not have been included in the net assets acquired. (D) To recognize an increase in interest expense arising from interest due on the notes payable. The note to PNC Bank, Kentucky, Inc. ("PNC") in the principal amount of $1,450,000 is payable in 48 equal monthly installments of principal and interest commencing with the first day of the month following the acquisition date. The PNC note bears interest at the prime interest rate plus 0.5%. The note to OMI in the principal amount of $300,000 is payable in 6 equal monthly installments of principal and interest commencing one month from the acquisition date and bears interest at a rate of 9.5% per annum. 5 DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES AND OPTO MECHANIK, INC. AND SUBSIDIARY Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements (Continued) (E) To recognize a decrease in other income, net arising from the assumed reduction in interest income associated with the payment of $3,890,000 in cash as part of the purchase price on the date of acquisition and payments of principal and interest during the year on the notes payable totaling approximately $632,000 and $115,000, respectively. Because OMI was in bankruptcy and since DRS acquired only certain contracts in process and backlog, it is not practicable to determine whether any additional working capital would have been required by OMI resulting in a further loss of interest income. (F) To adjust other income, net at OMI for the amount related to a gain recorded on a transaction which was reversed in a subsequent period. (G) To adjust income taxes (benefit) to reflect the effective income tax (benefit) rate assumed for DRS and OMI on a combined basis for each pro forma period presented. 6 EX-99 2 AMENDMENT TO ACQUISITION AGREEMENT ITEM 7(c) EXHIBITS AMENDMENT TO AGREEMENT FOR ACQUISITION OF ASSETS THIS AMENDMENT TO AGREEMENT FOR ACQUISITION OF ASSETS ("Amendment") has been entered on this 5th day of July, 1995, between Photronics Corp., a New York corporation, or its designee (the "Buyer" or "Photronics"), and Opto Mechanik, Inc., a Delaware corporation (the "Debtor" or "OMI" or "Estate") joined, for the specific purposes set forth below, by PNC Bank, Kentucky, Inc. ("PNC"), MetLife Capital Corporation ("MetLife"), and the Official Committee of Unsecured Creditors appointed and serving in In re: Opto Mechanik, Inc., United States Bankruptcy Court for the Middle District of Florida, Case No. 94-05361-6J1 ("Committee"). I. RECITALS -------- A. On May 24, 1995, Photronics and OMI entered into the Agreement for Acquisition of Assets (the "Photronics Acquisition Agreement") under which Photronics agreed to buy and OMI agreed to sell substantially all of the assets of OMI. B. In accordance with the Photronics Acquisition Agreement, OMI subsequently filed a motion for approval of the Photronics Acquisition Agreement ("Sale Motion") which was heard by the United States Bankruptcy Court for the Middle District of Florida (the "Court") on June 23, 1995 (the "Hearing"). C. The Phototronics Acquisition Agreement was modified during the course of the Hearing by the Final Photronics Term Sheet (6/23/95)("Term Sheet") reflecting the agreements announced in open court by the various affected parties. D. On June 23, 1995, the Court entered the Order Approving Sale of Substantially All the Assets of the Debtor, a copy of which is attached hereto as Exhibit "A" ("Sale Order") approving the terms of the Photronics Acquisition Agreement as modified by the Term Sheet. E. On June 23, 1995, the Court also considered the Debtor's Motion for Assumption and Assignment of Executory Contracts with Customers and Licensors and the Debtor's Motion for Assumption and Assignment of EDM Executory Contracts (collectively, the "Assumption Motions"). On June 24, 1995, the Court entered orders granting the Assumption Motions ( the "Assumption Order"). 1. Included among the executory contracts assumed by OMI and assigned to Photronics pursuant to the Assumption Orders ("Executory Contracts") was a pending contract with Telenav International & United Defense (the "Telenav Contract"). -1- 2. Also included among the Executory Contracts was an agreement to deliver to Seiler Instrument and Manufacturing Company, Inc. ("Seiler") certain M145 and M117 inventory ("Seiler Assets") pursuant to an Asset Purchase Agreement between OMI and Seiler dated April 18, 1994 ("Asset Purchase Agreement"). 3. Upon successful completion of the Telenav Contract, the Asset Purchase Agreement and the related obligations set forth in the Joint Stipulation for Relief from Stay and Adequate Protection filed with the Court on March 10, 1995 ("Joint Stipulation") to include payment to Seiler for certain parts manufactured by Seiler and used by OMI with respect to the Telenav Contract as described in the Joint Stipulation {"Parts Payment"), an obligation on behalf of Seiler to pay OMI the $300,000 balance owed with respect to the Asset Purchase Agreement shall be due and owing (the "Seiler Receivable" ). F. The parties have entered into this Amendment to reflect the changes to the Photronics Acquisition Agreement as set forth in the Term Sheet. II. TERMS OF AMENDMENT ------------------ 1 TELENAV CONTRACT/SEILER RECEIVABLE. ---------------------------------- (i) Photronics agrees to timely and fully perform the Telenav Contract. (ii) Upon completion of the Telenav Contract, Photronics will make the Parts Payment to Seiler in cash and not by way of setoff against the Seiler Receivable and will otherwise reasonably facilitate the collection of the Seiler Receivable. (iii) The proceeds of the Seiler Receivable, upon receipt by Photronics, will be paid to Maguire, Voorhis & Wells, P.A., to hold in escrow for the use and benefit of the Estate. 2 ASSUMPTION OF LIABILITIES. ------------------------- (i) The Buyer assumes those certain liabilities related to its obligation to perform under the Executory Contracts as assigned pursuant to the Assumption Orders. (ii) The Buyer assumes administrative expense claims for employee vacation and health care insurance runoff without limitation. (iii) The Buyer assumes any and all trade payables incurred by OMI in the ordinary course of business from the Petition Date to July 5, 1995 in an aggregate amount not to exceed -2- $100,000. (iv) Anything in this Amendment to the contrary notwithstanding, the Buyer's acquisition of the Assets will be made free and clear of any liens, claims or encumbrances against the Debtor-in-Possession, and/or, except as specifically provided in this Amendment and the Photronics Acquisition Agreement, against the Buyer. 3 PURCHASE PRICE; PAYMENT OF PURCHASE PRICE. ------------------------------------------ Paragraph 3 of the Photronics Acquisition Agreement is amended to read, in its entirety, as follows (deletions and additions from the original text are reflected by strike out and redline, respectively): (i) Purchase Price. The purchase price (the "Purchase Price") for the Assets shall be $5,450,000, allocated and paid as follows: PNC Assets ........... $2,600,000 MetLife Assets ....... $2,550,000 Estate ............... $ 300,000 ---------- $5,450,000 ========== (ii) Payment of Purchase Price. Buyer shall pay the Purchase Price in the following manner: (A) Buyer has previously deposited $350,000 (the "PNC Deposit") receipt of which is hereby acknowledged, to be held in escrow by Mershon, Sawyer, Johnson, Dunwody & Cole, (the "PNC Escrow Agent" ) attorneys for PNC Bank, Kentucky, Inc. ("PNC"). The PNC Deposit shall be held in escrow until the Closing of the transactions contemplated hereunder, pursuant to the terms of that certain Escrow Agreement executed as of May __, 1995 by and among Buyer, PNC, and the Escrow Agent. The PNC Deposit shall be subject solely to the terms and conditions of the Escrow Agreement and, under no circumstances, shall be subject to any claim by any person, and the Debtor-in-Possession agree to assert no such claim against the PNC Deposit. (B) Buyer has previously deposited $100,000 (the "MetLife Deposit") receipt of which is hereby acknowledged, which was previously held in escrow by Foley & Lardner as escrow agent (the "MetLife Escrow Agent"). In accordance with agreement of the parties, the MetLife Deposit was previously disbursed to -3- MetLife by the MetLife Escrow Agent and will be applied to the purchase price at closing or retained by MetLife if, for any reason, the Closing does not occur within 120 days after delivery of the initial deposit. (C) Subject to satisfaction of the conditions set forth in Section 6 hereof, at the Closing of the transactions contemplated hereunder, Buyer shall pay the balance of the purchase price to PNC, MetLife, and the Estate in the following manner: (1) To PNC: In addition to the PNC Deposit, cash in the amount of $800,000 by cashier's check or wire transfer at Closing and a note in the principal amount of $1,450,000 to be paid in forty-eight (48) equal monthly installments of principal and interest commencing with the first day of the month following the Closing Date, such payment to bear interest at a floating rate equal to the lesser of (A) PNC's stated prime interest rate plus 0.5%, or (B) the prime rate as reported in the Wall Street Journal plus 0.5%, and such payment to be guaranteed by Diagnostic/Retrieval Systems, Inc., parent of the Buyer. (2) To MetLife: Cash in the amount of $2,450,000 (or $2,350,000, if the MetLife Deposit of $200,000 has been made) by cashier's check or wire transfer. (3) To Estate: A note in the principal amount of $300,000 to be paid to the Debtor for the use and benefit of the Debtor's bankruptcy estate in care of Maguire, Voorhis & Wells Escrow Account in six (6) equal monthly installments of principal and interest commencing on August 5, 1995, such payment to bear interest at 9.5% per annum, and such payment to be guaranteed by Diagnostic/Retrieval Systems, Inc., parent of the Buyer ("Estate Note"). (iii) Allocation. The parties hereto agree that the Purchase Price will be allocated in accordance with the Treasury Regulations issued under Section 1060 of the Internal Revenue Code of 1986, as amended, and shall be binding upon the parties hereto for all purposes including, but not limited to, federal and state income taxes. Neither party shall take any action contrary to the allocations set forth herein, including the filing of any tax return or report with any government agency. 4 EXCLUDED ASSETS; ADDITIONAL CONTRACT ASSUMPTIONS AND ASSIGNMENTS. ----------------------------------------------------------------- (i) Certain property of OMI is not included in the Assets to be sold pursuant to the Sale Order ("Excluded Assets"). The Excluded Assets are: -4- (A) A Dynavac coating machine ("Dynavac Machine), which is subject to a pending contract for sale as approved by an order entered by the Court on April 14, 1995 (Doc. No. 199). (B) The Seiler Receivable and the Seiler Assets. (C) The approximately 6 acres of undeveloped raw land which is owned by Debtor, which is contiguous to Debtor's manufacturing facility, more particularly described on Exhibit __ hereto ("Undeveloped Real Property"). (D) Certain equipment subject to an agreement with Eaton Financial Corporation ("Eaton") generally described as follows: one Synchrospeed Lapping & Polishing Machine (SN 4275); one Lapping SPS100, 1 spindle (SN 4239); one Polish SPS100, 1 spindle (SN4276); one System 75L, Filter, Wagon (SN296509); two System 15L, Thermstat, Heater (324870); and sixteen Tooling sets (SN324873) ("Eaton Equipment"). (E) Certain equipment subject to an agreement with Amplicon, Inc. ("Amplicon") generally described as certain computer hardware and software specifically described as one IBM RS 6000 Computer, Model 370, with VISIBILITY software and support ("Amplicon Equipment"). (F) The proceeds of any avoidance actions under state or federal law which may be brought by the Debtor or other party as authorized by the Court. (G) Certain property owned by Electronics and Space Corp. ("ESCO") and the United States Government as described in the Joint Motion for Approval of Agreement between Debtor and ESCO dated April 10, 1995. (H) Certain other inventory and property in the possession of OMI but owned by the United States Government or other customers of OMI and identified to various contracts between OMI and such parties. (ii) PNC agrees to release and disclaim any claim to a lien or security interest with respect to the Seiler Receivable and Seiler Assets and to release its lien with respect to the Undeveloped Real Property and shall deliver at Closing a UCC-3 termination form with respect to the Seiler Receivable and a release of mortgage with respect to the Undeveloped Real Property. (iii) In addition to the Executory Contracts, there -5- were certain other contracts described in the Assumption Motions which were not assumed and assigned pursuant to the Assumption Orders ("Additional Contracts"). Buyer shall have the right, for no additional consideration, to request the Debtor at one or more times until the conclusion of the Debtor's Chapter 11 case to assume and assign to Buyer or its designee one or more of the Additional Contracts (each a "Designated Contract"), and Debtor agrees to use its best efforts to promptly assume and assign to Buyer or its designee such Designated Contracts. The Buyer's rights under this subparagraph are subject to the following: (A) The Buyer obtaining of any necessary consent of the parties to the Designated Contracts. (B) Debtor makes no warranty as to its ability to assume and assign any Designated Contract and Buyer agrees that it will have no claim resulting from the Court's denial of a motion to assume or assign any Designated Contract. (C) Buyer agrees to be responsible for administrative costs incurred with respect to any request to assume or assign a Designated Contract to include reasonable fees and costs of professionals. 5 PNC-DEBTOR MUTUAL RELEASES. --------------------------- (i) The Debtor hereby releases, acquits and forever discharges PNC from any and all claims, actions, causes of action, or liabilities of any kind or nature belonging to the estate, including without limitation avoidance actions pursuant to Bankruptcy Code ss. ss. 542-550, a surcharge action brought pursuant to Bankruptcy Code ss. 506, or under any claim under other theory of federal or state law. (ii) PNC agrees not to participate in the distribution of any property of the Estate on account of any and all claims, actions, causes of action, or liabilities of any kind or nature, including without limitation any claim as defined in Bankruptcy Code ss. 101(5) to include any pre- or post-petition secured, unsecured, priority or administrative claims and further agrees not to seek allowance of any such claims in the Debtor's case as now pending in Chapter 11 or as may be pending in any future Chapter 7 case and to withdraw any proofs of claim or other filing with the Court asserting any such claims (the "PNC Withdrawn Claims"); provided, however, that in the event that a third party asserts a claim against PNC concerning which, the PNC Withdrawn Claims would have provided a defense or right of setoff, PNC shall be entitled to assert the PNC Withdrawn Claims in defense of or as a setoff against such third party claims to the extent otherwise provided for by applicable law absent PNC's -6- withdrawal of the PNC Withdrawn Claims and PNC does not waive and reserves such defenses. (iii) PNC shall have no interest in the Estate Note and the proceeds of any avoidance actions and specifically disclaims any interest therein. 6 METLIFE-DEBTOR MUTUAL RELEASES. ------------------------------- (i) In consideration of the $50,000 to be paid by MetLife ("MetLife Payment") pursuant to this Amendment and of the release given to the Debtor as set forth below, the Debtor hereby releases, acquits and forever discharges MetLife from any and all claims, actions, causes of action, or liabilities of any kind or nature, including without limitation avoidance actions pursuant to Bankruptcy Code ss. ss. 542-550, a surcharge action brought pursuant to Bankruptcy Code ss. 506, or under any other theory of federal or state law. (ii) In consideration of the release to be given to MetLife by the Debtor, as joined in by the Committee, under the terms of this Amendment, MetLife shall pay to the Debtor for the use and benefit of its bankruptcy estate, in care of its counsel Maguire, Voorhis of any kind or nature, including without limitation Wells, P.A., $50,000, to be deducted from the sale proceeds which would otherwise be payable at Closing to MetLife. (iii) MetLife hereby releases, acquits and forever discharges the Debtor, the Committee and the Estate from any and all claims, actions, causes of action, or liabilities of any kind or nature, including without limitation to specifically include any claim as defined in Bankruptcy Code ss. 101(5) to include any pre- or post-petition secured, unsecured, priority or administrative claims and further agrees not to seek allowance of any such claims in the Debtor's case as now pending in Chapter 11 or as may be pending in any future Chapter 7 case and to withdraw any proofs of claim or other filing with the Court asserting any such claims (the "MetLife Released Claims"); provided, however, that in the event that a third party asserts a claim against MetLife concerning which, the MetLife Released Claims would have provided a defense or right of setoff, MetLife shall be entitled to assert the MetLife Released Claims in defense of or as a setoff against such third party claims to the extent otherwise provided for by applicable law absent MetLife's release of the MetLife Released Claims and MetLife does not waive, and hereby reserves such defenses. (iv) MetLife shall have no interest in the Estate Note and the proceeds of any avoidance actions and specifically disclaims any interest therein. -7- 7 COMMITTEE JOINDER. ------------------ (i) In consideration of the Estate Note, the MetLife Payment, the disclaimer by PNC with respect to the Seiler Receivable, release by PNC of its mortgage on the Undeveloped Real Property, and the withdrawal and release being given by PNC and MetLife pursuant to paragraphs 6 and 7 above, the Committee hereby joins as an additional party in the releases being given by the Debtor in paragraphs 6 and 7. (ii) The Committee agrees that it shall not bring any action or join with any other party in interest in the bringing of such action in the Debtor's case as now pending in Chapter 11 or as may be pending in any future Chapter 7 against PNC or MetLife to include any avoidance actions pursuant to Bankruptcy Code ss. ss. 542-550, a surcharge action brought pursuant to Bankruptcy Code ss. 506, or any claim under any other theory of federal or state law. 8 POST-CLOSING CONDUCT OF DEBTOR'S AFFAIRS. ----------------------------------------- (i) The Buyer acknowledges that subsequent to the Closing, the Debtor intends to continue as a debtor-in-possession in its pending Chapter 11 case and in that capacity shall continue to have certain duties and responsibilities arising under the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and various applicable local rules and orders of the Court. (ii) As debtor-in-possession, the Debtor will still need the services of its chief executive officer and director of finance ("Debtor's Executives") for matters relating to the Chapter 11 case and with respect liquidation of the Excluded Assets. The Buyer agrees that even if the Debtor's Executives are employed by Buyer after Closing, that on a reasonable basis they may devote time to the Debtor's affairs in connection with the Chapter 11 case. (iii) The Debtor acknowledges that while it is the Buyer's intention to relocate the business to other premises in the Melbourne, Florida area, that a reasonable period of time will be needed to physically relocate the business from its current premises at 425 North Drive, Melbourne ("Business Premises"). The Debtor agrees that until such time as the Buyer relocates, the Debtor shall share the Business Premises with Buyer without fee or additional consideration; provided, however, that such sharing arrangement shall terminate at the end of the period for which Debtor has currently paid rent. Buyer acknowledges that the Debtor's Executives will continue to perform such duties as are required under Chapter 11 to include administration of the Excluded Assets from the Business Premises. -8- 9 MISCELLANEOUS. -------------- (i) Entire Agreement. The Photronics Acquisition Agreement as modified by the Term Sheet, Sale Order, and this Amendment (including any and all Exhibits and Schedules thereto) and the collateral agreements executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the purchase of the Assets and related transactions, and supersede all prior agreements, written or oral, with respect thereto. In the event of any inconsistency between the terms of this Amendment and the terms of the Sale Order, the Sale Order shall govern; provided, however, that as of the date of the execution of this Amendment, each of the parties hereto represent that neither it nor its counsel is aware of any inconsistency between the Sale Order and this Amendment. (ii) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (iii) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. In particular, the obligations, covenants and waivers of right of the Debtor hereunder shall be binding upon any trustee appointed in the current Chapter 11 case as well as any trustee appointed in any subsequent Chapter 7 case. (iv) Documentary Stamp Taxes. Pursuant to Bankruptcy Code ss. 1146(c), it is the intent of the parties hereto that the transfer of or creation of or modification of any lien or instrument affecting property of Debtor pursuant to this Amendment and the Photronics Acquisition Agreement shall be for all purposes considered to have been accomplished under such plan as shall be -9- filed and confirmed by the Court and as such shall not be taxed under any law imposing a stamp tax, transfer tax, recordation tax, or similar tax. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. Photronics Corp. ---------------------------------- By: ------------------------------- Richard Ross As Its: President Opto Mechanic, Inc. ---------------------------------- By: /s/ JAMES E. PRUITT ------------------------------- James E. Pruitt As its: Chief Executive Officer PNC Bank, Kentucky, Inc. ------------------------ By: /s/ JAMES D. PENDERGRASS ------------------------------ James D. Pendergrass As its: Vice President MetLife Capital Corporation --------------------------- By: /s/ JOHN MACKEY ------------------------------ John Mackey As its: Regional Credit Manager JOINDER BY COMMITTEE The Comittee joins in this Amendment for the limited purposes expressed in paragraph 7 hereof. Official Unsecured ------------------ Creditors' Committee -------------------- By: /s/ DOUGLAS P. MCCLURG ------------------------------ Douglas P. McClurg, Esq. As its: Counsel -10- UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION FILED CLERK, U.S. BANKRUPTCY COURT JUN 23, 1995 MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION ) In re ) ) Opto Mechanik, Inc., ) Case No. 94-05361-6J1 a Florida corporation ) Chapter 11 ) Tax I.D. #59-1234358 ) ) Debtor. ) ________________________________) ORDER APPROVING SALE OF SUBSTANTIALLY ALL THE ASSETS OF THE DEBTOR ----------------------------------------- THIS CASE came on for hearing on the 23rd day of June, 1995 upon the Debtor's Motion For Approval of Sale of Substantially All Assets of the Estate Free and Clear of Liens (the "Sale Motion"), objections to the Sale Motion having been filed by the Unsecured Creditors' Committee and various other parties in interest ("Objections"), notice having been given as required by 11 U.S.C. Section 363, Fed R. Bankr. P. 6004 and all other applicable statutes and rules, no further notice or hearing being necessary, the Court having considered the Sale Motion and Objections, the argument of counsel and the evidence offered, finds that the requirements for approval of a sale of substantially all the assets of the Debtor without the confirmation of a plan have been satisfied; the Debtor's primary lien holders, MetLife Capital Corporation ("MetLife") and PNC Bank, Kentucky, Inc. ("PNC") have consented to the sale pursuant to 11 U.S.C. Section 363(f)(2); Photronics Corp. ("Photronics") is the successful bidder and purchaser of the 1 Assets(1), as that term is defined in the Agreement For Acquisition of Assets between Photronics and the Debtor (the "Photronics Acquisition Agreement") a copy of which is attached to the original of this Order filed with the Court as Exhibit "A," as modified by the Final Photronics Term Sheet (6/23/95) ("Term Sheet") reflecting the agreements announced in open by the various affected parties, a copy of which is attached to the original of this Order as filed with the Court as Exhibit "B" (the Photronics Acquisition Agreement and the Term Sheet, hereinafter, collectively the "Modified Acquisition Agreement"); the sale is essential for the estate and creditors; all parties involved in the bidding and sale process, including without limitation the Debtor, PNC and Photronics have acted in good faith within the meaning of 11 U.S.C. Section 363(m) and all aspects of the transaction have been conducted in good faith; the Debtor has exercised good and prudent business judgment in regard to the sale; and there is a need to expedite the sale and there is no just reason for delay of entry of this Order as a final order because the parties intend to act immediately in reliance on this Order. Based upon the foregoing findings of fact and for the additional reasons stated orally and recorded in open court, it is ------------ (1)Excluded from the assets being sold by the Debtor pursuant to this Order is property owned by Electronics and Space Corp. ("ESCO") and the United States Government as described in the Joint Motion for Approval of Agreement between Debtor and ESCO dated April 10, 1995. 2 ORDERED: 1. The above findings are hereby incorporated by reference as an order of this Court. 2. The parties' entry into the Modified Acquisition Agreement is approved and the Modified Acquisition Agreement is a binding contract among the parties thereto and is incorporated herein as a part of this Order. 3. The Objections are overruled. 4. The purchase of the Assets by Photronics pursuant to Modified Acquisition Agreement shall be free and clear of all claims, liens, encumbrances, charges, security interests or interests of any kind or nature,(2) including but not limited to tax liens and environmental claims. All persons and governmental units whose interests, claims, liens and encumbrances have been so transferred to proceeds are enjoined from taking any action against the Assets so purchased by Photronics from Debtor. All such claims, liens (including tax liens), encumbrances, charges, security interests or interests of any kind or nature shall be transferred to the proceeds of sale. 5. The Assets shall be conveyed to Photronics free and clear of any and all claims against the Debtor and its bankruptcy estate including but not limited to, claims for workers compensation benefits, claims arising under the Consolidated Omnibus Budget ------------ (2)With the exception of the lien of First Union National Bank of Florida on an account receivable owing by Hyundai Precision and Industry Co., Ltd. which shall be unaffected by this Order. 3 Reconciliation Act of 1985, claims arising under the Employee Retirement and Income Security Act of 1974, any other employee claims, any products liability claims, any state and/or Federal environmental claims and any other claims of whatever kind or nature. 6. Debtor and Photronics shall close on the transaction by July 5, 1995 or such other date as the parties may agree to in writing. If the form or substance of any document cannot be agreed upon, any party may, without breach of the Modified Acquisition Agreement, seek an order of this Court regarding the appropriate form or substance of agreement. 7. This Court shall retain jurisdiction to enforce this Order, the Modified Acquisition Agreement and any agreements or documents executed pursuant thereto. 8. This Order shall be binding on the Debtor, all of its creditors and all parties-in-interest with respect to the Debtor's bankruptcy case, and shall be binding on any subsequently appointed trustee. 9. The Court directs entry of this Order as a final order under Fed. R. Bankr. P. 7054 and Fed. R. Civ. P. 54(b). This order shall be considered entered and docketed for all purposes as of the 4 date of its entry as set forth below. DONE AND ORDERED in Orlando, Florida on the 23rd day of June, 1995. KAREN S. JENNEMANN ------------------------------------- HONORABLE KAREN S. JENNEMANN U.S. Bankruptcy Court Judge Copies to (by Mr. Williamson): Debtors, Opto Mechanik, Inc., c/o James Pruitt 425 North Drive, P.O. Box, 361907, Melbourne, Florida 32935 Debtor's Attorney, Michael G. Williamson, P.O. Box 633, Orlando, Florida 32802 Timothy J. Norris, Esquire, Attorney for PNC, 200 South Biscayne Blvd., Suite 4500, Miami, Florida 33131 Nina Laserson Dunn, Esquire, Hannoch Weisman, A Professional Corporation, 4 Becker Farm Road, Roseland, New Jersey 07068 Robert Higgins, Esquire, Attorneys for First Union National Bank, P.O. Box 2809, Orlando, Florida 32802 Douglas P. McClurg, Esquire, Attorney for Unsecured Creditors' Committee, P.O. Box 2231, Tampa, Florida 33601 K. Rodney May Esquire, Attorney for MetLife Capital Corporation, P.O. Box 2193, Orlando, Florida 32802 United States Trustee, 135 West Central Blvd., Suite 620, Orlando, Florida 32801 Parties listed on the Local Rules 2.04 Parties in Interest List as maintained by the Clerk. I certify the foregoing to be true and correct copy of the original CARL R. STEWART, CLERK U.S. BANKRUPTCY COURT By BARBARA L. ROMINOR ------------------------------------ Deputy Clerk Dated: July 6, 1995 -------------------------------- 5 AGREEMENT FOR ACQUISITION OF ASSETS ----------------------------------- AGREEMENT, dated May 24, 1995, between Photronics Corp., a New York corporation, or its designee (the "Buyer"), and Opto Mechanik, Inc., a Delaware corporation (the "Debtor-in-Possession"). On October 14, 1994 the Debtor-in-Possession filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code, as amended (the "Code") in the U.S. Bankruptcy Court for the Middle District of Florida (the "Court") styled In re: OPTO MECHANIK, INC., a Florida Corporation, Case No.: 94-05364-6J1. The Buyer wishes to purchase and the Debtor-in-Possession wishes to sell to the Buyer, certain assets of the Debtor-in-Possession, subject to the approval of the Court, upon the terms and conditions of this Agreement. Subject to the terms and conditions hereof, promptly upon the execution and delivery of this Agreement the Debtor-in-Possession will take such steps as are reasonably necessary, with the assistance of the Buyer, to seek the approval of this Agreement by the Court. Accordingly, the parties agree as follows: 1 APPROVAL OF THIS AGREEMENT; SALE OF ASSETS. ------------------------------------------- (i) Approval of this Agreement. Subject to the terms and conditions hereof, promptly upon the execution and delivery of this Agreement the Debtor-in-Possession will take such steps as are reasonably necessary, with the assistance of the Buyer, to seek the approval of this Agreement by the Court. Other than the immediately preceding sentence, unless and until this Agreement is approved by the Court, this Agreement will have no force or effect and no person will have any right or claim arising hereunder or in connection herewith. (ii) Sale of Assets. At the Closing provided for in Section 4 (the "Closing"), the Buyer shall acquire from the Debtor-in-Possession, as contemplated hereby, certain of the assets, properties and rights of the Debtor-in-Possession which are listed on Schedule A hereto (the "Assets"), and which include: (A) certain of those assets, properties and rights of the Debtor-in-Possession subject to the lien of PNC Bank, Kentucky, Inc. (the "PNC Assets"); (B) certain machinery and equipment of the Debtor-in-Possession subject to the lien of MetLife Capital Exhibit "A" 1 Corporation (the "MetLife Assets"). 2 ASSUMPTION OF LIABILITIES. -------------------------- Anything in this Agreement to the contrary notwithstanding, the Buyer's acquisition of the Assets will be made free and clear of any liens, claims or encumbrances against the Debtor-in-Possession, and/or, except as specifically provided in this Agreement, against the Buyer. The Buyer will assume only those certain liabilities related to its obligation to perform under those contracts listed as the PNC Assets on Schedule A hereto. 3 PURCHASE PRICE; PAYMENT OF PURCHASE PRICE. ------------------------------------------ (i) Purchase Price. The purchase price (the "Purchase Price") for the Assets shall be $4,100,000, paid as follows: PNC Assets $1,600,000 Metlife Assets $2,500,000 ---------- $4,100,000 ========== The parties hereto agree that the Purchase Price will be allocated in accordance with the Treasury Regulations issued under Section 1060 of the Internal Revenue Code of 1986, as amended, and shall be binding upon the parties hereto for all purposes including, but not limited to, federal and state income taxes. Neither party shall take any action contrary to the allocations set forth herein, including the filing of any tax return or report with any government agency. (ii) Payment of Purchase Price. Buyer shall pay the Purchase Price in the following manner: (A) Buyer has previously deposited $350,000 (the "PNC Deposit") receipt of which is hereby acknowledged, to be held in escrow by Mershon, Sawyer, Johnson, Dunwody & Cole, (the "PNC Escrow Agent") attorneys for PNC Bank, Kentucky, Inc. ("PNC"). The PNC Deposit shall be held in escrow until the Closing of the transactions contemplated hereunder, pursuant to the terms of that certain Escrow Agreement executed as of May ___, 1995 by and among Buyer, PNC, and the Escrow Agent. The PNC Deposit shall be subject solely to the terms and conditions of the Escrow Agreement and, under no circumstances, shall be subject to any claim by any person, and the Debtor-in-Possession agree to assert no such claim against the PNC Deposit. (B) Buyer shall deposit $100,000 upon 2 execution of this agreement and an additional $100,000 within thirty (30) days of a final order approving the sale contemplated hereunder if Closing has not occurred by such date (the "MetLife Deposit"). The MetLife Deposit will be held in escrow by Foley & Lardner pending the bankruptcy court's consideration of the acquisition transaction and will be disbursed to MetLife upon the court's approval of the Debtor's sale of the PNC Collateral and the MetLife Collateral. The MetLife Deposit will be applied to the purchase price at closing or retained by MetLife if, for any reason, the Closing does not occur within 120 days after delivery of the initial deposit. If the Closing does not occur within 30 days after said bankruptcy court order becomes final, Photronics shall deliver to MetLife an additional payment of $100,000.00. C) Subject to satisfaction of the conditions set forth in Section 6 hereof, at the Closing of the transactions contemplated hereunder, Buyer shall pay the balance of the purchase price to PNC and MetLife in the following manner: (1) To PNC: A note in the principal amount of $1,250,000 to be paid in forty-eight (48) equal monthly installments of principal and interest commencing with the first day of the month following the Closing Date, such payment to bear interest at a floating rate equal to the lesser of (A) PNC's stated prime interest rate plus 0.5%, or (B) the prime rate as reported in the Wall Street Journal plus 0.5%, and such payment to be guaranteed by Diagnostic/Retrieval Systems, Inc., parent of the Buyer. (2) To MetLife: Cash in the amount of $2,400,000 (or $2,300,000, if the MetLife Deposit of $200,000 has been made) by cashier's check or wire transfer. 4 CLOSING; DELIVERIES. -------------------- (i) Closing. The closing of the sale and purchase of the business shall take place at the offices of Maguire, Voorhis & Wells, P.A. at 10:00 a.m. local time, as soon as practicable following ten (10) business days after the court shall enter an order approving the Sale of the Assets to Buyer in accordance with this Agreement which order has become final and nonappealable and has otherwise not been stayed by order of any court, provided all of the conditions precedent set forth in Sections 6 and 7 hereof have been satisfied or waived by the applicable party. The date upon which the Closing occurs is herein called the "Closing Date". (ii) Deliveries. At the Closing, the following transactions shall occur, and all transactions shall be deemed to occur simultaneously: 3 (A) the Debtor-in-Possession shall deliver or cause to be delivered to Buyer, the following: (1) With respect to the PNC Assets--a bill of sale for all personal property, valid, effective assignments of all enumerated contracts and licenses, and release statements on form UCC-3 relating to the PNC assets. (2) With respect to the MetLife Assets--a bill of sale for all personal property and release statements on form UCC-3 relating to the MetLife assets. (3) A certified copy of the order of the Court approving the sale of the Assets to Buyer pursuant to the terms of this Agreement. (B) The Buyer shall deliver or cause to be delivered the following: (1) The balance of the Purchase Price in the manner and form described in paragraph 3(ii)(C) above. (2) to the Debtor-in-Possession, a certified copy of a resolution of the Buyer's board of directors authorizing the Buyer's performance of the transactions contemplated by this Agreement. 5 COVENANTS AND AGREEMENTS. ------------------------- The parties covenant and agree as follows: (i) Conduct of Business. From the date hereof through the Closing Date, the Debtor-in-Possession shall conduct its business in the ordinary course, shall use all best efforts to preserve the value of the Assets, and shall comply with any order of the Court with which the Debtor-in-Possession believes it is required to comply, notwithstanding any provision herein to the contrary. If any event shall occur which shall require the Debtor-in-Possession as a matter of law to take any action not in the ordinary course, it will so notify the Buyer thereof in advance of taking such action. (ii) Corporate Examination and Investigations. Prior to the Closing Date, the Buyer shall be entitled, through its employees and representatives, including, without limitation, its financial advisors, lawyers, accountants, and other agents, to make such investigation of the Assets as the Buyer wishes. The Buyer will make its investigation in such way as to not substantially interfere with the conduct of the Debtor-in-Possession's business. The Debtor-in- Possession shall 4 furnish the representatives of the Buyer during such period with all such information concerning the affairs of the Debtor-in-Possession as such representatives may reasonably request and cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives to make full disclosure to the Buyer of all material facts affecting the Assets. (iii) Expenses. In no event will the Buyer be liable to pay any expenses of Debtor-in-Possession or any other person, entity or committee incurred in connection with the negotiation, preparation, execution and performance of this Agreement, the transactions contemplated hereby, or the proceedings before the Court for the approval hereof. (iv) Approval of this Agreement; Proceedings before Court. (A) Upon execution of this Agreement, the Debtor-in-Possession shall promptly file with the Clerk of the Court a motion for approval of the sale of the Assets free and clear of any interest of any entity pursuant to Bankruptcy Code Section 363(f), and shall use its best efforts to obtain a final order (the "Order") from the Court authorizing the transactions contemplated hereby pursuant to Section 363(b) of the Bankruptcy Code, free and clear of all liens, claims and encumbrances. The Debtor-in-Possession shall timely give and provide the legal notices and disclosures it is required to give and provide under the Code. The Debtor-in-Possession will assist the Buyer and its representatives in every reasonable way toward the purpose of consummating the transactions as contemplated by this Agreement and will use its best efforts, subject to the terms and conditions hereof, to secure the Court's approval hereof. Prior to the Closing Date, the Debtor-in-Possession will not solicit, encourage or actively pursue any arrangement for the sale of its assets, business and properties to any other person; provided, however, that the covenant of this sentence will not apply if (A) the Buyer notifies the Debtor-in-Possession that it has terminated this Agreement; or (B) after the date upon which the Court finally approves this Agreement, the Debtor-in-Possession has, upon diligent inquiry and after discussions with Buyer, reasonably concluded that the conditions to the Closing set forth in Section 6.6 below will not be timely satisfied, or (C) the Buyer shall fail to timely consummate the Closing in accordance with the terms hereof. The Debtor-in-Possession will not be liable for any actions it reasonably takes to comply with its fiduciary obligations and other legal obligations arising under the Code. (B) The Debtor-in-Possession will allow the Buyer and its counsel to assist in the preparation of and will 5 obtain the approval of the Buyer's counsel, which approval will not be unreasonably withheld, to the filing of all documents and schedules to be filed by the Debtor-in-Possession with the Court in connection herewith. (v) Risk of Loss. The Debtor-in-Possession shall be responsible for any casualty loss or casualty diminution in value of the Assets prior to the Closing. In the event of such a loss prior to the Closing, exceeding $100,000 in value, the Buyer may terminate this Agreement and receive a refund of its Deposit. In the event the loss is less than $100,000, the Purchase Price shall be appropriately adjusted to reflect such loss, subject to the Court's approval. Risk of loss shall pass to the Buyer as of the time of Closing. (vi) Power and Authority. Subject to approval by the Bankruptcy Court, the Debtor-in-Possession has full power and authority to execute and deliver this Agreement and such other documents as are described herein to be executed and delivered, and to perform the transactions contemplated herein and therein. 6 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO CLOSE. ------------------------------------------------------------- The obligation of the Buyer to enter into and complete the Closing is subject, at the option of the Buyer, to the fulfillment on or prior to the Closing Date, or as otherwise provided herein, of the following conditions, any one or more of which may be waived by it: (i) Action of the Court, Certain Events. The Court shall have entered the Order in a form acceptable to Buyer, approving the consummation of the sale of the Assets to Buyer in accordance with the terms hereof pursuant to Bankruptcy Code Section 363(b), which order shall have become final and nonappealable. Such order of the Court shall direct that Buyer's acquisition of the Assets shall be free and clear of all liens, claims and encumbrances, with valid encumbrances to attach to the proceeds of sale. (ii) Third Party Consents. All consents, permits and approvals ("Consents") from parties (other than Electro Design Manufacturing, Inc.) to any material contracts or other agreements with the Debtor-in-Possession which constitute part of the Assets shall be accepted or, if required, modified by the Buyer to the mutual satisfaction of the Buyer and each such third party and shall be in full force and effect. Immediately upon execution of this agreement, Buyer shall use its best efforts to obtain as soon as practicable such Consents and the Debtor-in-Possession and PNC 6 agree to cooperate with Buyer in such efforts. (iii) Competing Offers. Subject only to the Buyer's right to require PNC to effect a Credit Bid as defined in that certain letter agreement of (date) between PNC and the Buyer, the Debtor shall not have received any higher or better offers as of the Closing Date, pursuant to Section 363 of the Bankruptcy Code for the purchase of the Assets than that given by the Buyer as set forth herein. (iv) Approval of Counsel to the Buyer. All actions and proceedings contemplated hereunder and all documents and other papers required to be delivered by the Debtor-in-Possession hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been approved by counsel to the Buyer, as to their form. 7 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE DEBTOR-IN-POSSESSION TO --------------------------------------------------------------------- CLOSE. ------ The obligation of the Debtor-in-Possession to enter into and complete the Closing is subject, at the option of the Debtor-in-Possession, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by it: (i) Termination of Certain of Buyer's Conditions. On or prior to the Closing Date, the Buyer shall serve written notice upon the Debtor-in-Possession waiving the conditions to its obligations to close set forth in Section 6(ii) hereof. (ii) Approval of Counsel to the Debtor-in-Possession. All actions and proceedings contemplated hereunder and all documents and other papers required to be delivered by the Buyer hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been approved by counsel to the Debtor-in-Possession, as to their form. 8 SALE TO THIRD PARTIES. ---------------------- Buyer understands that the Debtor-in-Possession has certain responsibilities under the Bankruptcy Code and that it is possible that it will hereafter receive a higher and better offer than is contemplated hereby. Nonetheless, the Buyer has agreed, subject to the terms and conditions set forth herein, to effect the transactions contemplated hereby. To do so the Buyer will be required to spend significant resources, negotiate and effect numerous arrangements with personnel of the Debtor-in-Possession, 7 its vendors and customers, its creditors and financers and other persons and to defer or pass up other opportunities which may come its way. Therefore, as partial inducement to the Buyer to enter into this Agreement, the parties hereto agree as follows: No sale, plan of reorganization or other arrangaements for the transfer of control of the Debtor-in-Possession's business or the sale of its assets, business and properties will be effected prior to the Closing Date (unless this Agreement shall have previously terminated in accordance with its terms), unless (i) the value of the consideration to be paid by such other person for the purchase of the assets, and/or business and properties of the Debtor-in-Possession, exceeds the value of the Purchase Price by an amount (the "overbid amount") of at least $375,000 and (ii) the first $375,000 of such overbid amount shall be paid to the Buyer by such other person no later than the date of its acquisition of control of the Debtor-in-Possession or its purchase of the assets, and/or business, and properties of the Debtor-in-Possession, and the person making such overbid also agrees to pay to the Buyer on such date, an amount equal to all non-reimbursed out-of-pocket fees, costs and expenses incurred by the Buyer in connection herewith. The obligation to make such payment will survive the termination of this Agreement if the events giving rise to that obligation occurred prior to any termination hereof. 9 TERMINATION OF AGREEMENT. ------------------------- This Agreement may be terminated prior to the Closing as follows: (i) at the election of the Debtor-in-Possession, if any one or more of the conditions to its obligation to close has not been fulfilled or waived on or prior to the Closing Date; (ii) at the election of the Buyer, if any one or more of the conditions to its obligation to close has not been fulfilled or waived on or prior to the Closing Date; (iii) at any time on or prior to the Closing Date, if the Debtor-in-Possession shall receive written notice from the Buyer pursuant to paragraph 5(v) above; (iv) at any time on or prior to the Closing Date, 8 upon the mutual consent of the Debtor-in-Possession and the Buyer; or (v) (A) upon the election of Buyer, if Court approval of this Agreement shall not be obtained within thirty (30) days of the date hereof, or (B) in any event, if the Court shall specifically deny the Debtor-in-Possession's motion approving this Agreement, or (C) if the Court shall so order this Agreement terminated; provided, however, that the Debtor-in-Possession shall diligently seek the approval of the Court to this Agreement. If this Agreement so terminates, it shall become null and void and have no further force or effect, and neither party shall have any right, claim or liability arising hereunder, except as otherwise provided pursuant to Section 8 hereof. This Agreement is intended to reflect agreements solely between the parties hereto and is not intended to and does not create any right or interest of any person not a party hereto. No representation, warranty or agreement set forth in this Agreement made by either party hereto will survive the Closing. 10. MISCELLANEOUS. -------------- (i) Publicity. No publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be issued without advance approval of the form and substance thereof by the Debtor-in-Possession and the Buyer. Each party will provide the other with advance written notice and an opportunity to participate in any publicity release or announcement relating to it or this Agreement. (ii) Notices. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission (with electronic confirmation) or sent by certified, registered or express mail, postage prepaid, and shall be deemed given when so delivered personally, or sent by facsimile transmission or if mailed, four (4) days after the date of mailing, as follows: (A) if to the Buyer, to it: Photronics Corp. 270 Motor Parkway Hauppauge, New York 11788 Attn: Richard Ross copy to: Nina Laserson Dunn, Esq. Hannoch Weisman, 9 A Professional Corporation 4 Becker Farm Road Roseland, New Jersey 07068 (B) if to the Debtor-in-Possession to it: Opto Mechanik, Inc. P.O. Box 361907 423 North Drive Melbourne, Florida 32935 Attn: James E. Pruitt copies to: Michael G. Williamson, Esq. Maguire, Voorhis & Wells, P.A. Two South Orange Avenue Orlando, Florida 32801 Timothy J. Norris, P.A. Mershon, Sawyer, Johnston, Dunwody & Cole 200 South Biscayne Boulevard Miami, Florida 33131-2387 K. Rodney May Foley & Lardner Suite 1800 111 North Orange Avenue Orlando, Florida 32801 Any party may by notice given in advance with this Section to the other party designate another address or person for receipt of notices hereunder. (iii) Entire Agreement. This Agreement (including the Exhibits and Schedules hereto) and the collateral agreements executed in connection with the consummation of the transactions contemplated herein contain the entire agreement among the parties with respect to the purchase of the Assets and related transactions, and supersede all prior agreements, written or oral, with respect thereto. (iv) Waivers and Amendments. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part or any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of 10 any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. (v) Governing Law; Jurisdiction of Court. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state. All disputes arising out of and related to this Agreement, including, without limitation, any dispute relating to the interpretation, meaning or effect of any provision hereof, will be resolved in the Court and the parties hereto each submit to the jurisdiction of the Court for the purpose of adjudicating any such dispute. (vi) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (vii) Buyer's Designee; Recourse. The Buyer may, without further notice or approval, assign all of its rights hereunder to any designee identified in writing to Debtor-in-Prossession, whereupon all reference herein to the Buyer shall refer to such designee. (viii) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. In particular, the obligations, covenants and waivers of right of the Debtor-in-Possession hereunder shall be binding upon any trustee appointed in the current Chapter 11 case as well as any trustee appointed in any subsequent Chapter 7 case. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. Photronics Corp. By: RICHARD ROSS --------------------------------------- Richard Ross Opto Mechanic, Inc. By: JAMES E. PRUITT --------------------------------------- James E. Pruitt 11 SCHEDULE A PNC Assets = Accounts Receivable Cash Inventory Raw Materials Machinery & Equipment (that are not MetLife) Furniture and Fixtures The Debtor-in-Possession's right to use, pursuant to an effective Assignment of Trademarks, the name Opto Mechanik, Inc. and any other name in which the Debtor-in-Possession has common law or registered rights and all variants thereof. Proprietary Processes, Technical Data, Trade Secrets Books and Records Prepaid Expenses Plus, the following contracts: OMI Job # Description Customer --------- ----------- -------- 2527 Day Optical Relay System Gov't of Israel 3553-A Tow Sight Electro-Design (EDM) 3553-B Traversing Unit Electro-Design (EDM) 3762 Lilit Binocular Gov't of Israel 3764 Korean Tank Program Texas Instruments 3925 M-117 Telescope Telenav 4052 Gunners Aux. Sight U.S. Amccom (Rock Island) 4080 Day Night Thermal Sight Sys Texas Instruments 5011 Optics Kits Aselsan 5039 Gunners Aux. Sight U.S. Amccom (Rock Island) 6237 A Focal Cover Assy. Micom (Redstone) 6251 Laser Filters 2976 Traversing Units EDM 3729 Traversing Units Gyconsa-Spain 12 3922 ITAS Compenent Texas Instruments 6202 Tow Visual Module Micom 6264 Beam Splitters Wegman 6308 Driver's Thermal Viewer Martin Marietta 6397 Combat Vehicle Thermal Texas Instruments Targeting System 6431 Spare Parts for Image Emerson Transfer Assy. 6382 Optical Sets Aselsan 6435 IBAS DNO Texas Instruments 6460 K-1 Spare Parts Texas Instruments 6423 Optical Assys. EL OP 6403 Optical Parts Image & Sensing Technology 6304 Xenon Beacon Tracker Texas Instruments Misc. Total Value (less-than) 150K 13 FINAL PHOTRONICS CORP. TERM SHEET --------------------------------- June 23, 1995 Agreement for Acquisition of Assets between Photronics Corp. (Photronics) and the Debtor is modified as follows: 1. Photronics agrees to perform the Telenav contract and otherwise reasonably facilitate the Debtor's collection of the Seiler receivable. 2. Photronics agrees to assume all employee-related administrative expense claims for vacation and health care insurance runoff without limitation and post-petition ordinary course trade payables up to $100,000. 3. Photronics agrees to pay additional $1,300,000, that is $1,000,000 to PNC Bank of Kentucky ("PNC") and $300,000 to the estate. *in other words, at closing, PNC is to be paid $1,150,000 in cash including $350,000 in escrow and $1,450,000 in notes *estate to receive a $300,000 promissory note, with six month term, accruing interest at prime plus 1/2% guaranteed by Photronics' parent 4. Photronics agrees to pay an additional $50,000 cash to MetLife Capital Corporation ("MetLife"). 5. Photronics agrees to pay post-petition trade payables up to $100,000. 6. PNC agrees to: *release its mortgage lien on the undeveloped parcel of land *release any claim to the Seiler accounts receivable *not participate as either a pre- or post-petition unsecured creditor of the estate *release any claim to the additional $300,000 contributed to the estate by Photronics Exhibit "B" 7. Debtor and the Unsecured Creditors' Committee ("Committee") agree to: *release, to the extent of their ability to do so, PNC from any claims held by the estate or the Committee, including but not limited to Section 506(c) claims *accept $300,000 note and guaranty given by Photronics and its parent 8. For the release by the Debtor and the Committee, MetLife agrees to: *pay $50,000 to the estate from sale proceeds *not participate as either a pre- or post-petition unsecured creditor of the estate *release any claim to the additional $300,000 contributed to the estate by Photronics 9. Debtor and Committee agree to: *release, to the extent of their ability to do so, MetLife from any claims of the estate, including but not limited to Section 506(c) claims 10. Committee agrees to: *withdraw its objection to Section 363 sale and its motion to dismiss or convert 11. No party admits any liability The foregoing agreements are subject to the closing of the sale to Photronics Corp.