| AXSYS TECHNOLOGIES INC Item 1A RISK FACTORS You should carefully consider each of the risk and uncertainties we describe below and all of the other information in this annual report |
| The risk and uncertainties we describe below are not the only ones we face |
| Additional risks and uncertainties of which we are currently unaware or that we currently believe to be immaterial may also adversely affect our business |
| We depend on contracts with the US federal government for a significant portion of our sales |
| Most of these contracts are subject to termination and renegotiation by the US federal government at any time |
| The aerospace and defense industry, which represents the majority of our sales, is largely dependent upon government contracts |
| A significant portion of our business and business development efforts is concentrated in the aerospace and defense industry |
| Our business depends, in significant part, upon the US government’s continued demand in the area of defense for high-end, high-performance products of the type that we manufacture |
| Approximately 60prca of our sales in 2005, 48prca in 2004 and 47prca in 2003 were derived directly from contracts with the US government, or its agencies or departments, or indirectly from subcontracts with US government contractors |
| The majority of these government contracts are subject to termination and renegotiation |
| Generally, government contracts and subcontracts are subject to oversight audits by government representatives and contain provisions permitting termination, in whole or in part, without prior notice at the government’s convenience upon the payment of compensation only for work done and commitments made at the time of termination |
| We can give no assurance that one or more of our government contracts or subcontracts will not be terminated under these circumstances |
| Also, we can give no assurance that we would be able to procure new government contracts or subcontracts to offset the revenues lost as a result of any termination of our contracts |
| Because our revenues are dependent on our procurement, performance and payment under our contracts, the loss of one or more critical contracts could have a materially adverse effect on our business, financial condition and results of operations |
| The loss of Raytheon as a customer or a significant reduction in sales to Raytheon could have a materially adverse effect on our business, financial condition and results of operations |
| We rely on key customers |
| We currently have one customer that represents a significant portion of our sales |
| The loss of Raytheon as a customer or a significant reduction in sales to Raytheon could have a materially adverse effect on our business, financial condition and results of operations |
| If Raytheon or any of our other key customers becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payments we received in the preference period prior to a bankruptcy filing may be potentially recoverable, which could have a materially adverse effect on our business, financial condition and results of operations |
| 13 ______________________________________________________________________ US federal government spending priorities may change in a manner adverse to our business |
| We act as a subcontractor for many different government programs |
| The funding of government programs is subject to congressional appropriations |
| Although multi-year contracts may be authorized in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years |
| Consequently, programs are often only partially funded initially, and additional funds are committed only as Congress makes further appropriations |
| The termination of funding for a government program would result in a loss of anticipated future revenues attributable to that program, which could have a materially adverse effect on our business, financial condition and results of operations |
| In addition, the termination of a program or failure to commit additional funds to a program already started could increase our overall costs of doing business |
| Among the factors that could materially adversely affect our federal government contracting business are: · budgetary constraints affecting federal government spending generally, or defense and intelligence spending in particular, and annual changes in fiscal policies or available funding; · changes in federal government programs, priorities, procurement policies or requirements; · new legislation, regulations or government union pressures, on the nature and amount of services the government may obtain from private contractors; · federal governmental shutdowns (such as during the government’s 1996 fiscal year) and other potential delays in the government appropriations process; and · delays in the payment of our invoices by government payment offices due to problems with, or upgrades to, government information systems, or for other reasons |
| These or other factors could cause federal governmental agencies, or prime contractors where we are acting as a subcontractor, to reduce their purchases under contracts, to exercise their right to terminate contracts or to not exercise options to renew contracts, any of which could have a materially adverse effect on our business, financial condition and results of operations |
| We could be suspended or debarred from contracting with the federal government |
| We could be debarred or suspended from contracting with the federal government generally, or any significant agency in the intelligence community or Department of Defense, for, among other things, actions or omissions that are deemed by the government to be so serious or compelling that they affect our contractual responsibilities |
| For example, we could be debarred for committing a fraud or criminal offense in connection with obtaining, attempting to obtain or performing a contract, or for embezzlement, fraud, forgery, falsification or other causes identified in Subpart 9dtta4 of the Federal Acquisition Regulation |
| In addition, our reputation or relationship with the government agencies could be impaired |
| If we were suspended or debarred, or if our relationship or reputation were impaired, our business, financial condition and results of operations could be materially adversely affected |
| The failure to obtain, or any delays in obtaining, export authorizations from the federal government in connection with the export of our products, or the imposition of sanctions for failing to comply with the export control laws and regulations, could have a materially adverse effect on our business, financial condition and results of operations |
| We must often obtain the prior review and approval of the federal government in connection with the export of our products and technology |
| Such approvals are provided via licenses or other authorizations issued by government agencies under the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Administration Regulations and other laws and regulations that control exports of hardware and technology to foreign countries and the transfer of technology to foreign persons wherever 14 ______________________________________________________________________ located |
| We can give no assurance that we will be successful in obtaining and maintaining the necessary licenses or other authorizations required to conduct business in foreign countries or with foreign persons |
| Recently, heightened government enforcement of the export control laws and regulations, and an increasingly restrictive federal government policy with respect to the export licensing of certain technologies including infrared and night vision systems, has resulted in lengthened review periods for our license applications and increased risks that such requests for licenses or other authorizations could be denied |
| The failure to comply with such export control laws and regulations can result in the imposition of sanctions, which may include monetary penalties and the loss of export privileges |
| The imposition of such sanctions, or the failure to obtain or delays in obtaining export licenses or other necessary authorizations that would prevent or delay us from selling our products outside the United States, could have a materially adverse effect on our business, financial condition and results of operations |
| We must comply with complex procurement laws and regulations |
| We must comply with and are affected by laws and regulations relating to the formation, administration and performance of federal government contracts, which affect how we do business with our customers and may impose added costs on our business |
| Among the most significant regulations are: · the Federal Acquisition Regulation, and agency regulations supplemental to the Federal Acquisition Regulation, which comprehensively regulate the formation, administration and performance of government contracts; · the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; · the Cost Accounting Standards and Cost Principles, which impose accounting requirements under certain government contracts; and · laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data |
| Moreover, we are subject to industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against foreigners’ access to classified information |
| If we were to come under foreign ownership, control or influence, our federal government customers could terminate or decide not to renew our contracts, and it could impair our ability to obtain new contracts |
| We may not be able to implement our business plan effectively because the industries in which we operate are subject to fluctuations and other factors that are difficult to forecast |
| Our operating results may vary substantially due to factors that are difficult to forecast |
| Factors such as announcements of technological innovations or new products by us or our competitors, domestic and foreign general economic conditions and the cyclical nature of the industries that we serve could cause substantial variations in our operating results |
| The aerospace and defense, semiconductor capital equipment, high-performance graphic art, medical imaging capital equipment and industrial automation OEM and MRO industries, each of which represents a significant market for our products, have historically been subject to substantial economic fluctuations due to changing demands for their products and services, introduction of new products and product obsolescence |
| Any future fluctuations arising from these or other conditions could have a materially adverse impact on our business, financial condition and results of operations |
| We have experienced, and expect to continue to experience, significant fluctuations in our quarterly and annual operating results due to a variety of factors, including: · market acceptance of new and enhanced versions of our products; · timing and shipment of significant orders; · mix of products sold; 15 ______________________________________________________________________ · length of sales cycles; · plant openings and closings; · the timing of acquisitions or dispositions; · delays in raw materials shipments, as well as other manufacturing delays and disruptions; · completion of large projects; · the level of backlog of orders; · domestic and foreign general economic conditions; and · demand in the markets that we serve |
| To some extent, primarily in our bearing distribution division, our net sales and operating results for a specific quarter will depend upon generating orders to be shipped in the same quarter in which the order is received |
| The failure to receive anticipated orders or delays in shipments near the end of a particular quarter, due, for example, to unanticipated rescheduling or cancellations of shipments by our customers or unexpected manufacturing difficulties, may cause our net sales in a particular quarter to fall significantly below expectations, which could have a materially adverse effect on our business, financial condition and results of operations for such quarter |
| If we are unable to adapt to technological change, demand for our products may be reduced |
| The rapid pace of technological change will require continuous new product development |
| Our success will continue to depend in substantial part upon our ability to introduce new products that keep pace with technological developments and evolving industry standards and to apply appropriate levels of engineering, research and development resources necessary to keep pace with these developments |
| In addition, our success will depend on how well we respond to changes in customer requirements and achieve market acceptance for our products and capabilities |
| Any failure by us to anticipate or respond adequately to technological developments and customer requirements could have a materially adverse effect on our business, financial condition and results of operations |
| In order to develop new products successfully, we are dependent upon close relationships with our customers and their willingness to share proprietary information about their requirements and participate in collaborative efforts with us |
| We cannot assure you that our customers will continue to provide us with timely access to information or that we will be successful in developing and marketing new products and services or their enhancements |
| In addition, we cannot assure you that the new products and services or their enhancements, if any, that we develop will achieve market acceptance |
| We operate in highly competitive markets with competitors who may have greater resources than we possess, which could reduce the volume of products we can sell and our operating margins |
| Our markets are extremely competitive |
| We compete primarily on the basis of our ability to design and engineer our products to meet performance specifications set by our customers, most of whom are OEMs who purchase component parts or sub-systems for inclusion in their end products |
| Product pricing and quality, customer support, experience, reputation and financial stability are also important competitive factors |
| There are a limited number of competitors in each of the markets for the various types of precision optical and positioning products that we sell |
| Our competitors, especially those in the precision optical and positioning product lines, are typically focused on a smaller number of product offerings than we are, and they are often well entrenched |
| Some of our competitors have substantially greater resources than we do |
| Our competitors could develop enhancements to or future generations of competitive products that will 16 ______________________________________________________________________ offer superior price or performance features to ours |
| In addition, new processes or technologies could emerge that render our products less competitive or obsolete |
| In addition, a substantial investment is required by an existing or potential customer to integrate components and sub-systems into their product design |
| We believe that once a customer has selected particular components or sub-systems from one vendor, the customer generally relies upon that vendor to provide equipment for the specific product application and may seek to rely upon that vendor to meet other component or sub-system requirements |
| Accordingly, we may be at a competitive disadvantage with respect to a prospective customer that chooses to utilize a competitor’s components or sub-systems |
| Further, there are numerous competitors in markets to which we distribute precision ball bearings |
| Our competitors, who vary in size, include other ball bearings distributors as well as ball bearings manufacturers |
| The basis of competition in the industries in which we compete could shift and we may not be able to compete successfully |
| Our backlog is subject to reduction and cancellation |
| Backlog represents products or services that our customers have committed by contract to purchase from us |
| Our backlog as of December 31, 2005 was dlra112dtta7 million |
| Our backlog is subject to fluctuations and is not necessarily indicative of future sales |
| Moreover, cancellations of purchase orders or reductions of product quantities in existing contracts could materially reduce our backlog and, consequently, future revenues |
| Our failure to replace canceled or reduced backlog could result in lower revenues |
| We operate internationally, which exposes us to the risks of doing business abroad |
| Our levels of international sales and purchases could pose risks to our operating results |
| In addition, our products are sold to domestic customers who use them in products that they sell into international markets |
| Also, we purchase a substantial portion of our ball bearing products from two foreign suppliers and certain other products from other foreign suppliers |
| Our international sales and purchases are subject to a number of risks generally associated with international operations, including the following: · general economic conditions; · import and export duties and restrictions; · currency fluctuations; · changes in regulatory requirements; · the imposition of tariffs and other barriers; · political and economic instability; · potentially adverse income tax consequences; · transportation delays and interruptions; · labor unrest and current and changing regulatory environments; · our ability to comply with regulations governing foreign government contracts; · difficulties in staffing and managing multi-national operations; and · limitations on our ability to enforce legal rights and remedies |
| 17 ______________________________________________________________________ Any of these factors could have a materially adverse effect on our business, financial condition and results of operations |
| We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject |
| We also cannot assure you that these laws will not be modified |
| Our sales growth and earnings may be reduced if we cannot implement our acquisition strategy |
| We may not be able to successfully manage acquisitions |
| As part of our business development strategy, we plan to pursue acquisitions in order to expand our product offerings, add to or enhance our base of technical and sales personnel or provide desirable customer relationships |
| This growth could result in a significant strain on our managerial, financial, engineering and other resources |
| The rate of our future expansion, if any, in combination with the complexity of the technologies involved in our businesses, may demand an unusually high level of managerial effectiveness in anticipating, planning, coordinating and meeting our operational needs as well as the needs of our customers |
| We may not successfully acquire the most complementary businesses |
| We cannot assure you that we will be able to acquire complementary businesses on a cost-effective basis, integrate acquired operations into our organization effectively, retain and motivate key personnel, or retain customers of acquired firms |
| We compete for attractive acquisition candidates with other companies or investors, and that competition could increase the cost of pursuing our acquisition strategy or reduce the number of attractive candidates to be acquired |
| We may be unable to integrate our acquired companies successfully |
| If we fail to integrate acquired businesses successfully, especially the recently acquired DiOP, or to manage our growth, that failure could have a materially adverse effect on our business, financial condition and results of operations |
| Further, there can be no assurance that we will be able to maintain or enhance the profitability of DiOP or any other acquired business or consolidate operations to achieve cost savings |
| In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on each company or business we have already acquired or may acquire in the future |
| Such liabilities could include those arising from employee benefits contribution obligations of a prior owner or non-compliance with applicable federal, state or local environmental requirements by prior owners for which we, as a successor owner, may be responsible |
| In addition, there may be additional costs relating to acquisitions including, but not limited to, possible purchase price adjustments |
| We cannot assure you that rights to indemnification by sellers of assets to us, even if obtained, will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired |
| Any such liabilities, individually or in the aggregate, could have a materially adverse effect on our business, financial condition and results of operations |
| We may experience production delays if suppliers fail to deliver materials to us |
| A significant portion of our precision machining business depends on the adequate supply of specialty metals, such as beryllium, at competitive prices and on reasonable terms |
| We currently procure all of our beryllium from Brush Wellman, Inc, or Brush Wellman, the sole US supplier, and expect to continue to rely on Brush Wellman for beryllium for the foreseeable future |
| Although we have not experienced significant problems with our supplier in the past, we cannot assure you that such relationship will continue or that we will continue to obtain such supplies at cost levels that would not adversely affect our gross profit |
| The partial or complete loss of Brush Wellman as a supplier of beryllium, or production shortfalls or interruptions that otherwise impair our supply of beryllium, could have a materially adverse effect on our business, financial condition 18 ______________________________________________________________________ and results of operations |
| It is uncertain whether alternative sources of supply could be developed without a material disruption in our ability to provide beryllium products to our customers |
| In addition, we purchase a substantial amount of the ball bearings that we distribute from two foreign suppliers |
| Although we have not experienced significant problems with our other suppliers in the past, we cannot assure you that such relationships will continue or that, in the event of the termination of one or more of our relationships with those other suppliers, we would be able to obtain alternative sources of supply without a material disruption in our ability to provide products to our customers |
| Any material disruption in our supply of products could have a materially adverse effect on our business, financial condition and results of operations |
| Our future growth and continued success are dependent on our key personnel |
| Our success depends to a significant extent on the continued services of our key executive officers and senior management personnel |
| The loss of the services of one or more of these individuals could have a materially adverse effect on our business, financial condition and results of operations |
| We do not maintain key man life insurance on our executive officers |
| In addition, since our continued success is largely dependent upon our ability to design, manufacture and sell high-performance solutions for the high-performance technology market, we are particularly dependent upon our ability to identify, attract, motivate and retain qualified technical personnel, including engineers and skilled machinists, with the requisite educational background and industry experience |
| Our employees may voluntarily terminate their employment with us at any time, and competition for personnel is intense |
| Accordingly, we cannot assure that we will be successful in retaining our existing personnel |
| The loss of the services of a significant number of our technical or skilled personnel, or the future inability to attract technical or skilled personnel, could have a materially adverse effect on our business, financial condition and results of operations |
| Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand |
| We must protect our intellectual property rights |
| Our ability to compete effectively with other companies will depend, in part, on our ability to maintain the proprietary nature of our technology |
| We rely upon a combination of patents, trademarks and trade secrets, non-disclosure agreements and other forms of intellectual property protection to safeguard our proprietary technology |
| We cannot assure you as to the degree of protection offered by these patents |
| We also cannot assure you that we will be able to maintain the confidentiality of our trade secrets or that our non-disclosure agreements will provide meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information |
| The patents of competitors could impact our business |
| Competitors in the United States and foreign countries, many of which have substantially greater resources than we do and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or interfere with our ability to make and sell some of our products |
| Although we believe that our existing products do not infringe on the patents or other proprietary rights of third parties, third parties could assert infringement claims against us and such claims could be successful |
| In addition, we do not have the right to prohibit the US government from using certain technologies developed by us or to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the US government |
| The US government has the right to royalty-free use of technologies that we have developed under US government contracts |
| We are free 19 ______________________________________________________________________ to commercially exploit those government-funded technologies and may assert our intellectual property rights to seek to block other non-government users thereof, but we cannot assure you that we could successfully do so |
| We are subject to significant environmental, health and safety laws and regulations and related compliance expenditures and liabilities |
| We are subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous substances and wastes used or generated during our engineering, research and development and manufacturing activities |
| Failure to comply with applicable environmental requirements could result in substantial liability to us, including civil or criminal penalties, suspension or cessation of our operations, restrictions on our ability to expand our operations or requirements for the acquisition of additional equipment or other significant expense, any of which could have a materially adverse effect on our business, financial condition and results of operations |
| In addition, environmental laws also impose obligations and liability for the cleanup of properties affected by hazardous substance spills or releases |
| These liabilities can be imposed on the parties generating or disposing of such substances or on the owner or operator of the affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances |
| Accordingly, we may become liable, either contractually or by operation of law, for remediation costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties |
| We cannot assure you (1) that changes in federal, state or local laws, regulations or regulatory policy, or the discovery of unknown problems or conditions, will not in the future require substantial expenditures or (2) as to the extent of our liabilities, if any, for past failures, if any, to comply with applicable environmental laws, regulations and permits, any of which also could have a materially adverse effect on our business, financial condition and results of operations |
| We have made and continue to make investments in protective equipment, process controls, manufacturing procedures and training in order to minimize the risks to our employees, surrounding communities and the environment due to the presence and handling of hazardous materials |
| The failure to properly handle these materials could lead to harmful exposure for employees or to the discharge of certain hazardous waste materials |
| Since we do not carry environmental impairment insurance, such a failure could have a materially adverse effect on our business, financial condition and results of operations |
| As a result of processing beryllium, we are subject to liability and compliance costs |
| The processing of beryllium, one of the materials used in some of our products, may result in the release of beryllium into the workplace and the environment and in the creation of beryllium oxide as a by-product |
| Beryllium is classified as a hazardous air pollutant, a toxic substance and a hazardous substance under environmental, safety and health laws and regulations |
| Various acute and chronic health effects may result from exposure to beryllium, including the development of a chronic lung disease known as chronic beryllium disease, or CBD Because of the health risks associated with beryllium, we may be subject to product liability claims and third-party lawsuits and increased levels of scrutiny from federal, state, foreign and international regulatory authorities |
| Concerns over CBD and other potential adverse health effects relating to beryllium, as well as concerns regarding potential liability from the use of beryllium, may discourage our customers’ use of our beryllium-containing products and significantly reduce demand for our products |
| In addition, we are required to comply with certain regulatory requirements to process beryllium |
| In response to these regulatory requirements, we have incurred, and continue to incur, costs for employee training as well as monitoring and protective equipment |
| Any future changes in these regulatory requirements may increase our cost of compliance, which could have a materially adverse effect on our business, financial condition and results of operations |
| 20 ______________________________________________________________________ If we are unable to maintain and upgrade our manufacturing capabilities, our ability to compete could be materially and adversely impacted |
| We must continue to invest significant resources to maintain and upgrade our manufacturing capabilities |
| We have invested, and intend to continue to invest, in state-of-the-art equipment in order to increase, expand, update or relocate our manufacturing capabilities and facilities |
| Changes in technology or sales growth beyond currently established manufacturing capabilities would require that we make further investment |
| We cannot assure you that we will generate sufficient funds from operations to finance any required investment or that other sources of funding will be available on terms acceptable to us, if at all |
| In addition, any further expansion could have a materially adverse effect on our business, financial condition and results of operations |
| Failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract may reduce our profit or cause a loss |
| Substantially all of our net sales for 2005 were derived from firm fixed-price contracts, which require us to perform services under a contract at a stipulated price |
| Failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract will reduce our profit or cause a loss |
| Although we believe that adequate provision for our costs of performance is reflected in our financial statements, we can give no assurance that this provision is adequate or that losses on firm fixed-price contracts will not occur in the future |
| We are dependent in part upon our relationships and strategic alliances with industry participants in order to generate revenue |
| We rely on the strength of our relationships with military industry organizations to form strategic alliances |
| If any of our existing relationships with our strategic partners were impaired or terminated, we could experience significant delays in the development of our new products ourselves and we would incur additional development costs |
| We would need to fund the development of our new products internally or identify new strategic partners |
| Some of our likely partners are also potential competitors, which may impair the viability of new strategic relationships |
| While we must compete effectively in the marketplace, our future alliances may depend on our strategic partners’ perception of us |
| As a result, our ability to win new and/or follow-on contracts may be dependent upon our relationships within the military industry |
| Restrictive covenants under our credit facility may reduce our operating and financial flexibility |
| Our credit facility requires us to maintain compliance with certain covenants, including covenants regarding minimum EBITDA, a minimum fixed charge coverage ratio and a maximum leverage ratio |
| Our ability to comply with these covenants may be affected by events beyond our control |
| Our inability to comply with the required financial covenants could result in a default under our credit facility |
| In the event of any such default, the lenders under our credit facility could elect to declare all outstanding debt, accrued interest and fees under the facility to be due and immediately payable |
| If we are unable to repay any of this debt when due, the lenders under our credit facility could foreclose on our assets pledged to them as security |
| If the indebtedness under our credit facility were to be accelerated, our assets may not be sufficient to repay such indebtedness in full |
| A portion of our business is dependent upon obtaining and maintaining required security clearances |
| Some of our federal government contracts require our employees to maintain various levels of security clearances, and at three of our manufacturing facilities, we are required to maintain certain facility security 21 ______________________________________________________________________ clearances complying with federal government requirements |
| Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances |
| If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us, any customer whose work requires cleared employees could terminate its contract or decide not to renew its contract upon its expiration |
| In addition, we expect that some of the contracts on which we will bid will require us to demonstrate our ability to obtain facility security clearances and perform work with employees who hold specified types of security clearances |
| To the extent we are not able to obtain facility security clearances or engage employees with the required security clearances for a particular contract, we may not be able to bid on or win new contracts, or effectively re-compete on expiring contracts |
| Our employees may engage in misconduct or other improper activities |
| We are exposed to the risk that employee fraud or other misconduct could occur |
| Misconduct by employees could include intentional failures to comply with federal government procurement regulations and failing to disclose unauthorized activities to us |
| Employee misconduct could also involve the improper use of our customers’ sensitive or classified information, which could result in regulatory sanctions and serious harm to our reputation |
| It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses |
| The concentration of our common stock ownership with our Chairman of the Board and Chief Executive Officer may limit our ability to influence corporate matters |
| Our Chairman of the Board and Chief Executive Officer beneficially owned approximately 18dtta3prca of the common stock outstanding as of December 31, 2005 |
| As a result, he will have the ability to exert influence with respect to corporate actions, including the election of directors and certain sales or mergers and acquisitions |
| In addition, the interests of our Chairman of the Board and Chief Executive Officer may conflict with the interests of the other holders of our common stock |
| Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable |
| Certain anti-takeover provisions could cause harm to our stockholders |
| Our Restated Certificate of Incorporation, as amended, our By-Laws and the General Corporation Law of the State of Delaware, which we refer to as DGCL, contain various provisions which could delay or impede the removal of incumbent directors and could make a merger, tender offer or proxy contest involving us more difficult, even if such a transaction would be beneficial to the interests of the stockholders, or could discourage a third party from attempting to acquire control of us |
| We have authorized 4cmam000cmam000 shares of our preferred stock, none of which is currently outstanding, and which we could issue without further stockholder approval and upon terms and conditions, and having rights, privileges and preferences, as the Board of Directors may determine |
| We have no current plans to issue any preferred stock |
| Our By-Laws include provisions establishing advance notice procedures with respect to stockholder proposals and director nominations, and permitting the calling of special stockholder meetings only by the written consent of three-quarters of the Board of Directors or the Chairman of the Board |
| Our Restated Certificate of Incorporation provides that in lieu of a meeting, action may be taken by written consent of our stockholders only by unanimous consent |
| These provisions could have the effect of delaying, deterring or preventing a change in control of Axsys, and may adversely affect the voting and other rights of holders of common stock |
| 22 ______________________________________________________________________ In addition, we are subject to section 203 of the DGCL, which, among other things and subject to various exceptions, restricts certain business transactions between a corporation and a stockholder owning 15prca or more of the corporation’s outstanding voting stock, which we refer to as an interested stockholder in this prospectus, for a period of three years from the date the stockholder becomes an interested stockholder |
| These provisions may have the effect of delaying or preventing a change of control of Axsys without action by the stockholders and, therefore, could adversely affect the price of our common stock |
| In the event of a change of control of Axsys, the vesting of outstanding options issued under our stock incentive plan may be accelerated at the discretion of the committee administering the plan or may be required to be accelerated under certain circumstances provided for in incentive agreements |